UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~June 30, 2023~~March 31, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file numbers: 001-34465

SELECT MEDICAL HOLDINGS CORPORATION

(Exact name of Registrant as specified in its Charter)


Delaware						20-1764048
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification Number)

4714 Gettysburg Road, P.O. Box 2034

Mechanicsburg, PA 17055

(Address of Principal Executive Offices and Zip code)

(717) 972-1100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	SEM	New York Stock Exchange
		(NYSE)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods as such Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~July 31, 2023,~~April 30, 2024, Select Medical Holdings Corporation had outstanding ~~127,143,417~~130,031,562 shares of common stock.

Unless the context indicates otherwise, any reference in this report to “Holdings” refers to Select Medical Holdings Corporation and any reference to “Select” refers to Select Medical Corporation, the wholly owned operating subsidiary of Holdings, and any of Select’s subsidiaries. Any reference to “Concentra” refers to Concentra Group Holdings Parent, LLC (“Concentra Group Holdings Parent”) and its subsidiaries, including Concentra Inc. References to the “Company,” “we,” “us,” and “our” refer collectively to Holdings, Select, and Concentra.

Table of Contents

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION	3

ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Condensed consolidated balance sheets	3

	Condensed consolidated statements of operations	4

	Condensed consolidated statements of comprehensive income	5

	Condensed consolidated statements of changes in equity and income	6

	Condensed consolidated statements of cash flows	87

	Notes to condensed consolidated financial statements	98

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2118

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	4133

ITEM 4.	CONTROLS AND PROCEDURES	4133

PART II	OTHER INFORMATION	4234

ITEM 1.	LEGAL PROCEEDINGS	4234

ITEM 1A.	RISK FACTORS	4234

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	4234

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	4234

ITEM 4.	MINE SAFETY DISCLOSURES	4234

ITEM 5.	OTHER INFORMATION	4234

ITEM 6.	EXHIBITS	4335

SIGNATURES

Table of Contents

PART I: FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Select Medical Holdings Corporation

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share amounts)

December 31, 2022 June 30, 2023
ASSETS
Current Assets:
Cash and cash equivalents $ 97,906 $ 101,167
Accounts receivable 941,312 964,680
Prepaid income taxes 31,868 16,513
Current portion of interest rate cap contract 74,857 83,938
Other current assets 125,370 138,186
Total Current Assets 1,271,313 1,304,484
Operating lease right-of-use assets 1,169,740 1,182,839
Property and equipment, net 1,001,440 1,004,430
Goodwill 3,484,200 3,486,050
Identifiable intangible assets, net 351,662 346,733
Interest rate cap contract, net of current portion 45,200 18,396
Other assets 341,738 358,937
Total Assets $ 7,665,293 $ 7,701,869
LIABILITIES AND EQUITY
Current Liabilities:
Overdrafts $ 31,961 $ 31,494
Current operating lease liabilities 236,784 241,517
Current portion of long-term debt and notes payable 44,351 57,205
Accounts payable 186,729 186,787
Accrued payroll 209,789 191,061
Accrued vacation 150,695 159,168
Accrued interest 29,837 29,514
Accrued other 264,525 283,257
Income taxes payable 480 8,209
Total Current Liabilities 1,155,151 1,188,212
Non-current operating lease liabilities 1,008,394 1,021,314
Long-term debt, net of current portion 3,835,211 3,695,341
Non-current deferred tax liability 169,793 155,925
Other non-current liabilities 106,137 105,123
Total Liabilities 6,274,686 6,165,915
Commitments and contingencies (Note 13)
Redeemable non-controlling interests 34,043 34,375
Stockholders’ Equity:
Common stock, $0.001 par value, 700,000,000 shares authorized, 127,173,871 and 127,387,869 shares issued and outstanding at 2022 and 2023, respectively 127 127
Capital in excess of par 452,183 473,942
Retained earnings 581,010 696,922
Accumulated other comprehensive income 88,602 75,047
Total Stockholders’ Equity 1,121,922 1,246,038
Non-controlling interests 234,642 255,541
Total Equity 1,356,564 1,501,579
Total Liabilities and Equity $ 7,665,293 $ 7,701,869


	December 31, 2023		March 31, 2024
ASSETS
Current Assets:
Cash and cash equivalents	$	84,006	$	92,620
Accounts receivable	940,335		1,134,788
Prepaid income taxes	22,726		9,034
Current portion of interest rate cap contract	58,962		42,660
Other current assets	151,617		161,238
Total Current Assets	1,257,646		1,440,340
Operating lease right-of-use assets	1,188,616		1,176,713
Property and equipment, net	1,023,561		1,024,626
Goodwill	3,513,170		3,517,071
Identifiable intangible assets, net	329,916		324,125
Other assets	376,722		375,388
Total Assets	$	7,689,631	$	7,858,263
LIABILITIES AND EQUITY
Current Liabilities:
Overdrafts	$	30,274	$	28,534
Current operating lease liabilities	245,400		245,617
Current portion of long-term debt and notes payable	70,329		60,184
Accounts payable	174,312		163,551
Accrued and other liabilities	728,150		686,491








Total Current Liabilities	1,248,465		1,184,377
Non-current operating lease liabilities	1,025,867		1,015,160
Long-term debt, net of current portion	3,587,675		3,758,631
Non-current deferred tax liability	143,306		133,987
Other non-current liabilities	110,303		100,175
Total Liabilities	6,115,616		6,192,330
Commitments and contingencies (Note 14)
Redeemable non-controlling interests	26,297		28,290
Stockholders’ Equity:
Common stock, $0.001 par value, 700,000,000 shares authorized, 128,369,492 and 128,357,832 shares issued and outstanding at 2023 and 2024, respectively	128		128
Capital in excess of par	493,413		505,403
Retained earnings	751,856		830,821
Accumulated other comprehensive income	42,907		30,930
Total Stockholders’ Equity	1,288,304		1,367,282
Non-controlling interests	259,414		270,361
Total Equity	1,547,718		1,637,643
Total Liabilities and Equity	$	7,689,631	$	7,858,263

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

Select Medical Holdings Corporation

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except per share amounts)




		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended March 31,
		2022		2023		2022		2023				2023	2024
Revenue	Revenue	$	1,584,741	$	1,674,528	$	3,184,288	$	3,339,508
Costs and expenses:	Costs and expenses:									Costs and expenses:
Cost of services, exclusive of depreciation and amortization	Cost of services, exclusive of depreciation and amortization	1,390,550		1,423,603		2,797,560		2,842,422
General and administrative	General and administrative	37,268		42,508		74,781		84,787
Depreciation and amortization	Depreciation and amortization	51,081		49,939		102,120		102,364
Total costs and expenses	Total costs and expenses	1,478,899		1,516,050		2,974,461		3,029,573
Other operating income	Other operating income	15,125		726		15,125		726
Income from operations	Income from operations	120,967		159,204		224,952		310,661
Other income and expense:	Other income and expense:									Other income and expense:

Equity in earnings of unconsolidated subsidiaries	Equity in earnings of unconsolidated subsidiaries	6,167		10,501		11,564		19,057
Equity in earnings of unconsolidated subsidiaries
Equity in earnings of unconsolidated subsidiaries

Interest expense

Interest expense

Interest expense	Interest expense	(41,052)		(48,997)		(76,566)		(97,568)
Income before income taxes	Income before income taxes	86,082		120,708		159,950		232,150
Income tax expense	Income tax expense	19,820		28,848		37,762		55,033
Net income	Net income	66,262		91,860		122,188		177,117
Less: Net income attributable to non-controlling interests	Less: Net income attributable to non-controlling interests	11,055		13,623		17,864		28,075
Net income attributable to Select Medical Holdings Corporation	Net income attributable to Select Medical Holdings Corporation	$	55,207	$	78,237	$	104,324	$	149,042
Earnings per common share (Note 12):
Earnings per common share (Note 13):										Earnings per common share (Note 13):
Basic and diluted	Basic and diluted	$	0.43	$	0.61	$	0.79	$	1.17

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

Select Medical Holdings Corporation

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

(in thousands)


		For the Three Months Ended June 30,					For the Six Months Ended June 30,
		2022		2023			2022		2023
				For the Three Months Ended March 31,
				For the Three Months Ended March 31,
				For the Three Months Ended March 31,
						2023					2023	2024
Net income	Net income	$	66,262	$	91,860		$	122,188	$	177,117
Other comprehensive income (loss), net of tax:
Gain on interest rate cap contract		11,833		17,527			51,647		14,831
Reclassification adjustment for losses (gains) included in net income		(6)		(15,134)			33		(28,386)
Net change, net of tax benefit (expense) of $(3,942), $(777), $(17,227), and $4,398		11,827		2,393			51,680		(13,555)
Other comprehensive loss, net of tax:
Gain (loss) on interest rate cap contract
Gain (loss) on interest rate cap contract
Gain (loss) on interest rate cap contract
Reclassification adjustment for gains included in net income
Net change, net of tax benefit of $5,175, and $3,782
Comprehensive income	Comprehensive income	78,089		94,253			173,868		163,562
Less: Comprehensive income attributable to non-controlling interests	Less: Comprehensive income attributable to non-controlling interests	11,055		13,623			17,864		28,075
Comprehensive income attributable to Select Medical Holdings Corporation	Comprehensive income attributable to Select Medical Holdings Corporation	$	67,034	$	80,630		$	156,004	$	135,487

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

Select Medical Holdings Corporation

Condensed Consolidated Statements of Changes in Equity and Income

(unaudited)

(in thousands)


	For the Three Months Ended March 31, 2024																							For the Three Months Ended March 31, 2024

		For the Six Months Ended June 30, 2023

			Total Stockholders’ Equity																Total Stockholders’ Equity
		Common Stock Issued	Common Stock Par Value		Capital in Excess of Par		Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity		Non-controlling Interests		Total Equity		Common Stock Issued	Common Stock Par Value		Capital in Excess of Par	Retained Earnings	Accumulated Other Comprehensive Income	Total Stockholders’ Equity		Non-controlling Interests	Total Equity
Balance at December 31, 2022		127,173	$	127	$	452,183	$	581,010	$	88,602	$	1,121,922	$	234,642	$	1,356,564
Balance at December 31, 2023
Net income attributable to Select Medical Holdings Corporation	Net income attributable to Select Medical Holdings Corporation						70,805				70,805				70,805
Net income attributable to non-controlling interests	Net income attributable to non-controlling interests										—		12,811		12,811
Cash dividends declared for common stockholders ($0.125 per share)	Cash dividends declared for common stockholders ($0.125 per share)						(15,897)				(15,897)				(15,897)
Issuance of restricted stock	Issuance of restricted stock	3	0		0						—				—

Forfeitures of unvested restricted stock
Vesting of restricted stock	Vesting of restricted stock				10,003						10,003				10,003

Issuance of non-controlling interests	Issuance of non-controlling interests										—		2,731		2,731
Non-controlling interests acquired in business combination											—		3,877		3,877
Issuance of non-controlling interests
Issuance of non-controlling interests

Distributions to and purchases of non-controlling interests
Distributions to and purchases of non-controlling interests
Distributions to and purchases of non-controlling interests	Distributions to and purchases of non-controlling interests										—		(6,069)		(6,069)
Redemption value adjustment on non-controlling interests	Redemption value adjustment on non-controlling interests						(436)				(436)				(436)
Other comprehensive income									(15,948)		(15,948)				(15,948)
Other					(1)		1				—				—
Balance at March 31, 2023		127,176	$	127	$	462,185	$	635,483	$	72,654	$	1,170,449	$	247,992	$	1,418,441
Net income attributable to Select Medical Holdings Corporation							78,237				78,237				78,237
Net income attributable to non-controlling interests											—		11,539		11,539
Cash dividends declared for common stockholders ($0.125 per share)							(15,924)				(15,924)				(15,924)
Issuance of restricted stock		261	0		0						—				—

Vesting of restricted stock					10,326						10,326				10,326
Repurchase of common shares		(49)	0		(634)		(872)				(1,506)				(1,506)
Issuance of non-controlling interests					1,870						1,870		10,211		12,081
Distributions to and purchases of non-controlling interests					195						195		(14,201)		(14,006)
Redemption value adjustment on non-controlling interests							(2)				(2)				(2)
Other comprehensive income									2,393		2,393				2,393

Balance at June 30, 2023		127,388	$	127	$	473,942	$	696,922	$	75,047	$	1,246,038	$	255,541	$	1,501,579
Other comprehensive loss

Balance at March 31, 2024

Balance at March 31, 2024

Balance at March 31, 2024


	For the Three Months Ended March 31, 2023

		Total Stockholders’ Equity
	Common Stock Issued	Common Stock Par Value		Capital in Excess of Par		Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity		Non-controlling Interests		Total Equity
Balance at December 31, 2022	127,173	$	127	$	452,183	$	581,010	$	88,602	$	1,121,922	$	234,642	$	1,356,564
Net income attributable to Select Medical Holdings Corporation						70,805				70,805				70,805
Net income attributable to non-controlling interests										—		12,811		12,811
Cash dividends declared for common stockholders ($0.125 per share)						(15,897)				(15,897)				(15,897)
Issuance of restricted stock	3	0		0						—				—

Vesting of restricted stock				10,003						10,003				10,003

Issuance of non-controlling interests										—		2,731		2,731
Non-controlling interests acquired in business combination										—		3,877		3,877
Distributions to and purchases of non-controlling interests										—		(6,069)		(6,069)
Redemption value adjustment on non-controlling interests						(436)				(436)				(436)
Other comprehensive loss								(15,948)		(15,948)				(15,948)
Other				(1)		1				—				—
Balance at March 31, 2023	127,176	$	127	$	462,185	$	635,483	$	72,654	$	1,170,449	$	247,992	$	1,418,441

The accompanying notes are an integral part of these condensed consolidated financial statements.

