Good morning and thank you for joining us today for Select Medical Holdings Corporation's Earnings Conference Call to discuss the Third Quarter 2022 Results and the Company's Business Outlook. Speaking today are the company's Executive Chairman and Co-Founder, Robert Ortenzio and the company's Executive Vice President and Chief Financial Officer Martin Jackson. 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 call over to Mr. Robert Ortenzio.

Thank you, operator. Good morning everyone. Welcome to Select Medical's earnings call for the third quarter of 2022. Before I give some detail on each of our divisions, I'd like to provide some overall commentary on the quarter. This quarter we have continued to focus on recruitment training and retention of personnel throughout the organization and most specifically on the critical illness recovery hospital divisions. These efforts have been successful as we set the stage for future performance. I'd like to commend our entire team as they continue to meet the challenges head on while raising remaining committed to providing exceptional patient employee experience. Throughout 2022, our diversification has provided us the opportunity to offset difficulties we may have encountered in particular line of business. We couldn't be more pleased with the performance of both our inpatient rehab hospital and Concentra divisions this quarter. The inpatient rehab division exceeded prior year revenue, occupancy, and adjusted EBITDA. We recently announced the expansion of our partnership with UPMC to open a 35-bed freestanding rehab hospital in central Pennsylvania with targeted 2023 opening. The development pipeline for inpatient rehab division is strong and the division is poised for continued success. Concentra's volume continues to grow and they have consistently exceeded expectations. This quarter Concentra opened one de novo clinic in Waukesha, Wisconsin and signed four leases for additional de novo clinics. Three are expected to open by year end with one located in Wisconsin and two in Lehigh Valley, Pennsylvania. The fourth de novo in Columbus Ohio will open in 2023. On the acquisition front, agreement has been signed to acquire a clinic in Tulsa, Oklahoma which is set to close by the end of the year. There continues to be a healthy pipeline for potential future de novo and acquisition targets on the horizon. We expect Concentra's strong performance to continue in Q4 and as we head into 2023. Our outpatient division surpassed prior year revenue with an increase in both volume and rate. Staffing and COVID leaves presented challenges this quarter. It did improve as the quarter progressed. This positive trends have continued into the month of October. In Q3, we expanded our clinic count by 13 via acquisitions and de novo growth. Looking forward to the remainder of the year, we have leases executed for 17 de novo clinics. The outpatient division continues to have a strong pipeline of potential de novo and acquisitions. With the progress made in Q3 along with the continued improvement in October, we are confident the outpatient division will be in good shape heading into 2023. The critical illness recovery hospital division faced staffing headwinds in this quarter that continue to make strides reducing RN agency rates and utilization. We've also continued to be successful hiring full time RN nurses while improving retention. We are cautiously optimistic that as we continue to onboard full time clinical staff our cost structure will stabilize heading into 2023. Similar to last quarter, Martin Jackson will provide additional granular data on the direction of the critical illness recovery hospitals labor expenses. Overall, we experienced revenue growth in the quarter with an increase of 2.2% over the prior year. The impact of the full reimplementation of sequestration was a $9 million headwind when comparing Q3 to prior year same quarter. For the quarter, the total company adjusted EBITDA was $153.1 million compared to $208.6 million in the prior year. Our consolidated adjusted EBITDA margin was 9.8% for Q3 compared to 13.6% prior year. CARES Act grant income was recognized in Q3 of this year as well as Q3 of prior year. This quarter we recognized $8.1 million of grant income versus 1.7 million prior year. At this point, I'll provide some further data points as commentary on each of our operating divisions. Our critical illness recovery hospital divisions patient days are 2% higher than prior year, however, we experienced a drop of 1% in net revenue due to a decline in our revenue per patient day. The full reimplementation of sequestration, lower case mix index and an increase in threshold days contributed to the decrease in revenue rate. Occupancy decreased to 67% from 68% compared to prior quarter. Many of our referral short-term acute care hospitals continued to experience lower volumes in their ICUs compared to prior year specifically vent patients, which contributed to both our drop in case mix index and occupancy. In the month of October, we've seen improvements in volume, acuity and threshold days. We still fully expect that when ICU volumes of our short-term acute care hospital referring hospitals increase we will see these patients within our hospitals. Adjusted EBITDA margin for the critical illness was 2% for the quarter compared to 11% the prior year as our SWB to revenue ratio increased by 14%. An increase in indirect labor, which is comprised of orientation, education, incentive bonus, sign-on-bonus and administrative support was the main driver for the increase in labor. Orientation hours for RNs increased by 53% over prior year overall bonus expense increased by 40% and hospital administrative costs increased by 18%. Nursing agency rates and utilization are continuing to decline and are lower than prior year Q3. We saw a reduction of 16% in RN agency rates and a 27% reduction in RN agency utilization from prior year Q3. On the development front, we've signed agreements with JV partners to open three hospitals located in Jackson, Tennessee; Tucson, Arizona and Alexandria, Virginia. We also plan to open a fourth hospital, which will be a satellite current Toledo, Ohio hospital. All are expected to open in 2023. Our inpatient rehabilitation hospital division experienced an increase of 8% in that revenue with patient volumes increasing by 6%. Occupancy increased to 85% compared to prior year which was 82%. Revenue per patient day increased $50 from $1,881 to $1,931. Adjusted EBITDA margin for the inpatient rehab was 21.7% for Q3 compared to 20.7% the prior year. Inpatient rehabilitation hospitals experienced a reduction in agent expense compared to prior year and overall SWB to revenue ratio increased by 1% from prior year. RN nursing agency usage levels increase from prior year, but we've seen an improvement compared to the first half of this year along with improvement each month throughout the third quarter. The agency rates for RNs and the rehab division decreased by 38% from prior year and 22% from Q2. As previously noted, we announced that we are partnering with UPMC to open a 35 bed freestanding rehab hospital in Central Pennsylvania with a targeted 2023 opening. Concentra had another strong quarter with revenue increasing over prior year in spite of declining demand for COVID-related testing and evaluation services. Last year, the services generated $21 million in revenue and $11 million in adjusted EBITDA compared to $3 million in revenue and $1 million in adjusted EBITDA in Q3 of this year. The revenue decline from COVID testing services was offset by positive performance in our standards. Center patient volume increased by 2% and consensus overall net revenue per visit increased by 3% to $128. Our adjusted EBITDA margin for Concentra was 20.2% for Q3, compared to 22.6% in the prior year. The results in Q3 of prior year included $1.6 million in CARES grant income. Concentra experienced less than a 1% increase in the SWB to revenue ratio from prior year Q3 and remain consistent with Q2. As previously highlighted, Concentra has a strong pipeline for development opportunities. Our outpatient rehabilitation hospital division experienced a 4% increase in net revenue, with patient volumes increasing by 3% compared to same quarter prior year. Net revenue per visit increased to $103 from $102 prior year in spite of a 3% decline in Medicare reimbursement rates. Adjusted EBITDA decreased compared to prior year with a decrease in margin to 9% from 14%. The decline in adjusted EBITDA margin is primarily due to a 5% increase in salary, wage and benefit to revenue ratio and a 14% increase in other operating expenses to revenue ratio compared to same quarter prior year. The increase in SW&B to revenue ratio compared to prior year is attributable to staffing challenges related to the number of employees on COVID lead, which resulted in decreased clinical productivity. As noted previously, we've continued to see improvement in these areas as Q3 progress and through October. The increase in our other operating expenses primarily comprised of an investment in our outpatient EMR system and minor equipment. The outpatient division continues to have a robust pipeline of potential de novo and acquisition opportunities. Earnings for fully diluted share were $0.21 for the third quarter, compared to $0.57 per share in the same quarter prior year. In regards to our allocation and deployment of capital, our board of directors declared a cash dividend of $12.50 payable on November 29 to stockholders of record at the close of business on November 16. This past quarter, we bought back 315,762 shares of stock at an average share price of $23.70. We will continue to be opportunistic and evaluate stock repurchases, reduction of debt and development opportunities. This concludes my remarks. With that, I'll turn it over to Martin Jackson for some additional financial details, before we open the call up for questions.