~~Table of Contents~~

For the Six Months Ended June 30, 2022
Total Stockholders’ Equity
Common
Stock
Issued Common
Stock
Par Value Capital in
Excess
of Par Retained
Earnings Accumulated Other Comprehensive Income Total Stockholders’ Equity Non-controlling
Interests Total
Equity
Balance at December 31, 2021 133,884 $ 134 $ 504,314 $ 593,251 $ 12,282 $ 1,109,981 $ 215,921 $ 1,325,902
Net income attributable to Select Medical Holdings Corporation 49,117 49,117 49,117
Net income attributable to non-controlling interests — 4,891 4,891
Cash dividends declared for common stockholders ($0.125 per share) (16,691) (16,691) (16,691)
Issuance of restricted stock 13 0 0 — —
Vesting of restricted stock 8,288 8,288 8,288
Repurchase of common shares (2,128) (2) (23,459) (28,215) (51,676) (51,676)
Issuance of non-controlling interests 651 651 4,578 5,229
Non-controlling interests acquired in business combination, measurement period adjustment — 12,463 12,463
Distributions to and purchases of non-controlling interests — (9,097) (9,097)
Redemption value adjustment on non-controlling interests (1,381) (1,381) (1,381)
Other comprehensive income 39,853 39,853 39,853
Other (2) (2) (2)
Balance at March 31, 2022 131,769 $ 132 $ 489,794 $ 596,079 $ 52,135 $ 1,138,140 $ 228,756 $ 1,366,896
Net income attributable to Select Medical Holdings Corporation 55,207 55,207 55,207
Net income attributable to non-controlling interests — 9,155 9,155
Cash dividends declared for common stockholders ($0.125 per share) (16,108) (16,108) (16,108)
Issuance of restricted stock 211 0 0 — —
Forfeitures of unvested restricted stock (6) 0 0 3 3 3
Vesting of restricted stock 8,406 8,406 8,406
Repurchase of common shares (5,483) (6) (56,965) (69,976) (126,947) (126,947)
Issuance of non-controlling interests — — 1,725 1,725
Distributions to and purchases of non-controlling interests 534 534 (7,348) (6,814)
Redemption value adjustment on non-controlling interests 355 355 355
Other comprehensive loss 11,827 11,827 11,827
Other (4) (4) — (4)
Balance at June 30, 2022 126,491 $ 126 $ 441,769 $ 565,556 $ 63,962 $ 1,071,413 $ 232,288 $ 1,303,701

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

Table of Contents

Select Medical Holdings Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)


		For the Six Months Ended June 30,					For the Three Months Ended March 31,
		2022		2023			2023	2024
Operating activities	Operating activities					Operating activities
Net income	Net income	$	122,188	$	177,117
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities:						Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Distributions from unconsolidated subsidiaries	Distributions from unconsolidated subsidiaries	11,140		8,841
Depreciation and amortization	Depreciation and amortization	102,120		102,364
Provision for expected credit losses	Provision for expected credit losses	111		761
Equity in earnings of unconsolidated subsidiaries	Equity in earnings of unconsolidated subsidiaries	(11,564)		(19,057)

Gain on sale or disposal of assets		(1,476)		(23)
(Gain) loss on sale or disposal of assets
(Gain) loss on sale or disposal of assets
(Gain) loss on sale or disposal of assets
Stock compensation expense	Stock compensation expense	17,769		20,508
Amortization of debt discount, premium and issuance costs		1,123		1,174
Amortization of debt discount, premium, and issuance costs
Deferred income taxes	Deferred income taxes	(1,965)		(10,876)
Changes in operating assets and liabilities, net of effects of business combinations:	Changes in operating assets and liabilities, net of effects of business combinations:					Changes in operating assets and liabilities, net of effects of business combinations:
Accounts receivable	Accounts receivable	(32,431)		(23,135)
Other current assets	Other current assets	(2,128)		(5,997)
Other assets	Other assets	1,275		5,472
Accounts payable	Accounts payable	4,879		7,096
Accrued expenses	Accrued expenses	44,296		22,033
Government advances		(77,319)		—

Net cash provided by operating activities		178,018		286,278

Net cash provided by (used in) operating activities

Net cash provided by (used in) operating activities

Net cash provided by (used in) operating activities
Investing activities	Investing activities					Investing activities
Business combinations, net of cash acquired	Business combinations, net of cash acquired	(19,241)		(7,732)
Purchases of property, equipment, and other assets	Purchases of property, equipment, and other assets	(93,177)		(118,399)
Investment in businesses	Investment in businesses	(6,990)		(9,800)
Proceeds from sale of assets		5,314		56
Proceeds from sale of assets and businesses
Net cash used in investing activities	Net cash used in investing activities	(114,094)		(135,875)
Financing activities	Financing activities					Financing activities
Borrowings on revolving facilities	Borrowings on revolving facilities	565,000		435,000
Payments on revolving facilities	Payments on revolving facilities	(375,000)		(535,000)

Payments on term loans
Payments on term loans
Payments on term loans

Borrowings of other debt

Borrowings of other debt

Borrowings of other debt	Borrowings of other debt	17,494		22,298
Principal payments on other debt	Principal payments on other debt	(16,874)		(26,373)
Dividends paid to common stockholders	Dividends paid to common stockholders	(32,799)		(31,821)
Repurchase of common stock		(178,623)		(1,506)

Decrease in overdrafts

Decrease in overdrafts

Decrease in overdrafts	Decrease in overdrafts	(11,055)		(467)
Proceeds from issuance of non-controlling interests	Proceeds from issuance of non-controlling interests	6,955		14,812
Distributions to and purchases of non-controlling interests	Distributions to and purchases of non-controlling interests	(18,663)		(24,085)

Net cash used in financing activities		(43,565)		(147,142)
Net increase in cash and cash equivalents		20,359		3,261
Net cash provided by financing activities
Net cash provided by financing activities
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	74,310		97,906
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	94,669	$	101,167
Supplemental information	Supplemental information					Supplemental information
Cash paid for interest, excluding amounts received of $103 and $38,284 under the interest rate cap contract		$	74,217	$	133,581
Cash paid for interest, excluding amounts received of $17,828 and $22,515 under the interest rate cap contract
Cash paid for taxes	Cash paid for taxes	16,423		42,755

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

SELECT MEDICAL HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

The unaudited condensed consolidated financial statements of Select Medical Holdings Corporation (“Holdings”) include the accounts of its wholly owned subsidiary, Select Medical Corporation (“Select”). Holdings conducts substantially all of its business through Select and its subsidiaries. Holdings, Select, and Select’s subsidiaries are collectively referred to as the “Company.” The unaudited condensed consolidated financial statements of the Company as of ~~June 30, 2023,~~March 31, 2024, and for the three ~~and six~~ month periods ended ~~June 30, 2022~~March 31, 2023 and ~~2023,~~2024, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim reporting and the accounting principles generally accepted in the United States of America (“GAAP”). Accordingly, certain information and disclosures required by GAAP, which are normally included in the notes to the consolidated financial statements, have been condensed or omitted pursuant to those rules and regulations, although the Company believes the disclosure is adequate to make the information presented not misleading. In the opinion of management, such information contains all adjustments, which are normal and recurring in nature, necessary for a fair statement of the financial position, results of operations and cash flow for such periods. All significant intercompany transactions and balances have been eliminated.

The results of operations for the three ~~and six~~ months ended ~~June 30, 2023,~~March 31, 2024, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, ~~2023.~~2024. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, ~~2022,~~2023, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February ~~23, 2023.~~22, 2024.

2. Accounting Policies

Recent Accounting Guidance Not Yet Adopted

Segment Reporting

In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which is intended to improve disclosure of segment information so that investors can better understand an entity’s overall performance. The ASU requires entities to quantitatively disclose significant segment expenses that are regularly provided to the chief operating decision maker for each reportable segment, as well as the amount of other segment items for each reportable segment and a description of what the other segment items are comprised. Disclosure of multiple measures of profit or loss will be permitted by the ASU.

The ASU is effective for annual reporting periods beginning on or after December 15, 2023, and interim periods with fiscal years beginning after December 15, 2024; however, early adoption is permitted. The ASU is required to be applied retrospectively to all periods presented in the financial statements. The Company is currently reviewing the impact that ASU 2023-07 will have on the disclosures in our consolidated financial statements.

Income Taxes

In December 2023, FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to improve the transparency and decision usefulness of income tax disclosures. The ASU includes enhanced requirements on the rate reconciliation, including specific categories that must be disclosed, and provides a threshold over which reconciling items must be disclosed. The amendments in the update also require annual disclosure of income taxes paid, disaggregated by federal, state, and foreign taxes, as well as any individual jurisdictions in which income taxes paid is greater than 5% of total income taxes paid.

The ASU is effective for annual periods beginning after December 15, 2024; however early adoption is permitted. The ASU can be applied either prospectively or retrospectively. The Company is currently reviewing the impact that ASU 2023-09 will have to the disclosures in our consolidated financial statements.

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Recently Adopted Accounting Guidance

Leases

In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-01, Leases (Topic 842): Common Control Arrangements, which requires companies to amortize leasehold improvements associated with related party leases under common control over the useful life of the leasehold improvement to the common control group. The ASU is effective for annual reporting periods beginning on or after December 15, 2023; however, early adoption is permitted. The ASU can either be applied prospectively or retrospectively.

The Company ~~is currently evaluating~~adopted this ~~ASU, but does not expect it to have a material impact on its consolidated financial statements upon adoption. The Company plans to adopt the~~ ASU using the prospective method as of transition on January 1, 2024.

~~Recently Adopted Accounting Guidance~~

~~Reference Rate Reform~~

~~In December 2022, FASB issued ASU 2022-06,~~ ~~Reference Rate Reform (Topic 848), Deferral of the Sunset Date of Topic 848, which extended the relief provided under Topic 848 to contract modifications made and hedging relationships entered into on or before December 31, 2024. The FASB had previously issued ASU 2020-04,~~ ~~Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~ in March 2020, which provided temporary relief from some of the existing accounting rules governing contract modifications when the modification is related to the replacement of the London Interbank Offered Rate (“LIBOR”) or other reference rates discontinued as a result of reference rate reform.

~~For eligible contract modifications, the update generally allows an entity to account for and present modifications as an event that does~~ There was not require contract remeasurement at the modification date or reassessment of a previous accounting determination. That is, the modified contract is accounted for as a continuation of the existing contract. For cash flow hedging relationships affected by reference rate reform, Topic 848 provides expedients that allow an entity to (i) change the reference rate of either the forecasted transaction or hedging instrument without requiring dedesignation of the hedging relationship; (ii) assert that changes to the hedged forecasted transaction will not impact whether it remains probable of occurring; and (iii) for the purposes of assessing hedge effectiveness, assume that the reference rate will not be replaced for the remainder of the hedging relationship if both the hedged forecasted transaction and hedging instrument are expected to be impacted by reference rate reform.

~~Table of Contents~~

In March 2021, the Financial Conduct Authority announced June 30, 2023 as the intended cessation date of the one-, three-, six-, and 12-month tenors of USD LIBOR. Provisions within the credit agreement provide the Company with the ability to agree with JPMorgan Chase Bank, N.A., as administrative agent to the lenders, to replace LIBOR with a different reference rate in the event that LIBOR ceases to exist. On May 31, 2023, the Company replaced LIBOR with the forward looking Secured Overnight Financing Rate (“Adjusted Term SOFR”) within the credit agreement. On May 31, 2023, the Company also modified the cash flow hedge’s contractual terms to replace LIBOR with SOFR. The amendment to the credit agreement is described further in Note 7 -Long-term Debt and Notes Payable. The Company’s cash flow hedge is described further in Note 8 – Interest Rate Cap.

~~These updates have not had~~ a material impact on the ~~Company's~~Company’s consolidated financial ~~statements.~~statements upon adoption.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from those estimates.

3. Credit Risk Concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash balances and accounts receivable. The Company’s excess cash is held with large financial institutions. The Company grants unsecured credit to its patients, most of whom reside in the service area of the Company’s facilities and are insured under third-party payor agreements.

Because of the diversity in the Company’s non-governmental third-party payor base, as well as their geographic dispersion, accounts receivable due from the Medicare program represent the Company’s only significant concentration of credit risk. Approximately ~~19%~~17% and 20% of the Company’s accounts receivable is due from Medicare at both December 31, ~~2022~~2023, and ~~June 30, 2023.~~March 31, 2024, respectively.

4. Redeemable Non-Controlling Interests

The ownership interests held by outside parties in subsidiaries, which include limited liability companies and limited partnerships, controlled by the Company are classified as non-controlling interests. Some of the Company’s non-controlling ownership interests consist of outside parties that have certain redemption rights that, if exercised, require the Company to purchase the parties’ ownership interests. These interests are classified and reported as redeemable non-controlling interests and have been adjusted to their ~~approximate~~ redemption values, after the attribution of net income or loss.

The changes in redeemable non-controlling interests are as follows:


		Six Months Ended June 30,
		2022		2023
		(in thousands)
	Three Months Ended March 31,						Three Months Ended March 31,
	2023					2023		2024
	(in thousands)						(in thousands)
Balance as of January 1	Balance as of January 1	$	39,033	$	34,043
Net income attributable to redeemable non-controlling interests	Net income attributable to redeemable non-controlling interests	1,918		1,641

Distributions to redeemable non-controlling interests	Distributions to redeemable non-controlling interests	(1,198)		(1,900)
Distributions to redeemable non-controlling interests
Distributions to redeemable non-controlling interests

Redemption value adjustment on redeemable non-controlling interests
Redemption value adjustment on redeemable non-controlling interests
Redemption value adjustment on redeemable non-controlling interests	Redemption value adjustment on redeemable non-controlling interests	1,381		436
Other	Other	536		179
Balance as of March 31	Balance as of March 31	$	41,670	$	34,399
Net income attributable to redeemable non-controlling interests		1,900		2,084

Distributions to and purchases of redeemable non-controlling interests		(1,553)		(2,110)
Redemption value adjustment on redeemable non-controlling interests		(355)		2
Other		535		—
Balance as of June 30		$	42,197	$	34,375

~~Table of Contents~~

5. Variable Interest Entities

Certain states prohibit the “corporate practice of medicine,” which restricts the Company from owning medical practices which directly employ physicians or therapists and from exercising control over medical decisions by physicians and therapists. In these states, the Company enters into long-term management agreements with medical practices that are owned by licensed physicians or therapists, which, in turn, employ or contract with physicians or therapists who provide professional medical services. The management agreements provide for the Company to direct the transfer of ownership of the medical practices. Based on the provisions of the management agreements, the medical practices are variable interest entities for which the Company is the primary beneficiary.

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As of December 31, ~~2022,~~2023, and ~~June 30, 2023,~~March 31, 2024, the total assets of the Company’s variable interest entities were ~~$232.1~~$246.4 million and ~~$263.6~~$263.7 million, respectively, and are principally comprised of accounts receivable. As of December 31, ~~2022,~~2023, and ~~June 30, 2023,~~March 31, 2024, the total liabilities of the Company’s variable interest entities were ~~$78.8~~$84.3 million and ~~$84.1~~$85.4 million, respectively, and are principally comprised of accounts payable and accrued expenses. These variable interest entities have obligations payable for services received under their management agreements with the Company of ~~$158.3~~$161.8 million and ~~$186.7~~$179.5 million as of December 31, ~~2022,~~2023, and ~~June 30, 2023,~~March 31, 2024, respectively. These intercompany balances are eliminated in consolidation.

6. Leases

The ~~Company has operating and finance leases for its facilities. The Company leases its corporate office space from related parties.~~

~~The~~ Company’s total lease cost is as follows:


		Three Months Ended June 30, 2022						Three Months Ended June 30, 2023
		Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total
		(in thousands)
	Three Months Ended March 31, 2023															Three Months Ended March 31, 2023				Three Months Ended March 31, 2024
	Unrelated Parties													Unrelated Parties	Related Parties		Total	Unrelated Parties			Related Parties	Total
	(in thousands)																		(in thousands)
Operating lease cost	Operating lease cost	$	73,969	$	1,809	$	75,778	$	76,892	$	1,833	$	78,725
Finance lease cost:	Finance lease cost:
Amortization of right-of-use assets	Amortization of right-of-use assets	377		—		377		404		—		404
Amortization of right-of-use assets
Amortization of right-of-use assets
Interest on lease liabilities	Interest on lease liabilities	336		—		336		387		—		387
Short-term lease cost		15		—		15		—		—		—

Variable lease cost
Variable lease cost
Variable lease cost	Variable lease cost	14,407		141		14,548		16,532		—		16,532
Sublease income	Sublease income	(1,940)		—		(1,940)		(1,716)		—		(1,716)
Total lease cost	Total lease cost	$	87,164	$	1,950	$	89,114	$	92,499	$	1,833	$	94,332

Six Months Ended June 30, 2022 Six Months Ended June 30, 2023
Unrelated Parties Related Parties Total Unrelated Parties Related Parties Total
(in thousands)
Operating lease cost $ 147,931 $ 3,618 $ 151,549 $ 153,524 $ 3,667 $ 157,191
Finance lease cost:
Amortization of right-of-use assets 724 — 724 798 — 798
Interest on lease liabilities 676 — 676 707 — 707
Short-term lease cost 50 — 50 — — —
Variable lease cost 28,062 180 28,242 32,293 84 32,377
Sublease income (3,906) — (3,906) (3,394) — (3,394)
Total lease cost $ 173,537 $ 3,798 $ 177,335 $ 183,928 $ 3,751 $ 187,679

~~Table of Contents~~

7. Long-Term Debt and Notes Payable

As of ~~June 30, 2023,~~March 31, 2024, the Company’s long-term debt and notes payable are as follows:


		Principal Outstanding		Unamortized Premium (Discount)		Unamortized Issuance Costs		Carrying Value		Fair Value			Principal Outstanding	Unamortized Premium (Discount)	Unamortized Issuance Costs	Carrying Value		Fair Value
		(in thousands)
	(in thousands)																(in thousands)
6.250% senior notes	6.250% senior notes	$	1,225,000	$	18,562	$	(9,456)	$	1,234,106	$	1,204,175
Credit facilities:	Credit facilities:											Credit facilities:
Revolving facility	Revolving facility	345,000		—		—		345,000		343,706
Term loan	Term loan	2,103,437		(3,379)		(3,684)		2,096,374		2,098,178
Other debt, including finance leases	Other debt, including finance leases	77,164		—		(98)		77,066		77,066
Total debt	Total debt	$	3,750,601	$	15,183	$	(13,238)	$	3,752,546	$	3,723,125

Principal maturities of the Company’s long-term debt and notes payable are approximately as follows:


		2023		2024		2025		2026		2027		Thereafter		Total			2024	2025	2026	2027	2028		Thereafter	Total
		(in thousands)
	(in thousands)																					(in thousands)
6.250% senior notes	6.250% senior notes	$	—	$	—	$	—	$	1,225,000	$	—	$	—	$	1,225,000
Credit facilities:	Credit facilities:															Credit facilities:
Revolving facility	Revolving facility	—		31,846		313,154		—		—		—		345,000
Term loan	Term loan	4,757		11,150		2,087,530		—		—		—		2,103,437
Other debt, including finance leases	Other debt, including finance leases	11,738		51,046		1,408		1,309		823		10,840		77,164
Total debt	Total debt	$	16,495	$	94,042	$	2,402,092	$	1,226,309	$	823	$	10,840	$	3,750,601

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As of December 31, ~~2022,~~2023, the Company’s long-term debt and notes payable are as follows:

Principal
Outstanding Unamortized Premium (Discount) Unamortized
Issuance Costs Carrying Value Fair Value
(in thousands)
6.250% senior notes $ 1,225,000 $ 21,555 $ (10,948) $ 1,235,607 $ 1,163,689
Credit facilities:
Revolving facility 445,000 — — 445,000 443,331
Term loan 2,103,437 (4,376) (4,771) 2,094,290 2,056,110
Other debt, including finance leases 104,800 — (135) 104,665 104,665
Total debt $ 3,878,237 $ 17,179 $ (15,854) $ 3,879,562 $ 3,767,795

~~Select Credit Facilities~~

On May 31, 2023, Select entered into Amendment No. 7 to the Select credit agreement. Amendment No. 7 replaced the interest rate based on LIBOR and LIBOR-based mechanics applicable to borrowings under the Select credit agreement with an interest rate based on Adjusted Term SOFR (as defined in the credit agreement). The Adjusted Term SOFR Rate includes a credit spread adjustment of 0.10%.

On July 31, 2023, the Company entered into Amendment No. 8 to the Select credit agreement. Amendment No. 8 provides for a new tranche of refinancing term loan in an aggregate principal amount of $2,103.0 million to replace the existing term loans and a $710.0 million new revolving credit facility to replace the existing revolving credit facility. The refinancing term loan and the extended revolving credit facility will mature on March 6, 2027, with an early springing maturity 90 days prior to the senior notes maturity, triggered if more than $300.0 million of senior notes remain outstanding on May 15, 2026. The refinancing term loan has an interest rate of Term SOFR (without the 0.10% credit spread adjustment) plus 3.00% and the refinancing revolving credit facility has an interest rate of Adjusted Term SOFR plus 2.50%, in each case, subject to a leverage-based pricing grid.


	Principal Outstanding		Unamortized Premium (Discount)		Unamortized Issuance Costs		Carrying Value		Fair Value
	(in thousands)
6.250% senior notes	$	1,225,000	$	15,533	$	(7,937)	$	1,232,596	$	1,228,063
Credit facilities:
Revolving facility	280,000		—		—		280,000		278,600
Term loan	2,092,485		(12,040)		(3,229)		2,077,216		2,092,485
Other debt, including finance leases	68,255		—		(63)		68,192		68,192
Total debt	$	3,665,740	$	3,493	$	(11,229)	$	3,658,004	$	3,667,340

8. Accrued and other liabilities

~~Table~~The following table sets forth the components of ~~Contents~~

accrued and other liabilities on the Condensed Consolidated Balance Sheets:


	December 31, 2023		March 31, 2024

Accrued payroll	$	238,768	$	184,801
Accrued vacation	157,748		164,113
Accrued interest	32,472		14,438
Accrued other	297,663		292,587
Income taxes payable	1,499		30,552
Accrued and other liabilities	$	728,150	$	686,491

9. Interest Rate Cap

The Company is subject to market risk exposure arising from changes in interest rates on its term ~~loan. The term~~ loan, which bears interest at a ~~variable~~ rate ~~that~~which is indexed to ~~a benchmark which changed from LIBOR to SOFR on May 31, 2023.~~one-month Term SOFR. The Company’s objective in using an interest rate derivative is to mitigate its exposure to increases in interest rates. The interest rate cap limits the Company’s exposure to increases in the variable ~~interest~~ rate index to 1.0% on $2.0 billion of principal outstanding under the term loan, as the interest rate cap provides for payments from the counterparty when interest rates rise above 1.0%. The interest rate cap has a $2.0 billion notional amount and is effective through September 30, 2024. The Company will pay a monthly premium for the interest rate cap over the term of the agreement. The annual premium is equal to 0.0916% of the notional amount, or approximately $1.8 million.