Great. Thank you, Bob, and good morning, everyone. I would first like to provide some additional detail regarding our labor costs, within the critical illness recovery hospitals division. As in the prior quarter, we've seen a significant sequential reduction from Q2 of '22 to Q3 of '22 on agency rates, utilization and total agency expenses. We realized a 22% reduction in agency rates during the period from $111 an hour to $86 an hour. We saw a 33% drop in agency utilization from 32.9% to 21.9%. And a 51% reduction in agency costs from $56.4 million, down to $29.7 million. Also, consistent with prior quarter, we continue to see significant reductions of these categories within the third quarter. We saw a reduction from July to September of 11% on the rate from $93 to $83, a 12% reduction on the agency utilization from 23.4% to 20.5%, and a 21% reduction for overall agency expense from $11.2 million to $8.8 million. Well, we have seen significant improvement in our direct RN agency costs, we have continued to experience elevated costs in orientation and instead of a sign on bonuses as we hire nurses to replace agency. We expect orientation and bonus costs to start returning to normalized levels in Q1 '23, taking into account the appropriate amount of training time to onboard nurses which is approximately seven to eight weeks. In other areas of opportunity we have our hospital administrative costs, which are fixed. During the pandemic, our focus was providing all the necessary resources needed to care for our patients. Now that we're coming out of the other side of the pandemic, there appears to be some opportunities to reduce administrative costs at the hospital level. With the continued improvements in our indirect labor costs along with the anticipated reductions in orientation, education, incentive bonuses, administrative fixed costs and increased revenue we are confident that our SW&B to revenue ratio should be in the 55% to 57% range in Q1 of 2023. Moving on to our financials in Q3 equity and earnings of unconsolidated subsidiaries were $8.1 million. This compares to $11.5 million in the same quarter last year. The decline in earnings was primarily the result of recording CARES grant income in Q3 of the prior year in our unconsolidated joint ventures. Net income attributable to non-controlling interest was $11 million as compared to $23.3 million in the same quarter last year. This decrease is primarily due to the purchase of membership interest in Concentra in Q4 of 2021, which we now own 100% of the voting interest. Interest expense was $45.2 million in the third quarter. This compares to $33.8 million in the same quarter last year. The increase in interest expense was primarily attributable to an increase in one month LIBOR rate, compared to Q3 of 2021, as well as borrowings made under our revolving credit facility. The LIBOR rate on $2 billion of our term loan is capped at 1%. This is through September 30, 2024, which provides us a level of protection and predictability moving forward in the current interest rate environment. At the end of the quarter, we had $3.8 billion of debt outstanding and $108.2 million of cash on the balance sheet. Our debt balance at the end of the quarter was $2.1 billion in term loans, $380 million in revolving loans, $1.225 billion in 6.25% senior notes and $84.2 million of other miscellaneous debt. We ended the quarter with net leverage for our senior secured credit agreement of 5.9 times. As of September 30th, we had $213.5 million of availability on our revolving loans. For the third quarter operating activities provided $94.3 million in cash flow of which $5.5 million was recouped in the quarter related to the repayment of Medicare advances. At the end of September there was less than $1 million to be repaid on the original $325 million Medicare advantage we received. Day sales outstanding was 53 days at September 30, 2022 is compared to 53 days to June 30, 2022 and 52 days at the end of 2021. Investing activities used $55 million of cash in the third quarter this includes $41.9 million in purchases of property and equipment and $13.1 million in acquisition and investment activity during the quarter. Financing activities used $25.7 million of cash for the third quarter. This was primarily due to the common share repurchases, totaling $15 million, dividends on our common stock at $15.9 million and $22 million in distributions to non-controlling interests. These were offset in part by $30 million in net borrowings on a revolving line of credit. We have capacity to purchase an additional $400 million dollars of shares under the program, which remains in effect until December 31, 2023 unless further extended or earlier terminated by the Board. We are reaffirming our revenue outlook for the year and expect revenue to be in the range of $6.25 billion to $6.4 billion for 2022. We are also reaffirming our previously issued three-year compounded annual growth rate target for revenue to be in the 46% range. We still expect capital expenditures to be in the range of $180 million to $200 million for the year and as stated last quarter, we will readdress our business outlook and target growth rates for adjusted EBITDA and earnings per share when we believe the labor market has stabilized and are predictable. This concludes our prepared remarks. And at this time, we would like to turn it back over to the operator to open up the call for questions.