The interest rate cap has been designated as a cash flow hedge and is highly effective at offsetting the changes in cash outflows when the variable ~~interest~~ rate index exceeds 1.0%. Changes in the fair value of the interest rate cap, net of tax, are recognized in other comprehensive income and are reclassified out of accumulated other comprehensive income and into interest expense when the hedged interest obligations affect earnings.

The following table outlines the changes in accumulated other comprehensive income (loss), net of tax, during the periods presented:


	Three Months Ended March 31,						Three Months Ended March 31,
	2023					2023		2024
	(in thousands)						(in thousands)
Balance as of January 1
Gain (loss) on interest rate cap cash flow hedge
Amounts reclassified from accumulated other comprehensive income
Balance as of March 31

		Six Months Ended June 30,
		2022		2023
		(in thousands)
Balance as of January 1		$	12,282	$	88,602
Gain (loss) on interest rate cap cash flow hedge		39,814		(2,696)
Amounts reclassified from accumulated other comprehensive income		39		(13,252)
Balance as of March 31		$	52,135	$	72,654
Gain on interest rate cap cash flow hedge		11,833		17,527
Amounts reclassified from accumulated other comprehensive income		(6)		(15,134)
Balance as of June 30		$	63,962	$	75,047

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The effects on net income of amounts reclassified from accumulated other comprehensive income are as follows:


		Three Months Ended June 30,				Six Months Ended June 30,
				Three Months Ended March 31,
				Three Months Ended March 31,
				Three Months Ended March 31,
Statement of Operations	Statement of Operations	2022		2023		2022		2023		Statement of Operations	2023	2024
		(in thousands)
Gains (losses) included in interest expense		$	8	$	20,045	$	(43)	$	37,597
Income tax benefit (expense)		(2)		(4,911)		10		(9,211)
					(in thousands)								(in thousands)
Gains included in interest expense
Income tax expense
Amounts reclassified from accumulated other comprehensive income	Amounts reclassified from accumulated other comprehensive income	$	6	$	15,134	$	(33)	$	28,386

The Company expects that approximately ~~$82.1~~$40.7 million of estimated pre-tax gains will be reclassified from accumulated other comprehensive income into interest expense ~~within~~through the ~~next twelve months.~~expiration of the interest rate cap on September 30, 2024.

Refer to Note 910 – Fair Value of Financial Instruments for information on the fair value of the Company’s interest rate cap contract and its balance sheet classification.

~~Table of Contents~~

9.10. Fair Value of Financial Instruments

Financial instruments which are measured at fair value, or for which a fair value is disclosed, are classified in the fair value hierarchy, as outlined below, on the basis of the observability of the inputs used in the fair value measurement:

•Level 1 – inputs are based upon quoted prices for identical instruments in active markets.

•Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data.

•Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the instrument.

The Company’s interest rate cap contract is recorded at its fair value in the condensed consolidated balance sheets on a recurring basis. The fair value of the interest rate cap contract is based upon a model-derived valuation using observable market inputs, such as interest rates and interest rate volatility, and the strike price.

Financial Instrument

Balance Sheet Classification

Level

December 31, 2022

June 30, 2023

Financial Instrument

Balance Sheet Classification

Level

December 31, 2023

March 31, 2024

Asset:

(in thousands)

Asset:

(in thousands)

Interest rate cap contract, current portion

Current portion of interest rate cap contract

Level 2

74,857

83,938

Interest rate cap contract, non-current portion

Interest rate cap contract, net of current portion

Level 2

45,200

18,396

The Company does not measure its indebtedness at fair value in its condensed consolidated balance sheets. The fair value of the credit facilities is based on quoted market prices for this debt in the syndicated loan market. The fair value of the senior notes is based on quoted market prices. The carrying value of the Company’s other debt, as disclosed in Note 7 – Long-Term Debt and Notes Payable, approximates fair value.

December 31, 2022

June 30, 2023

December 31, 2023

March 31, 2024

Financial Instrument

Level

Carrying Value

Fair Value

Carrying Value

Fair Value

Financial Instrument

Level

Carrying Value

Fair Value

Carrying Value

Fair Value

(in thousands)

6.250% senior notes

Level 2

1,235,607

1,163,689

1,234,106

1,204,175

Credit facilities:

Revolving facility

Level 2

445,000

443,331

345,000

343,706

Term loan

Level 2

2,094,290

2,056,110

2,096,374

2,098,178

The Company’s other financial instruments, which primarily consist of cash and cash equivalents, accounts receivable, and accounts payable, approximate fair value because of the short-term maturities of these instruments.

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~~10.~~11. Segment Information

The Company’s reportable segments consist of the critical illness recovery hospital segment, rehabilitation hospital segment, outpatient rehabilitation segment, and Concentra segment. Other activities include the Company’s corporate shared services, certain investments, and employee leasing services with non-consolidating subsidiaries.

The Company evaluates the performance of its segments based on Adjusted EBITDA. Adjusted EBITDA is defined as earnings excluding interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, transaction costs associated with the Concentra separation, gain (loss) on sale of businesses, and equity in earnings (losses) of unconsolidated subsidiaries. The Company has provided additional information regarding its reportable segments, such as total assets, which contributes to the understanding of the Company and provides useful information to the users of the consolidated financial statements.

The following tables summarize selected financial data for the Company’s reportable segments.

Three Months Ended June 30, Six Months Ended June 30,
2022 2023 2022 2023
(in thousands)
Revenue:
Critical illness recovery hospital $ 545,908 $ 575,091 $ 1,147,663 $ 1,169,017
Rehabilitation hospital 228,887 240,856 449,521 472,318
Outpatient rehabilitation 287,258 302,972 559,198 598,875
Concentra 441,357 467,079 864,780 923,377
Other 81,331 88,530 163,126 175,921
Total Company $ 1,584,741 $ 1,674,528 $ 3,184,288 $ 3,339,508
Adjusted EBITDA:
Critical illness recovery hospital $ 20,019 $ 65,496 $ 55,986 $ 142,269
Rehabilitation hospital 49,845 54,689 92,224 101,905
Outpatient rehabilitation 33,601 32,850 60,197 63,049
Concentra 92,607 100,391 182,076 194,139
Other(1)
(15,078) (33,957) (45,642) (67,830)
Total Company $ 180,994 $ 219,469 $ 344,841 $ 433,532
Total assets:
Critical illness recovery hospital $ 2,387,516 $ 2,492,370 $ 2,387,516 $ 2,492,370
Rehabilitation hospital 1,194,739 1,209,737 1,194,739 1,209,737
Outpatient rehabilitation 1,360,600 1,399,782 1,360,600 1,399,782
Concentra 2,301,296 2,314,328 2,301,296 2,314,328
Other 307,507 285,652 307,507 285,652
Total Company $ 7,551,658 $ 7,701,869 $ 7,551,658 $ 7,701,869
Purchases of property, equipment, and other assets:
Critical illness recovery hospital $ 19,528 $ 31,363 $ 39,097 $ 55,021
Rehabilitation hospital 4,821 1,903 11,095 10,485
Outpatient rehabilitation 9,314 10,476 18,728 20,408
Concentra 8,716 15,846 18,956 30,246
Other 3,953 (74) 5,301 2,239
Total Company $ 46,332 $ 59,514 $ 93,177 $ 118,399

(1) For the three and six months ended June 30, 2022, Adjusted EBITDA included other operating income of $15.1 million. The other operating income is related to the recognition of payments received under the Provider Relief Fund for health care related expenses and loss of revenue attributable to COVID-19.


	Three Months Ended March 31,
		2023		2024
		(in thousands)
Revenue:
Critical illness recovery hospital		$	593,926	$	655,880
Rehabilitation hospital		231,462		265,700
Outpatient rehabilitation		295,903		303,158
Concentra		456,298		467,598
Other		87,391		96,473
Total Company		$	1,664,980	$	1,788,809
Adjusted EBITDA:
Critical illness recovery hospital		$	76,773	$	115,940
Rehabilitation hospital		47,216		61,400
Outpatient rehabilitation		30,199		24,928
Concentra		93,748		96,142
Other		(33,873)		(36,493)
Total Company		$	214,063	$	261,917
Total assets:
Critical illness recovery hospital		$	2,507,265	$	2,608,979
Rehabilitation hospital		1,203,069		1,233,828
Outpatient rehabilitation		1,397,823		1,423,740
Concentra		2,300,632		2,362,848
Other		290,947		228,868
Total Company		$	7,699,736	$	7,858,263
Purchases of property, equipment, and other assets:
Critical illness recovery hospital		$	23,658	$	15,941
Rehabilitation hospital		8,582		7,101
Outpatient rehabilitation		9,932		9,500
Concentra		14,400		17,231
Other		2,313		2,744
Total Company		$	58,885	$	52,517

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A reconciliation of Adjusted EBITDA to income before income taxes is as follows:


	Three Months Ended March 31, 2023
	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
	(in thousands)
Adjusted EBITDA	$	76,773	$	47,216	$	30,199	$	93,748	$	(33,873)
Depreciation and amortization	(16,637)		(6,888)		(8,457)		(18,310)		(2,133)
Stock compensation expense	—		—		—		(178)		(10,003)
Income (loss) from operations	$	60,136	$	40,328	$	21,742	$	75,260	$	(46,009)	$	151,457

Equity in earnings of unconsolidated subsidiaries											8,556


Interest expense											(48,571)
Income before income taxes											$	111,442


		Three Months Ended June 30, 2022													Three Months Ended March 31, 2024
		Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total			Critical Illness Recovery Hospital			Rehabilitation Hospital				Outpatient Rehabilitation					Concentra					Other			Total
		(in thousands)													(in thousands)
Adjusted EBITDA	Adjusted EBITDA	$	20,019	$	49,845	$	33,601	$	92,607	$	(15,078)			Adjusted EBITDA	$	115,940	$	$	61,400	$		$	24,928		$		$	96,142		$		$	(36,493)
Depreciation and amortization	Depreciation and amortization	(14,603)		(7,175)		(8,130)		(18,730)		(2,443)				Depreciation and amortization	(17,157)		(7,135)		(7,135)		(9,181)			(9,181)		(18,485)			(18,485)		(2,111)			(2,111)
Stock compensation expense	Stock compensation expense	—		—		—		(536)		(8,410)				Stock compensation expense	—		—		—		—			—		(166)			(166)		(11,444)			(11,444)
Concentra separation transaction costs(1)
Income (loss) from operations
Income (loss) from operations
Income (loss) from operations	Income (loss) from operations	$	5,416	$	42,670	$	25,471	$	73,341	$	(25,931)	$	120,967

Equity in earnings of unconsolidated subsidiaries
Equity in earnings of unconsolidated subsidiaries
Equity in earnings of unconsolidated subsidiaries	Equity in earnings of unconsolidated subsidiaries											6,167

Interest expense	Interest expense											(41,052)

Interest expense

Interest expense
Income before income taxes	Income before income taxes											$	86,082

Three Months Ended June 30, 2023
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation Concentra Other Total
(in thousands)
Adjusted EBITDA $ 65,496 $ 54,689 $ 32,850 $ 100,391 $ (33,957)
Depreciation and amortization (13,886) (6,887) (8,779) (18,283) (2,104)
Stock compensation expense — — — — (10,326)
Income (loss) from operations $ 51,610 $ 47,802 $ 24,071 $ 82,108 $ (46,387) $ 159,204
Equity in earnings of unconsolidated subsidiaries 10,501
Interest expense (48,997)
Income before income taxes $ 120,708

Six Months Ended June 30, 2022
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation Concentra Other Total
(in thousands)
Adjusted EBITDA $ 55,986 $ 92,224 $ 60,197 $ 182,076 $ (45,642)
Depreciation and amortization (29,221) (13,977) (16,159) (37,542) (5,221)
Stock compensation expense — — — (1,071) (16,698)
Income (loss) from operations $ 26,765 $ 78,247 $ 44,038 $ 143,463 $ (67,561) $ 224,952
Equity in earnings of unconsolidated subsidiaries 11,564
Interest expense (76,566)
Income before income taxes $ 159,950

Six Months Ended June 30, 2023
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation Concentra Other Total
(in thousands)
Adjusted EBITDA $ 142,269 $ 101,905 $ 63,049 $ 194,139 $ (67,830)
Depreciation and amortization (30,523) (13,775) (17,236) (36,593) (4,237)
Stock compensation expense — — — (178) (20,329)
Income (loss) from operations $ 111,746 $ 88,130 $ 45,813 $ 157,368 $ (92,396) $ 310,661
Equity in earnings of unconsolidated subsidiaries 19,057
Interest expense (97,568)
Income before income taxes $ 232,150
(1) Concentra separation transaction costs represent incremental consulting, legal, and audit-related fees incurred in connection with the Company’s planned separation of the Concentra segment into a new, publicly traded company and are included within general and administrative expenses on the Condensed Consolidated Statements of Operations.

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~~11.~~12. Revenue from Contracts with Customers

The following tables disaggregate the Company’s revenue for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 and ~~2023:~~2024:


		Three Months Ended June 30, 2022
		Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
		(in thousands)
	Three Months Ended March 31, 2023																	Three Months Ended March 31, 2023
	Critical Illness Recovery Hospital													Critical Illness Recovery Hospital	Rehabilitation Hospital	Outpatient Rehabilitation	Concentra		Other	Total
	(in thousands)																	(in thousands)
Patient service revenue:	Patient service revenue:
Medicare
Medicare
Medicare	Medicare	$	213,680	$	105,030	$	44,433	$	195	$	—	$	363,338
Non-Medicare	Non-Medicare	329,118		113,001		224,957		439,779		—		1,106,855
Total patient services revenues	Total patient services revenues	542,798		218,031		269,390		439,974		—		1,470,193
Other revenue	Other revenue	3,110		10,856		17,868		1,383		81,331		114,548
Total revenue	Total revenue	$	545,908	$	228,887	$	287,258	$	441,357	$	81,331	$	1,584,741

Three Months Ended June 30, 2023
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation Concentra Other Total
(in thousands)
Patient service revenue:
Medicare $ 207,743 $ 113,450 $ 46,647 $ 250 $ — $ 368,090
Non-Medicare 366,498 115,436 236,246 465,367 — 1,183,547
Total patient services revenues 574,241 228,886 282,893 465,617 — 1,551,637
Other revenue 850 11,970 20,079 1,462 88,530 122,891
Total revenue $ 575,091 $ 240,856 $ 302,972 $ 467,079 $ 88,530 $ 1,674,528

Six Months Ended June 30, 2022
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation Concentra Other Total
(in thousands)
Patient service revenue:
Medicare $ 432,667 $ 208,051 $ 86,337 $ 372 $ — $ 727,427
Non-Medicare 710,104 220,143 439,070 861,825 — 2,231,142
Total patient services revenues 1,142,771 428,194 525,407 862,197 — 2,958,569
Other revenue 4,892 21,327 33,791 2,583 163,126 225,719
Total revenue $ 1,147,663 $ 449,521 $ 559,198 $ 864,780 $ 163,126 $ 3,184,288

Six Months Ended June 30, 2023
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation Concentra Other Total
(in thousands)
Patient service revenue:
Medicare $ 437,126 $ 223,505 $ 92,448 $ 493 $ — $ 753,572
Non-Medicare 729,803 225,361 468,231 919,965 — 2,343,360
Total patient services revenues 1,166,929 448,866 560,679 920,458 — 3,096,932
Other revenue 2,088 23,452 38,196 2,919 175,921 242,576
Total revenue $ 1,169,017 $ 472,318 $ 598,875 $ 923,377 $ 175,921 $ 3,339,508

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~~12.~~


	Three Months Ended March 31, 2024
	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
	(in thousands)
Patient service revenue:
Medicare	$	226,261	$	126,386	$	45,841	$	266	$	—	$	398,754
Non-Medicare	428,666		126,577		239,613		465,601		—		1,260,457
Total patient services revenues	654,927		252,963		285,454		465,867		—		1,659,211
Other revenue	953		12,737		17,704		1,731		96,473		129,598
Total revenue	$	655,880	$	265,700	$	303,158	$	467,598	$	96,473	$	1,788,809

13. Earnings per Share

The Company’s capital structure includes common stock and unvested restricted stock awards. To compute earnings per share (“EPS”), the Company applies the two-class method because the Company’s unvested restricted stock awards are participating securities which are entitled to participate equally with the Company’s common stock in undistributed earnings. Application of the Company’s two-class method is as follows:

(i)Net income attributable to the Company is reduced by the amount of dividends declared and by the contractual amount of dividends that must be paid for the current period for each class of stock. There were no contractual dividends paid for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 and ~~2023.~~2024.

(ii)The remaining undistributed net income of the Company is then equally allocated to its common stock and unvested restricted stock awards, as if all of the earnings for the period had been distributed. The total net income allocated to each security is determined by adding both distributed and undistributed net income for the period.

(iii)The net income allocated to each security is then divided by the weighted average number of outstanding shares for the period to determine the EPS for each security considered in the two-class method.

The following table sets forth the net income attributable to the Company, its common shares outstanding, and its participating securities outstanding.


		Basic and Diluted EPS
		Three Months Ended June 30,							Six Months Ended June 30,
		2022			2023				2022		2023
		(in thousands)
							Basic and Diluted EPS
							Basic and Diluted EPS
							Basic and Diluted EPS
				Three Months Ended March 31,									Three Months Ended March 31,
								2023						2023		2024
						(in thousands)									(in thousands)
Net income	Net income	$	66,262		$	91,860			$	122,188	$	177,117
Less: net income attributable to non-controlling interests	Less: net income attributable to non-controlling interests	11,055			13,623				17,864		28,075
Net income attributable to the Company	Net income attributable to the Company	55,207			78,237				104,324		149,042
Less: Distributed and undistributed income attributable to participating securities	Less: Distributed and undistributed income attributable to participating securities	1,920			2,877				3,558		5,449
Distributed and undistributed income attributable to common shares	Distributed and undistributed income attributable to common shares	$	53,287		$	75,360			$	100,766	$	143,593

The following tables set forth the computation of EPS under the two-class method:


			Three Months Ended June 30,
			2022					2023
			Net Income Allocation		Shares(1)	Basic and Diluted EPS		Net Income Allocation		Shares(1)	Basic and Diluted EPS
			(in thousands, except for per share amounts)
		Three Months Ended March 31,															Three Months Ended March 31,
		2023													2023			2024
		Net Income Allocation											Net Income Allocation	Shares(1)		Basic and Diluted EPS	Net Income Allocation		Shares(1)	Basic and Diluted EPS
		(in thousands, except for per share amounts)															(in thousands, except for per share amounts)
Common shares	Common shares		$	53,287	124,897	$	0.43	$	75,360	122,634	$	0.61
Participating securities	Participating securities		1,920		4,500	$	0.43	2,877		4,681	$	0.61
Total Company	Total Company		$	55,207				$	78,237

Six Months Ended June 30,
2022 2023
Net Income Allocation
Shares(1)
Basic and Diluted EPS Net Income Allocation
Shares(1)
Basic and Diluted EPS
(in thousands, except for per share amounts)
Common shares $ 100,766 126,942 $ 0.79 $ 143,593 122,594 $ 1.17
Participating securities 3,558 4,482 $ 0.79 5,449 4,652 $ 1.17
Total Company $ 104,324 $ 149,042
~~_______________________________________________________________________________~~

(1) Represents the weighted average share count outstanding during the period.

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~~13.~~14. Commitments and Contingencies

Litigation

The Company is a party to various legal actions, proceedings, and claims (some of which are not insured), and regulatory and other governmental audits and investigations in the ordinary course of its business. The Company cannot predict the ultimate outcome of pending litigation, proceedings, and regulatory and other governmental audits and investigations. These matters could potentially subject the Company to sanctions, damages, recoupments, fines, and other penalties. The Department of Justice, Centers for Medicare & Medicaid Services (“CMS”), or other federal and state enforcement and regulatory agencies may conduct additional investigations related to the Company’s businesses in the future that may, either individually or in the aggregate, have a material adverse effect on the Company’s business, financial position, results of operations, and liquidity.

To address claims arising out of the Company’s operations, the Company maintains professional malpractice liability insurance and general liability insurance coverages through a number of different programs that are dependent upon such factors as the state where the Company is operating and whether the operations are wholly owned or are operated through a joint venture. For the Company’s wholly owned hospital and outpatient clinic operations, the Company currently maintains insurance coverages under a combination of policies with a total annual aggregate limit of up to $37.0 million for professional malpractice liability insurance and $40.0 million for general liability insurance. For the Company’s Concentra center operations, the Company currently maintains insurance coverages under a combination of policies with a total annual aggregate limit of up to ~~$19.0~~$29.0 million for professional malpractice liability insurance and ~~$19.0~~$29.0 million for general liability insurance. The Company’s insurance for the professional liability coverage is written on a “claims-made” basis, and its commercial general liability coverage is maintained on an “occurrence” basis. These coverages apply after a self-insured retention limit is exceeded. For the Company’s joint venture operations, the Company has designed a separate insurance program that responds to the risks of specific joint ventures. Most of the Company’s joint ventures are insured under a master program with an annual aggregate limit of up to $80.0 million, subject to a sublimit aggregate ranging from $23.0 million to $33.0 million. The policies are generally written on a “claims-made” basis. Each of these programs has either a deductible or self-insured retention limit. The Company also maintains additional types of liability insurance covering claims ~~that~~which, due to their nature or amount, are not covered by or not fully covered by the ~~Company’s~~applicable professional malpractice and general liability insurance ~~policies. These~~policies, including workers compensation, property and casualty, directors and officers, cyber liability insurance, and employment practices liability insurance coverages. Our insurance policies ~~also do not~~ generally ~~cover~~are silent with respect to punitive damages so coverage is available to the extent insurable under the law of any applicable jurisdiction, and are subject to various deductibles and policy limits. The Company reviews its insurance program annually and may make adjustments to the amount of insurance coverage and self-insured retentions in future years. Significant legal actions, as well as the cost and possible lack of available insurance, could subject the Company to substantial uninsured liabilities. ~~In the Company’s opinion, the outcome of these actions, individually or in the aggregate, will not have a material adverse effect on its financial position, results of operations, or cash flows.~~

Healthcare providers are subject to lawsuits under the qui tam provisions of the federal False Claims Act. Qui tam lawsuits typically remain under seal (hence, usually unknown to the defendant) for some time while the government decides whether or not to intervene on behalf of a private qui tam plaintiff (known as a relator) and take the lead in the litigation. These lawsuits can involve significant monetary damages and penalties and award bounties to private plaintiffs who successfully bring the suits. The Company is and has been a defendant in these cases in the past, and may be named as a defendant in similar cases from time to time in the future.

Oklahoma City ~~Subpoena.~~Investigation. On August 24, 2020, the Company and Select Specialty Hospital – Oklahoma City, Inc. (“SSH–Oklahoma City”) received ~~Civil Investigative Demands~~civil investigative demands (“CIDs”) from the U.S. Attorney’s Office for the Western District of Oklahoma seeking responses to interrogatories and the production of various documents principally relating to the documentation, billing and reviews of medical services furnished to patients at SSH-Oklahoma City. The Company understands that the investigation arose from a qui tam lawsuit alleging billing fraud related to charges for respiratory therapy services at ~~SSH-Oklahoma~~SSH–Oklahoma City and Select Specialty Hospital -– Wichita, Inc. The Company has produced documents in response to the CIDs and is fully cooperating with this investigation. At this time, the Company is unable to predict the timing and outcome of this matter.

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Physical Therapy Billing. On October 7, 2021, the Company received a letter from a Trial Attorney at the U.S. Department of Justice, Civil Division, Commercial Litigation Branch, Fraud Section (“DOJ”) stating that the DOJ, in conjunction with the U.S. Department of Health and Human Services (“HHS”), is investigating the Company in connection with potential violations of the False Claims Act, 31 U.S.C. § 3729, et seq. The letter specified that the investigation relates to the Company’s billing for physical therapy services, and indicated that the DOJ would be requesting certain records from the Company. In October and December 2021, the DOJ requested, and the Company furnished, records relating to six of the Company’s outpatient therapy clinics in Florida. In 2022 and 2023, the DOJ requested certain data relating to all of the Company’s outpatient therapy clinics nationwide, and sought information about the Company’s ability to produce additional data relating to the physical therapy services furnished by the Company’s outpatient therapy clinics and Concentra. The Company has produced data and other documents requested by the DOJ and is fully cooperating on this investigation. At this time, the Company is unable to predict the timing and outcome of this matter.