[Operator Instructions] Our first question will come from Justin Bowers with Deutsche Bank. You may proceed

Hi Good morning, everyone. Marty, just in Bob you laid out a pretty substantial year-over-year increase in bonuses and indirect costs and admin costs in the LTACH segment and the kind of the labor environment was running a little high then as well. Just trying to get a sense, of where the opportunity is. In addition, obviously, you have the agency labor that's under pretty decent control levels at this point. But in terms of, helping us bridge from Q3 and Q4 to Q1 to that 55 to 57 target rate is it the kind of the assumption that you'd be able to go back to the Q3 2021 levels or you know are you able to maybe, bring a little more savings on some of those increased indirect costs that you've been having, and at a high level is there any way to help us to help quantify kind of where the opportunity is, on maybe a quarterly or annual basis?

Yeah, Justin. great question. I think the way to take a look at it is obviously, we went through a once in a lifetime issue with the nursing costs, the costs were rose very significantly and I think to get back to the norm we basically, utilize three pools of nurses, we take a look at our full time nurses our PRN and agency nurses. Historically, what you've seen is direct RN nursing hours for full time was about 70%, for PRN was about 15 to 16% and agency made up the difference. What we saw during in particular the latter part of last year, and the first two quarters of this year, was significant increases in the dollars paid to travel nurses. And so those nurses in essence left the full-time workforce to go trap. So we saw as I mentioned, 70% on a full-time basis 66% to 70% on a full-time basis. We saw that go well under 50%, as rates went from historically $72 to $78 an hour, to in January of this year $151 an hour. Those rates as I mentioned on the call, are now down for us are now down to $83 an hour. So what we're seeing, are nurses leaving the travel area, and moving back to full-time. And as they move back to full-time, we're hiring them. We're hiring -- I mean I think if you take a look at year-to-date, between 2021 and 2022, we've hired 70% more nurses. So as we see it that really is an investment, in the future and getting back to that full-time percentage of 66% to 70%. I think the other way, to think about it is during this period of time, we in essence have -- we're paying to our end for 1 R FTE. So we're training nurses. It typically, takes about two months to do that. We're also having agency nurses take care of the patients. So, once they go through training those nurses will replace the agency nurses and you'll see the costs come down significantly -- so I'll leave it at that and see if you have any follow-up questions.

I guess one of the just to oversimplify things, it would be one way to think about it would be all right. So if you're hiring and I'm just going to put out round numbers out there, if you're hiring 300 nurses in a given quarter, they're not necessarily going to be productive, during that period because of the training cost -- the training that you mentioned, and effectively you can think of those 300 as being part of that double nurses that you're carrying during the quarter, is that -- is that sort of the correct interpretation? And then the follow-up there would be just, on the overall -- on the base wages, some of your peers are seeing pressure there as well and you've talked about kind of what their underlying rates are? Where have you guys been in terms of the base, for this year or over the pandemic? And then going forward, what's kind of like the underlying inflation there? That would be helpful.

Yeah. As far as the base salary for our full-time employees, what we've seen over the past two years is about a 10% increase. So, and then, we've actually supplemented that with incentive bonuses, but what we're looking at is an annual increase in that 5% range customer, Justin.

Okay. That's helpful. And just one quick one. Can you -- go ahead.

No. You had mentioned the – assuming the $300 million was the number is much higher than that. But in essence those are – they're not just inefficient. I mean, they're basically being trained, so they're not in the direct workforce at all. So again, getting back to that – the thought that in essence we have two full-time nurses for one full-time position.

Understood. And then the – I think that's where people are having difficulty bridging the gap, and not seeing the flow through from the increased agency savings? And then just on the new facilities that you guys have coming online, what's kind of the phasing for the LTACH roughly?