California Department of Insurance Investigation. On February 5, 2024, Concentra received a subpoena from the California Department of Insurance relating to an investigation under the California Insurance Frauds Prevention Act (“IFPA”), Cal. Ins. Code § 1871.7 et seq., which allows a whistleblower to file a false claims lawsuit based on the submission of false or fraudulent claims to insurance companies. The subpoena seeks documentation relating mainly to Concentra’s billing and coding for physical therapy claims submitted to commercial insurers and workers compensation carriers located or doing business in California. The Company has produced data and other documents requested by the California Department of Insurance and is fully cooperating on this investigation. At this time, the Company is unable to predict the timing and outcome of this matter.

~~14.~~Perry Johnson & Associates, Inc. Data Breach. On November 10, 2023, Perry Johnson & Associates, Inc., a third-party vendor of health information technology solutions that provides medical transcription services (“PJ&A”), notified Concentra Health Services, Inc. (“Concentra”) that certain information related to particular Concentra patients was potentially affected by a cybersecurity event. In February 2024, Concentra sent notices to almost four million patients who may have been impacted by the data breach. During the first quarter of 2024, Concentra became aware of six putative class action lawsuits files against PJ&A and Concentra related to the data breach. The first was filed in the U.S. District Court for the Eastern District of Michigan on February 19, 2024 by Elliot Curry, individually and on behalf of all others similarly situated. Plaintiff alleged, among other things, that he became the victim of identity theft as a result of the PJ&A data breach and that Concentra had lax data security policies. The second was filed in the U.S. District Court for the Eastern District of New York on February 21, 2024 by Tiffany Williams and Jo Joaquim, individually and on behalf of all others similarly situated. Plaintiffs alleged, among other things, that they face an immediate and heightened risk of identity theft as a result of the data breach and that the defendants failed to take measures to properly safeguard their private information. The third was filed in the U.S. District Court for the Eastern District of Missouri on February 26, 2024 by Stephen Tate, a.k.a. Steven Tate, individually and on behalf of all others similarly situated. Plaintiff alleged, among other things, that he faces a heightened and imminent risk of identity theft as a result of the data breach and that the defendants failed to take measures to properly safeguard his private information. The fourth was filed in the U.S. District Court for the Eastern District of Michigan on February 26, 2024 by Eric Franczak, individually and on behalf of all others similarly situated. Plaintiff alleged, among other things, that he faces a substantially increased risk of fraud and identity theft as a result of the data breach and that the defendants failed to take measures to properly safeguard his private information. The fifth was filed in the U.S. District Court for the Eastern District of Michigan on March 6, 2024 by Lazema Johnson, individually and on behalf of all others similarly situated. Plaintiff alleged, among other things, that she faces a substantially increased risk of fraud and identity theft as a result of the data breach and that the defendants failed to take measures to properly safeguard her private information. The sixth was filed in the Superior Court of California, County of Los Angeles, on April 8, 2024 by Robert Valencia, individually and on behalf of all others similarly situated. Plaintiff alleged, among other things, that he faces a substantially increased risk of fraud and identity theft as a result of the data breach and that the defendants failed to take measures to properly safeguard his private information. The Company is working with its cybersecurity risk insurance policy carrier and does not believe that the data breach or the lawsuits will have a material impact on its operations or financial performance. However, at this time, the Company is unable to predict the timing and outcome of these matters.

15. Subsequent Events

On ~~August 2, 2023,~~May 1, 2024, the Company’s Board of Directors declared a cash dividend of $0.125 per share. The dividend will be payable on or about ~~September 1, 2023,~~May 30, 2024, to stockholders of record as of the close of business on ~~August 15, 2023.~~

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read this discussion together with our unaudited condensed consolidated financial statements and accompanying notes.

Forward-Looking Statements

This report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “target,” “estimate,” “project,” “intend,” and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, including the potential impact of the COVID-19 pandemic on those financial and operating results, our business strategy and means to implement our strategy, our objectives, the amount and timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs, and sources of liquidity.

Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding our services, the expansion of our services, competitive conditions, and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following:

•changes in government reimbursement for our services and/or new payment policies may result in a reduction in revenue, an increase in costs, and a reduction in profitability;

•adverse economic conditions including an inflationary environment could cause us to continue to experience increases in the prices of labor and other costs of doing business resulting in a negative impact on our business, operating results, cash flows, and financial condition;

•shortages in qualified nurses, therapists, physicians, or other licensed providers, and/or the inability to attract or retain qualified healthcare professionals could limit our ability to staff our facilities;

•shortages in qualified health professionals could cause us to increase our dependence on contract labor, increase our efforts to recruit and train new employees, and expand upon our initiatives to retain existing staff, which could increase our operating costs significantly;

•~~the continuing effects~~public threats such as a global pandemic, or widespread outbreak of an infectious disease, similar to the COVID-19 pandemic, ~~including, but not limited to, the prolonged disruption to the~~could negatively impact patient volumes and revenues, increase labor and other operating costs, disrupt global financial markets, ~~increased operational costs due to recessionary pressures and labor costs, additional measures taken by government authorities and the private sector to limit the spread of COVID-19, and~~and/or further legislative and regulatory actions which impact healthcare providers, including actions that may impact the Medicare program;

•~~changes in government reimbursement for our services and/or new payment policies may result in a reduction in revenue, an increase in costs, and a reduction in profitability;~~

•the failure of our Medicare-certified long term care hospitals or inpatient rehabilitation facilities to maintain their Medicare certifications may cause our revenue and profitability to decline;

•the failure of our Medicare-certified long term care hospitals and inpatient rehabilitation facilities operated as “hospitals within hospitals” to qualify as hospitals separate from their host hospitals may cause our revenue and profitability to decline;

•a government investigation or assertion that we have violated applicable regulations may result in sanctions or reputational harm and increased costs;

•acquisitions or joint ventures may prove difficult or unsuccessful, use significant resources, or expose us to unforeseen liabilities;

•our plans and expectations related to our acquisitions and our ability to realize anticipated synergies;

•failure to complete or achieve some or all the expected benefits of the potential separation of Concentra;

•private third-party payors for our services may adopt payment policies that could limit our future revenue and profitability;

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•the failure to maintain established relationships with the physicians in the areas we serve could reduce our revenue and profitability;

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•competition may limit our ability to grow and result in a decrease in our revenue and profitability;

•the loss of key members of our management team could significantly disrupt our operations;

•the effect of claims asserted against us could subject us to substantial uninsured liabilities;

•a security breach of our or our third-party vendors’ information technology systems may subject us to potential legal and reputational harm and may result in a violation of the Health Insurance Portability and Accountability Act of 1996 or the Health Information Technology for Economic and Clinical Health Act; and

•other factors discussed from time to time in our filings with the SEC, including factors discussed under the heading “Risk Factors” in our ~~quarterly reports on Form 10-Q and in our~~ Annual Report on Form 10-K for the year ended December 31, ~~2022.~~2023.

Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the SEC, we are under no obligation to publicly update or revise any forward-looking statements, whether as a result of any new information, future events, or otherwise. You should not place undue reliance on our forward-looking statements. Although we believe that the expectations reflected in forward-looking statements are reasonable, we cannot guarantee future results or performance.

Investors should also be aware that while we do, from time to time, communicate with securities analysts, it is against our policy to disclose to securities analysts any material non-public information or other confidential commercial information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any securities analyst irrespective of the content of the statement or report. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of the Company.

Overview

We began operations in 1997 and, based on number of facilities, are one of the largest operators of critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers in the United States. As of ~~June 30, 2023,~~March 31, 2024, we had operations in 46 states and the District of Columbia. We operated ~~108~~107 critical illness recovery hospitals in 28 states, 3233 rehabilitation hospitals in 1213 states, ~~1,944~~1,922 outpatient rehabilitation clinics in 39 states and the District of Columbia, ~~540~~547 occupational health centers in 41 states, and ~~141~~151 onsite clinics at employer worksites.

Our reportable segments include the critical illness recovery hospital segment, the rehabilitation hospital segment, the outpatient rehabilitation segment, and the Concentra segment. We had revenue of ~~$3,339.5~~$1,788.8 million for the ~~six~~three months ended ~~June 30, 2023.~~March 31, 2024. Of this total, we earned approximately ~~35%~~37% of our revenue from our critical illness recovery hospital segment, approximately ~~14%~~15% from our rehabilitation hospital segment, approximately ~~18%~~17% from our outpatient rehabilitation segment, and approximately ~~28%~~26% from our Concentra segment. Our critical illness recovery hospital segment consists of hospitals designed to serve the needs of patients recovering from critical illnesses, often with complex medical needs, and our rehabilitation hospital segment consists of hospitals designed to serve patients that require intensive physical rehabilitation care. Patients are typically admitted to our critical illness recovery hospitals and rehabilitation hospitals from general acute care hospitals. Our outpatient rehabilitation segment consists of clinics that provide physical, occupational, and speech rehabilitation services. Our Concentra segment consists of occupational health centers that provide workers’ compensation injury care, physical therapy, and consumer health services as well as onsite clinics located at employer worksites that deliver occupational ~~medicine~~health services.

On January 3, 2024, the Company announced its intention to separate Concentra, with the intention to create a new, publicly traded company by the end of the fiscal year 2024. On February 27, 2024, we received a private letter ruling from the U.S. Internal Revenue Service to the effect that the distribution of Concentra’s common stock to Select and our stockholders will be tax-free for U.S federal income tax purposes. On March 18, 2024, Concentra confidentially submitted a draft registration statement on From S-1 with the SEC relating to the proposed initial public offering of its common stock. The number of shares to be offered and the price range for the proposed offering have not yet been determined. The initial public offering is expected to occur after the SEC completes its review process, subject to market and other conditions. There can be no assurance regarding the ultimate timing of the planned separation or that such separation will be completed.

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Impact of the Change Healthcare Cybersecurity Incident

On February 22, 2024, UnitedHealth Group Incorporated indicated in a Form 8-K filing, that a cyber security threat actor had gained access to some of its Change Healthcare information technology systems. Upon receiving notification of the incident, we severed connectivity with all Change Healthcare-related systems and we are not aware of any impact on our own information technology systems. However, as a result of the incident, certain of our patient billing and collections processes were disrupted and alternative platforms needed to be enabled to resume normal patient billing and collections operations. The Company began to reconnect to certain applications maintained by Change Healthcare in late March 2024.

As of March 31, 2024, the impact on the Company was primarily a decrease in cash flows from operations, as further described in Liquidity and Capital Resources, driven by an increase in accounts receivable that is expected to return to more normalized levels in the second and third quarters of 2024. Although we utilized borrowing capacity under our revolving facility to fund the temporary shortfall in cash flows from operations, the Company continues to maintain strong liquidity and to date, the Change Healthcare incident has not had a material impact on the Company’s results of operations or financial condition.

Non-GAAP Measure

We believe that the presentation of Adjusted EBITDA, as defined below, is important to investors because Adjusted EBITDA is commonly used as an analytical indicator of performance by investors within the healthcare industry. Adjusted EBITDA is used by management to evaluate financial performance and determine resource allocation for each of our segments. Adjusted EBITDA is not a measure of financial performance under GAAP. Items excluded from Adjusted EBITDA are significant components in understanding and assessing financial performance. Adjusted EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income, income from operations, cash flows generated by operations, investing or financing activities, or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Because Adjusted EBITDA is not a measurement determined in accordance with GAAP and is thus susceptible to varying definitions, Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies.

We define Adjusted EBITDA as earnings excluding interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, transaction costs associated with the Concentra separation, gain (loss) on sale of businesses, and equity in earnings (losses) of unconsolidated subsidiaries. We will refer to Adjusted EBITDA throughout the remainder of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following table reconciles net income and income from operations to Adjusted EBITDA and should be referenced when we discuss Adjusted EBITDA:




		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2022		2023		2022		2023					2023	2024
		(in thousands)										(in thousands)
Net income	Net income	$	66,262	$	91,860	$	122,188	$	177,117
Income tax expense	Income tax expense	19,820		28,848		37,762		55,033
Interest expense	Interest expense	41,052		48,997		76,566		97,568

Equity in earnings of unconsolidated subsidiaries	Equity in earnings of unconsolidated subsidiaries	(6,167)		(10,501)		(11,564)		(19,057)

Equity in earnings of unconsolidated subsidiaries

Equity in earnings of unconsolidated subsidiaries

Income from operations
Income from operations
Income from operations	Income from operations	120,967		159,204		224,952		310,661
Stock compensation expense:	Stock compensation expense:									Stock compensation expense:
Included in general and administrative	Included in general and administrative	7,046		8,553		13,995		16,958
Included in cost of services	Included in cost of services	1,900		1,773		3,774		3,549
Depreciation and amortization	Depreciation and amortization	51,081		49,939		102,120		102,364
Concentra separation transaction costs(1)
Adjusted EBITDA	Adjusted EBITDA	$	180,994	$	219,469	$	344,841	$	433,532

(1) Concentra separation transaction costs represent incremental consulting, legal, and audit-related fees incurred in connection with the Company’s planned separation of the Concentra segment into a new, publicly traded company and are included within general and administrative expenses on the Condensed Consolidated Statements of Operations.