For the – you're talking about for the four new critical illness hospitals that we have that I mentioned in my comments?

Yeah, yeah.

Yeah. They come – I think – I think we have them as coming throughout the year probably Q2 through the end of the year.

Okay. Appreciate it. I’ll hop back in queue.

Thank you. Our next question comes from Kevin Fischbeck with Bank of America. You may proceed.

This is Joanna Gajuk, filling in for Kevin. Thanks for taking the question here. So just to follow up on the – one of the last comments around the wage increases. You said experienced about an average 5% annual in the last two years. So as we look forward, do you expect a similar increases to continue at least into next year, or are you expecting something different?

Yeah. I mean, for us, Joanna, it really is – it depends what's going on in the marketplace. We could certainly see a 5% that the economy is high, if there's a recession. That's normally time frames where we see the rates really moderate. So if you take a look at where we were in 2008, 2009 we literally saw increases in that 1% range through that period of time through 2014. So we think, if there is a recession that will certainly be a benefit to additional supply of nurses in the market, therefore, moderating the base rate.

Yeah. I think that's an important point that Marty makes. I mean, there is some uncertainty around – even though we're seeing a downturn in the economy, as most of you know, the labor market still remains pretty – pretty robust. And I think that, there is some expectation around that softening as well as the Fed continues to be aggressive. So, we'll see. There are some people who feel that, this economy and inflation is not going to come under control until, we start seeing unemployment tick up a little bit. If that's the case that will actually be a benefit for us in terms of labor at our hospitals. Because as you know and particularly in nursing, they nurses, there are a lot of people with nursing licenses and they can come off the sidelines pretty quickly and add to your labor force and particularly in PRN or some -- taking some shifts which can really quickly assist with the ability to bring them on.

Exactly. And I guess also on the flip side in terms of pricing outlook. So can you talk about that by your segments is we have the redevelop for the critical in hospitals, but also can you talk about the commercial payers and their positiveness I guess to the labor pressure what rate increases specifically, if you can give us ranges you expect going into next year and after that? And I guess in other segments any color there in terms of the IRF or Concentra and outpatient processing outlook? Thank you.

Sure, Joanna. As you know on the Medicare side that's basically fixed and that's primarily on the inpatient side. And there's typically about an 18- to 24-month lag on that. With regards to commercial, as you might expect, it's hand-to-hand combat. We're always we're looking for high single-digit rate increases just like CPI. And we've been moderately successful at achieving that in a number of cases, but we still have a long way to go.

And also I guess on that from the pricing commentary in your IRF segment are your relationships in your joint ventures? Are those helping at all with rates? Thank you.

I'd say very much so. On the -- I mean Marty's comments on the negotiation for the commercial rates on the critical illness side really are it's different when you look at different segments and pockets of our geographic scope. But I think on the IRF side because most of our hospitals are partnered with large systems. We have much more pricing power there than we do probably on the critical on the side.

Great. Thank you for the color.

Thank you. Our next question comes from Ben Hendrix with RBC Capital Markets. You may proceed.

Thank you very much. Could you talk a little bit more about capital allocation priorities and how you're balancing your de Novo and M&A opportunities versus the returning capital to shareholders and then also debt pay down kind of considering where leverage is. Can maybe how those priorities have evolved and how you believe they will kind of evolve into next year? Thanks.

Well, first of all, we think that the Board declaring the dividend for this quarter I think you can expect that to continue. I think we're committed to that. The -- we made a point of calling out some of the de Novo and acquisition opportunities at both Concentra and outpatient I think that we'll continue to allocate capital in that area because frankly the valuations are very compelling and the nominal dollars are just frankly not that high. Where we tend to have bigger capital allocation is when we build new rehab hospitals, but with really strong partners that will continue to be a priority. If we can do a hospital with a strong partner or add a hospital in one of our joint venture markets. That's something that I think you could expect us to do. I think the thing that would be a much lower priority would be any acquisitions of size. I wouldn't expect over the next year to see the company really take on anything that's of significant capital requirement for a larger acquisition inside any of the four divisions for right now. I mean we have the labor to focus on bringing EBITDA back to hit some of our 2023 goals. So that's how we would generally I think about how you think about capital allocation. Marty, do you want to add anything to that?

Sure. I think the other thing Ben is when you take a look at paying down debt, the only area I think we'd be focused on is paying down the revolver. The other -- our other debt obligations are senior notes and our term loan right now we're pretty well protected by the cap through September 24. That rate is on the $2.1 billion that rate is maximum is 3.5%. So from that perspective we will certainly keep that in place.

Thanks, guys.

Thank you. One moment for questions. Our next question comes from Bill Sutherland with The Benchmark Company. Your may proceed.

Thanks. Good morning, everybody. I just wanted to just think about the SWB to revenue ratio a little bit Marty. I appreciate the color on that. What was that ratio of pre-COVID marked in a range that you saw there?

Yes, Bill, that range was in the 51% to 52% range. And that period of time is from 2018 to 2020.

Okay. And you want to get -- you think, based on all the steps you're taking, including the indirect that I haven't thought about until you went into that, you believe you can get back to the mid-50s?

Our expectation is by beginning of next year, I mean, we'll be in the 55% to 57% range.

Okay.

And that's based on the cost side. As you know, that's really made up of, not just the cost, but also the revenue. So if we were getting some higher rate increases that should be beneficial to potentially take that down even further.

But I suppose we need to think about kind of the new normal, regardless of -- I mean, the mix that you pointed out between permanent PRN and agency is obviously the biggest lever. But we've had a catch-up, I would say, with new and overall rates for nurses permanent and agency that I can't imagine with the shortage is going to -- it's just going to probably -- after the step function increase, going to continue to move up at a more normal rate. Is that what you're thinking?

Well, I think, again, Bill, our focus is, what's going to happen in the future is going to be difficult to predict, right? So, I think, we have mentioned to the extent that there's a recession in place, that's going to have a moderating effect on any increases. So, I think, going through 2023 we'll be taking a look at that on a consistent basis. But as I had mentioned, going from 2020 to 2022, we saw increases of about 10% or annualized about 5%. I mean, we can certainly continue to take a look at that. I think we're assuming somewhere in that 4% range for increase.

You all haven't had any labor disruption issues, have you, like the acute care systems?

Define disruption.

Ticketing, staying out.

No, we have not.

Yes. Bob, you mentioned the outpatient rehab had an issue with increased COVID leave. I was a little surprised at that in the quarter. Were you all surprised?

Yes, a little bit. I think, we were. I mean, whenever -- because these outpatient locations, they're small and think of them as almost retail locations and you think about therapists close proximity to their patients. So any sickness even before a COVID test or therapist and staff will appropriately call off, right? And when you think about a typical therapy location, unlike a hospital there may only be one or two therapists in that location. So when one is out for a day, you just -- you lose an awful lot of revenue. And so, until they get tested and are clear to come back. So we talk about it as efficiency and it may not even be the right word, because when you think about work efficiency, you think of somebody working efficiently, but really what we're referring to is that you have a therapist that calls off in a clinic and there's just -- it goes to zero. I mean, there's no treatment. There's no revenue until, we either can get somebody else to come in to fill in, which is difficult for professional staff like a therapist or they get tested or they're whatever condition they have, they're comfortable can come back into the clinic. And I think our COVID leads were -- in the third quarter were 706 individuals. So that can be meaningful. I mean, you see it in the numbers. I mean, you'd have to define what's meaningful, but it does have an effect -- and that was -- that number that I just gave you was the highest amount since January of this year where it was like $8.50 and we know what situation we were in January was much more significant. So, yeah, we were surprised. But I think we continue to see that moderate. I mean, further we go into this.

The only thing I'm thinking as you may have -- part of this is just an issue of more vulnerability. I'm thinking, flu. So, fingers crossed on that.

Yeah. Of course and this does come back to the companies which is something that I've mentioned it does come back to our -- yeah, I think the benefit and the power of our diversification. I mean, the flu will -- the flu could affect the staffing in that area, but a bad flu season will also be a tailwind to our hospitals. And …

Right.