~~Other Significant Events~~

~~Dividend Payment~~

On February 16, 2023, and May 3, 2023, our Board of Directors declared a cash dividend of $0.125 per share. On both March 15, 2023, and May 31, 2023, cash dividends for both dividend payments totaling $15.9 million were paid.

~~Financing Transaction~~

2320

Table of Contents

Summary Financial Results

Three Months Ended ~~June 30, 2023~~March 31, 2024

The following tables reconcile our segment performance measures to our consolidated operating results:


		Three Months Ended June 30, 2023																		Three Months Ended March 31, 2024
		Critical Illness Recovery Hospital			Rehabilitation Hospital			Outpatient Rehabilitation			Concentra			Other		Total				Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra			Other	Total
		(in thousands)
	(in thousands)																											(in thousands)
Revenue	Revenue	$	575,091		$	240,856		$	302,972		$	467,079		$	88,530	$	1,674,528
Operating expenses	Operating expenses	(509,595)			(186,503)			(270,361)			(366,839)			(132,813)		(1,466,111)
Depreciation and amortization	Depreciation and amortization	(13,886)			(6,887)			(8,779)			(18,283)			(2,104)		(49,939)
Other operating income	Other operating income	—			336			239			151			—		726
Income (loss) from operations	Income (loss) from operations	$	51,610		$	47,802		$	24,071		$	82,108		$	(46,387)	$	159,204
Depreciation and amortization	Depreciation and amortization	13,886			6,887			8,779			18,283			2,104		49,939
Concentra separation transaction costs
Stock compensation expense	Stock compensation expense	—			—			—			—			10,326		10,326
Adjusted EBITDA	Adjusted EBITDA	$	65,496		$	54,689		$	32,850		$	100,391		$	(33,957)	$	219,469
Adjusted EBITDA margin	Adjusted EBITDA margin	11.4		%	22.7		%	10.8		%	21.5		%	N/M		13.1		%	Adjusted EBITDA margin	17.7	%	23.1	%	8.2	%	20.6	%		N/M	14.6	%


		Three Months Ended June 30, 2022																		Three Months Ended March 31, 2023
		Critical Illness Recovery Hospital			Rehabilitation Hospital			Outpatient Rehabilitation			Concentra			Other		Total				Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra			Other	Total
		(in thousands)
	(in thousands)																											(in thousands)
Revenue	Revenue	$	545,908		$	228,887		$	287,258		$	441,357		$	81,331	$	1,584,741
Operating expenses	Operating expenses	(525,889)			(179,042)			(253,657)			(349,267)			(119,963)		(1,427,818)
Depreciation and amortization	Depreciation and amortization	(14,603)			(7,175)			(8,130)			(18,730)			(2,443)		(51,081)
Other operating income (expense)		—			—			—			(19)			15,144		15,125

Income (loss) from operations
Income (loss) from operations
Income (loss) from operations	Income (loss) from operations	$	5,416		$	42,670		$	25,471		$	73,341		$	(25,931)	$	120,967
Depreciation and amortization	Depreciation and amortization	14,603			7,175			8,130			18,730			2,443		51,081
Stock compensation expense	Stock compensation expense	—			—			—			536			8,410		8,946
Adjusted EBITDA	Adjusted EBITDA	$	20,019		$	49,845		$	33,601		$	92,607		$	(15,078)	$	180,994
Adjusted EBITDA margin	Adjusted EBITDA margin	3.7		%	21.8		%	11.7		%	21.0		%	N/M		11.4		%	Adjusted EBITDA margin	12.9	%	20.4	%	10.2	%	20.5	%		N/M	12.9	%

Net income was ~~$91.9~~$117.2 million for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~$66.3~~$85.3 million for the three months ended ~~June 30, 2022.~~March 31, 2023.

The following table summarizes the changes in our segment performance measures for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to the three months ended ~~June 30, 2022:~~March 31, 2023:


		Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total			Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
Change in revenue	Change in revenue	5.3	%	5.2	%	5.5	%	5.8	%	8.9	%	5.7	%	Change in revenue	10.4	%	14.8	%	2.5	%	2.5	%	10.4	%	7.4	%
Change in income from operations	Change in income from operations	852.9	%	12.0	%	(5.5)	%	12.0	%	N/M		31.6	%	Change in income from operations	64.3	%	34.6	%	(27.6)	%	0.3	%	N/M		28.1	%
Change in Adjusted EBITDA	Change in Adjusted EBITDA	227.2	%	9.7	%	(2.2)	%	8.4	%	N/M		21.3	%	Change in Adjusted EBITDA	51.0	%	30.0	%	(17.5)	%	2.6	%	N/M		22.4	%

_______________________________________________________________________________

N/M — Not meaningful.

~~Table of Contents~~

~~Six Months Ended June 30, 2023~~

~~The following tables reconcile our segment performance measures to our consolidated operating results:~~

Six Months Ended June 30, 2023
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation Concentra Other Total
(in thousands)
Revenue $ 1,169,017 $ 472,318 $ 598,875 $ 923,377 $ 175,921 $ 3,339,508
Operating expenses (1,026,748) (370,749) (536,065) (729,567) (264,080) (2,927,209)
Depreciation and amortization (30,523) (13,775) (17,236) (36,593) (4,237) (102,364)
Other operating income — 336 239 151 — 726
Income (loss) from operations $ 111,746 $ 88,130 $ 45,813 $ 157,368 $ (92,396) $ 310,661
Depreciation and amortization 30,523 13,775 17,236 36,593 4,237 102,364
Stock compensation expense — — — 178 20,329 20,507
Adjusted EBITDA $ 142,269 $ 101,905 $ 63,049 $ 194,139 $ (67,830) $ 433,532
Adjusted EBITDA margin 12.2 % 21.6 % 10.5 % 21.0 % N/M 13.0 %

Six Months Ended June 30, 2022
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation Concentra Other Total
(in thousands)
Revenue $ 1,147,663 $ 449,521 $ 559,198 $ 864,780 $ 163,126 $ 3,184,288
Operating expenses (1,091,677) (357,297) (499,001) (683,756) (240,610) (2,872,341)
Depreciation and amortization (29,221) (13,977) (16,159) (37,542) (5,221) (102,120)
Other operating income (expense) — — — (19) 15,144 15,125
Income (loss) from operations $ 26,765 $ 78,247 $ 44,038 $ 143,463 $ (67,561) $ 224,952
Depreciation and amortization 29,221 13,977 16,159 37,542 5,221 102,120
Stock compensation expense — — — 1,071 16,698 17,769
Adjusted EBITDA $ 55,986 $ 92,224 $ 60,197 $ 182,076 $ (45,642) $ 344,841
Adjusted EBITDA margin 4.9 % 20.5 % 10.8 % 21.1 % N/M 10.8 %

~~Net income was $177.1 million for the six months ended June 30, 2023, compared to $122.2 million for the six months ended June 30, 2022.~~

~~The following table summarizes the changes in our segment performance measures for the six months ended June 30, 2023, compared to the six months ended June 30, 2022:~~

Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation Concentra Other Total
Change in revenue 1.9 % 5.1 % 7.1 % 6.8 % 7.8 % 4.9 %
Change in income from operations 317.5 % 12.6 % 4.0 % 9.7 % N/M 38.1 %
Change in Adjusted EBITDA 154.1 % 10.5 % 4.7 % 6.6 % N/M 25.7 %
~~_______________________________________________________________________________~~

~~N/M — Not meaningful.~~

2521

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Regulatory Changes

Our Annual Report on Form 10-K for the year ended December 31, ~~2022,~~2023, filed with the SEC on February ~~23, 2023,~~22, 2024, contains a detailed discussion of the regulations that affect our business in Part I — Business — Government Regulations. The following is a discussion of some of the more significant healthcare regulatory changes that have affected our financial performance in the periods covered by this report, or are likely to affect our financial performance and financial condition in the future. The information below should be read in conjunction with the more detailed discussion of regulations contained in our Form 10-K.

Medicare Reimbursement

The Medicare program reimburses healthcare providers for services furnished to Medicare beneficiaries, which are generally persons age 65 and older, those who are chronically disabled, and those suffering from end stage renal disease. The program is governed by the Social Security Act of 1965 and is administered primarily by the Department of Health and Human Services (“HHS”) and CMS. Revenue generated directly from the Medicare program represented approximately 22% and 23% of our revenue for the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, and for the year ended December 31, ~~2022.~~2023, respectively.

Federal Health Care Program Changes in Response to the COVID-19 Pandemic

On January 31, 2020, HHS declared a public health emergency under section 319 of the Public Health Service Act, 42 U.S.C. § 247d, in response to the COVID-19 outbreak in the United States. The HHS Secretary renewed the public health emergency determination for subsequent 90-day periods ~~until February 9, 2023. On February 9,~~through May 11, 2023, the ~~HHS Secretary signed the final renewal and~~end of the public health ~~emergency ended on May 11, 2023.~~emergency. The COVID-19 national emergency that was declared by President Trump on March 13, 2020, which was separate from the public health emergency, ended on April 10, 2023 when H.R.J. Res. 7 was signed into law.

As a result of the COVID-19 national emergency, the HHS Secretary authorized the waiver or modification of certain requirements under Medicare, Medicaid, and the Children’s Health Insurance Program (“CHIP”) pursuant to section 1135 of the Social Security Act. Under this authority, CMS issued a number of blanket waivers that excused health care providers or suppliers from specific program requirements. Our Annual Report on Form 10-K for the year ended December 31, ~~2022~~2023, contains a detailed discussion of the federal health care program changes made in response to the COVID-19 pandemic, including these COVID-19 waivers, in Part II — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Regulatory Changes. Most of these COVID-19 waivers, including the waiver of the IRF 60% Rule and the waiver of Medicare statutory requirements regarding site neutral payments to long-term care hospitals (“LTCHs”), ended when the public health emergency expired on May 11, 2023. However, LTCHs are exempt from the greater-than-25-day average length of stay requirement for all cost reporting periods that include the COVID-19 public health emergency period. As a result, LTCH cost reporting periods that started prior to May 11, 2023, will continue to be exempt for the remainder of that cost reporting year. However, LTCH cost reporting periods that begin on or after May 11, 2023, must comply with the greater-than-25-day average length of stay requirement.

In addition, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and related legislation temporarily suspended the 2% cut to Medicare payments due to sequestration from May 1, 2020, through March 31, 2022, and reduced the sequestration adjustment from 2% to 1% from April 1 through June 30, 2022. The full 2% reduction resumed on July 1, 2022. To pay for this relief, Congress increased the sequestration cut to Medicare payments to 2.25% for the first six months of fiscal year 2030 and to 3% for the final six months of fiscal year 2030. Additionally, an across-the-board 4% payment cut required to take effect in January 2022 due to the American Rescue Plan from the FY 2022 Statutory Pay-As-You-Go (“PAYGO”) scorecard was deferred by Congress until 2025.

The CARES Act and related legislation also provided more than $178 billion in appropriations for the Public Health and Social Services Emergency Fund, also known as the Provider Relief Fund, to be used for preventing, preparing, and responding to COVID-19 and for reimbursing “eligible health care providers for health care related expenses or lost revenues that are attributable to coronavirus.” HHS began distributing these funds to providers in April 2020. Recipients of payments were required to report data to HHS on the use of the funds via an online portal by specific deadlines established by HHS based on the date of the payment. All recipients of funds are subject to audit by HHS, the HHS OIG, or the Pandemic Response Accountability Committee. Audits may include examination of the accuracy of the data providers submitted to HHS in their applications for payments. Additional distributions are not expected and as a result, the Company does not expect to recognize additional income associated with these funds in the future.