… we talked about the labor market. If we have a hard recession, it may be a benefit to staffing on critical illness, but that would be a headwind to our Concentra division which has performed just spectacularly over the last year and before. So this -- we do have that on both sides. And that was as we've built the company over the last 25 years that is a little bit intentional as we've tried to moderate our overall Medicare. We are about a 50-50 mix in our company between outpatient and inpatient. Concentra is fabulous ballast, that does very well in good economic times and staffing is benefited in our hospitals and more lean economic times.

Yeah. No. I appreciate the portfolio balance sheet you guys have created. Thanks again. That's it for me.

Yeah.

Thank you. One moment for questions. Our next question comes from Miles Highsmith with Deutsche Bank. You may proceed.

Hi. Good morning guys. Thanks for taking my questions. I guess I just wanted to go back to the critical illness margins and expenses. And sorry if you covered it there are a lot of numbers coming through. I guess first just to clarify, when you hire somebody and they're in that training period, am I right to think that they're getting paid their full-time rate during that eight, eight-week period, or is it different?

Yes. They're full-time rate Miles as well as we're still experiencing sign on bonuses. So it's a full-time rate, plus some bonuses.

Okay. And then that was kind of my second question. I don't know if you've given us or willing to give it but, I was trying to kind of parse out the nuances of potentially paying for two nurses one during the training period and then another to care for the patient in many cases that the agency versus just kind of these indirect costs. I know you gave some percentages on the bonus expenses being up 40% in the quarter. Are you willing to give us like what that dollar amount was the additional dollar amount either relative to last year or just on an absolute basis this quarter, or maybe asking it differently are you willing to give us kind of indirect costs this quarter that might be considered more investments for the future, so we can try to parse out what's that duplicative piece versus kind of that temporary indirect piece?

Well, what we can do, Miles, is give you an idea in terms of nominal dollars what we see as an investment moving forward, right? And that if you take a look at where we were the first second and third quarter, as we started to hire up more and more nurses in that second quarter, there was about an incremental increase of $7 million between the first and the second quarter. The delta between the second and the third quarter was an additional $20 million. So in essence you're trying about $27 million being -- what we perceive as an investment in basically replenishing the full-time pool of nurses that we have -- and that's on a quarterly basis. So you annualize that and it's in significant dollars. But again, I think our focus is to try to make sure that that full-time pool of nurses is pretty much up to where we expect to be for 2023, and I think we're pretty close to that.

Okay. That's super helpful. Thanks for that color. Last one, I think I heard you say your leverage calculation is 5.9% for the quarter. Are you -- was that correct, sorry?

Yes, that's correct.

Okay. 5 million. Anything just in terms of kind of where you have a comfort level for a target leverage as we get into a more normalized times in 2022 and beyond?

Yes. I mean I think 2023 with what we're looking at now, Miles, we anticipate to be in the four times range -- in that range

Okay.

Okay.

Yes. Yes. Okay. Thanks a lot guys. Appreciate the time.

Thanks, Miles.

Thank you. One moment for question. Our next question comes from A.J. Rice with Credit Suisse. You may proceed. A.J. Rice: Hi, everybody. A couple of quick questions. First of all, when I look at the margin variation in the outpatient business, it sounds like you're attributing -- what part of it is labor and part of it is what you're doing with the EMR system. Can you -- is the labor piece -- you're saying that's strictly this COVID call outs, or is there anything else going on in the labor area that's worth highlighting and talking about on that -- in that division? And then on the EMR piece is that just for the third quarter and then you're done, or is that going to be elevated for a while? What's your thought on that?

Let me address the EMR question first, A.J. Yes, it's elevated in the third quarter. There'll be a little elevation in the fourth quarter, but then we should turn -- we should basically have the same type of -- it will be a reduced number moving forward. When I say reduced from the third and the fourth quarter. So if we take a look at pre-third and fourth quarter, you ought to assume that the grades or the cost you see for that EMR will be what they were pre third and fourth quarter. A.J. Rice: Okay. And then how about the labor? Was that strictly this COVID call out in the outpatient rehab business, or was there – are you starting to see pressure there as well on the labor issue?

The COVID really was the predominant item that impacted clinical efficiency. A.J. Rice: Okay, okay. Then just on your usage of agency, I think you're saying you're down to about $30 million in the third quarter. My sense and I may not have this right, but was the pre-Covid that was – you were sort of a $25 million to $30 million use of agency labor anyway. So does that mean the agency side is pretty much corrected and it's more of this normalizing the permanent staff and not having these duplicative trading costs. Is that how you assess the labor situation?

Yes. I think if you take a look at the agency pre-pandemic, we were probably in that $80 million to $100 million range A.J. a year. So yes, I think we're – it really is that investment cost. And we see that as a one-time event with the training and the onboarding of the new nurses. A.J. Rice: Okay, okay. I mean it sounds like you sort of have a time frame in which these onboarded nurses training will be done and you're expressing confidence in the 55% to 57% SWB as a percent of revenue, what incremental piece of information are you looking for to get back to starting to give guidance again on the operating income.

Well right now A.J. the big item is labor. And as – I mean if you take a look at what's going on in labor market if the labor market continues the way we think it will, which we'll probably see over the next quarter or two, we'll be in a position to determine whether we feel comfortable giving guidance on EBITDA and EPS.

Yes. A.J. we are going to think about it. I mean it's November already. We're going to go through the holidays in a couple of weeks Thanksgiving and Christmas, it will be into 2023. Everything that we have been doing and even as we've been talking about on this call is really pointing to next year. So if – as we run-off this training expense and so forth, we're looking for 2023 to be back to normal year. And if it is and we see that then we're going to return to giving guidance. At this point it just – right now, it would make no sense other than just given the revenue line that we have. So we're – for us even last quarter, it was not a question from the management team if we were going to get to where we expected to. It's just a question of the pace and how long it would take because what would be the pace of recruitment and the pace of onboarding and then little things pop up that are unexpected. I mean I would not have expected the COVID leave on the outpatient just surprised me in terms of where we are. So those things come up. I mean they're not material to the company but they show up. So I think that we have a pretty good chance of those things normalizing through the end of this year. We get through Christmas and we start the -- you're not, as you know I mean there's a lot of people out there that are saying there's new things coming wherever resurgence the flu is going to be greater than ever was. We don't know those things. And where they're going to manifest themselves over the next 30 days to 60 days. And when they do and we get through the holidays, I think, we could be back in a position to have businesses as usual normal and get back to being able to give the street -- more guidance. A.J. Rice: Okay. That’s helpful. And maybe just a last one on the comments about the cap on the floating rate $2 billion of debt. Is -- are you at that 1% cap now so there's no further near-term impact from rising interest rates? And is -- are you 100% fixed on that? Can you just give us expand on that just a little bit more?

Sure. A.J., yes, we're well in excess of the 1% cap. I mean, I think... A.J. Rice: I do not know if that 1% over some benchmark right or whether that was absolutely 1%.

Well, it's 1% is the LIBOR rate and then you have a -- with the spread on top of that our spread is in the $250 million range. So all-in you're looking at maximum 3.5%. A.J. Rice: I got you. You're – obviously, you're there at this point.

Yes. A.J. Rice: And is that 100% of your debt that is covered or sort of fixed at least through 2024?

Well, you've got -- we've got really two large portions of debt $2.1 billion of floating. So $2 billion of the $2.1 billion is covered. And then we've got fixed $1.225 billion as fixed. A.J. Rice: Right.

Yes that -- it's everything. Now there is a portion there is -- we don't have any coverage on the revolver. So we are seeing some higher cost there. But we see our ability to pay that down over the next year is pretty probable. A.J. Rice: Okay. How much is the revolver drawn now at this point just roughly?

I think its about $310, I'm sorry 380. A.J. Rice: Okay. All right. That’s great. Thanks so much. End of Q&A:

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Mr. Ortenzio for any further remarks.

No further comments. Thank all of you for joining us. And thank you, operator.

Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.