2622

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Medicare Reimbursement of LTCH Services

The following is a summary of significant regulatory changes to the Medicare prospective payment system for our critical illness recovery hospitals, which are certified by Medicare as LTCHs, which have affected our results of operations, as well as the policies and payment rates that may affect our future results of operations. Medicare payments to our critical illness recovery hospitals are made in accordance with the long-term care hospital prospective payment system (“LTCH-PPS”).

Fiscal Year ~~2022.~~ On August 13, 2021, CMS published the final rule updating policies and payment rates for the LTCH-PPS for fiscal year 2022 (affecting discharges and cost reporting periods beginning on or after October 1, 2021, through September 30, 2022). The standard federal rate was set at $44,714, an increase from the standard federal rate applicable during fiscal year 2021 of $43,755. The update to the standard federal rate for fiscal year 2022 included a market basket increase of 2.6%, less a productivity adjustment of 0.7%. The standard federal rate also included an area wage budget neutrality factor of 1.002848. The fixed-loss amount for high cost outlier cases paid under LTCH-PPS was set at $33,015, an increase from the fixed-loss amount in the 2021 fiscal year of $27,195. The fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate was set at $30,988, an increase from the fixed-loss amount in the 2021 fiscal year of $29,064.

~~Fiscal Year~~ 2023. On August 10, 2022, CMS published the final rule updating policies and payment rates for the LTCH-PPS for fiscal year 2023 (affecting discharges and cost reporting periods beginning on or after October 1, 2022, through September 30, 2023). Certain errors in the final rule were corrected in documents published November 4, 2022, and December 13, 2022. The standard federal rate for fiscal year 2023 iswas set at $46,433, an increase from the standard federal rate applicable during fiscal year 2022 of $44,714. The update to the standard federal rate for fiscal year 2023 ~~includes~~included a market basket increase of 4.1%, less a productivity adjustment of 0.3%. The standard federal rate also ~~includes~~included an area wage budget neutrality factor of 1.0004304. As a result of the CARES Act, all LTCH cases ~~are~~were paid at the standard federal rate during the public health emergency. When the public health emergency ended on May 11, 2023, CMS returned to using the site-neutral payment rate for reimbursement of cases that do not meet the LTCH patient criteria. The fixed-loss amount for high cost outlier cases paid under LTCH-PPS iswas set at $38,518, an increase from the fixed-loss amount in the 2022 fiscal year of $33,015. The fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate iswas set at $38,788, an increase from the fixed-loss amount in the 2022 fiscal year of $30,988.

Fiscal Year 2024. On August 1,28, 2023, CMS published ~~a display copy of~~ the final rule ~~to update~~updating policies and payment rates for the LTCH-PPS for fiscal year 2024 (affecting discharges and cost reporting periods beginning on or after October 1, 2023, through September 30, 2024). Certain errors in the final rule were corrected in a document published on October 4, 2023. The standard federal rate for fiscal year 2024 is $48,117, an increase from the standard federal rate applicable during fiscal year 2023 of $46,433. The update to the standard federal rate for fiscal year 2024 includes a market basket increase of 3.5%, less a productivity adjustment of 0.2%. The standard federal rate also includes an area wage budget neutrality factor of 1.0031599. The fixed-loss amount for high cost outlier cases paid under LTCH-PPS is $59,873, an increase from the fixed-loss amount in the 2023 fiscal year of $38,518. The fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate is $42,750, an increase from the fixed-loss amount in the 2023 fiscal year of $38,788.

Fiscal Year 2025. On April 10, 2024, CMS released a display copy of the proposed rule to update policies and payment rates for the LTCH-PPS for fiscal year 2025 (affecting discharges and cost reporting periods beginning on or after October 1, 2024, through September 30, 2025). CMS is expected to issue the final rule in August or shortly thereafter. The proposed standard federal rate for fiscal year 2025 is $49,263, an increase from the standard federal rate applicable during fiscal year 2024 of $48,117. The proposed update to the standard federal rate for fiscal year 2025 includes a market basket increase of 3.2%, less a productivity adjustment of 0.4%. The proposed standard federal rate also includes an area wage budget neutrality factor of 0.9959347. The proposed fixed-loss amount for high cost outlier cases paid under LTCH-PPS is $90,921, an increase from the fixed-loss amount in the 2024 fiscal year of $59,873. The proposed fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate is $49,237, an increase from the fixed-loss amount in the 2024 fiscal year of $42,750.

Medicare Reimbursement of IRF Services

The following is a summary of significant regulatory changes to the Medicare prospective payment system for our rehabilitation hospitals, which are certified by Medicare as IRFs, which have affected our results of operations, as well as the policies and payment rates that may affect our future results of operations. Medicare payments to our rehabilitation hospitals are made in accordance with the inpatient rehabilitation facility prospective payment system (“IRF-PPS”).

~~Fiscal Year 2022.~~ On August 4, 2021, CMS published the final rule updating policies and payment rates for the IRF-PPS for fiscal year 2022 (affecting discharges and cost reporting periods beginning on or after October 1, 2021, through September 30, 2022). The standard payment conversion factor for discharges for fiscal year 2022 was set at $17,240, an increase from the standard payment conversion factor applicable during fiscal year 2021 of $16,856. The update to the standard payment conversion factor for fiscal year 2022 included a market basket increase of 2.6%, less a productivity adjustment of 0.7%. CMS increased the outlier threshold amount for fiscal year 2022 to $9,491 from $7,906 established in the final rule for fiscal year 2021.

Fiscal Year 2023. On August 1, 2022, CMS published the final rule updating policies and payment rates for the IRF-PPS for fiscal year 2023 (affecting discharges and cost reporting periods beginning on or after October 1, 2022, through September 30, 2023). The standard payment conversion factor for discharges for fiscal year 2023 was set at $17,878, an increase from the standard payment conversion factor applicable during fiscal year 2022 of $17,240. The update to the standard payment conversion factor for fiscal year 2023 included a market basket increase of 4.2%, less a productivity adjustment of 0.3%. CMS increased the outlier threshold amount for fiscal year 2023 to $12,526 from $9,491 established in the final rule for fiscal year 2022.

Table of Contents

Fiscal Year 2024. On August 2, 2023, CMS published the final rule to update policies and payment rates for the IRF-PPS for fiscal year 2024 (affecting discharges and cost reporting periods beginning on or after October 1, 2023, through September 30, 2024). Certain errors in the final rule were corrected in a document published on October 4, 2023. The standard payment conversion factor for discharges for fiscal year 2024 was set at $18,541, an increase from the standard payment conversion factor applicable during fiscal year 2023 of $17,878. The update to the standard payment conversion factor for fiscal year 2024 included a market basket increase of 3.6%, less a productivity adjustment of 0.2%. CMS decreased the outlier threshold amount for fiscal year 2024 to $10,423 from $12,526 established in the final rule for fiscal year 2023.

Fiscal Year 2025. On March 29, 2024, CMS published a proposed rule to update policies and payment rates for the IRF-PPS for fiscal year 2025 (affecting discharges and cost reporting periods beginning on or after October 1, 2024, through September 30, 2025). The standard payment conversion factor for discharges for fiscal year 2025 would be set at $18,872, an increase from the standard payment conversion factor applicable during fiscal year 2024 of $18,541. The update to the standard payment conversion factor for fiscal year 2025, if adopted, would include a market basket increase of 3.2%, less a productivity adjustment of 0.4%. CMS proposed to increase the outlier threshold amount for fiscal year 2025 to $12,158 from $10,423 established in the final rule for fiscal year 2024.

Medicare Reimbursement of Outpatient Rehabilitation Clinic Services

Our Annual Report on Form 10-K for the year ended December 31, 2023 contains a detailed discussion of Medicare reimbursement that affects our outpatient rehabilitation clinic operations in Part I — Business — Government Regulations and in Part II — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Regulatory Changes. Outpatient rehabilitation providers enroll in Medicare as a rehabilitation agency, a clinic, or a public health agency. The Medicare program reimburses outpatient rehabilitation providers based on the Medicare physician fee schedule. In

For calendar years 2021 and 2022, CMS’s expected decreases in Medicare reimbursement were mostly offset by one-time increases in payments as a result of other legislation passed by Congress. Payments under the ~~display copy of the calendar year 2024~~2023 MPFS physician fee schedule proposed rule, CMS calculated the payment rates without the 2.5% payment increase to calendar year 2023 rates from the Consolidated Appropriations Act of 2023, but with 1.25% payment increase to calendar year 2024 rates from that legislation. As a result of the lower statutory payment increasedecreased by 2%, and for calendar year 2024, ~~and a negative 2.17% budget neutrality adjustment associated with changes to the relative value units, physician fee schedule payments are expected to decrease~~final CMS policies resulted in ~~2024. CMS expects that its proposed policies for 2024 would result in a 2%~~an approximate 3% decrease in Medicare payments for the therapy specialty. ~~CMS~~On March 9, 2024, President Biden signed into law the Consolidated Appropriations Act, 2024, which mitigated Medicare physician payment cuts by 1.68%, resulting in a lower, 1.69% cut to payments. The full 3.37% cut was applied to payments for services provided between January 1, 2024 and the March 9, 2024 effective date. The Consolidated Appropriations Act, 2024 also ~~proposes changes~~extends the Medicare physician work geographic index floor through December 31, 2024. The steps Congress has taken to reduce the ~~quality payment program, including a transition from the Merit‑Based Incentive Payment System (“MIPS”)~~cuts to the MIPS Value Pathways (“MVPs”). First, CMS proposes revisions to the existing set of 12 MVPs that it previously adopted in the calendar year 2022 and 2023 final rules. CMS would remove certain improvement activities from these MVPs and add other quality measures for MVP participants to choose from for data reporting. CMS also proposes to consolidate two of the existing MVPs into a single primary care MVP. Finally, CMS proposed to add five new MVPs. According to CMS, the proposed Rehabilitation Support of Musculoskeletal Care MVP will be most applicable to clinicians who specialize in rehabilitation support for musculoskeletal care, including physical therapists and occupational therapists. If finalized, these new MVPs would be available for voluntary reportingMedicare physician payments for the ~~calendar year~~remainder of 2024 ~~performance period.~~are temporary and will not carry over into 2025.

Modifiers to Identify Services of Physical Therapy Assistants or Occupational Therapy Assistants

Our Annual Report on Form 10-K for the year ended December 31, ~~2022~~2023, contains a detailed discussion of Medicare regulations concerning services provided by physical therapy assistants and occupational therapy assistants in Part I — Business — Government Regulations and in Part II — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Regulatory Changes. There have been no significant updates to these regulations subsequently.

2824

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Operating Statistics

The following table sets forth operating statistics for each of our segments for the periods presented. The operating statistics reflect data for the period of time we managed these operations. Our operating statistics include metrics we believe provide relevant insight about the number of facilities we operate, volume of services we provide to our patients, and average payment rates for services we provide. These metrics are utilized by management to monitor trends and performance in our businesses and therefore may be important to investors because management may assess our performance based in part on such metrics. Other healthcare providers may present similar statistics, and these statistics are susceptible to varying definitions. Our statistics as presented may not be comparable to other similarly titled statistics of other companies.




		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
		2022			2023			2022			2023					2023		2024
Critical illness recovery hospital data:	Critical illness recovery hospital data:													Critical illness recovery hospital data:
Number of consolidated hospitals—start of period(1)	Number of consolidated hospitals—start of period(1)	105			105			104			103
Number of hospitals acquired	Number of hospitals acquired	2			1			2			1
Number of hospital start-ups	Number of hospital start-ups	—			2			1			4
Number of hospitals closed/sold	Number of hospitals closed/sold	(2)			—			(2)			—
Number of consolidated hospitals—end of period(1)	Number of consolidated hospitals—end of period(1)	105			108			105			108

Available licensed beds(3)	Available licensed beds(3)	4,509			4,547			4,509			4,547

Available licensed beds(3)

Available licensed beds(3)
Admissions(3)(4)	Admissions(3)(4)	8,806			8,925			18,263			18,363
Patient days(3)(5)	Patient days(3)(5)	273,133			276,366			562,350			563,112
Average length of stay (days)(3)(6)	Average length of stay (days)(3)(6)	30			30			30			30
Revenue per patient day(3)(7)	Revenue per patient day(3)(7)	$	1,987		$	2,076		$	2,032		$	2,067
Occupancy rate(3)(8)	Occupancy rate(3)(8)	67		%	68		%	69		%	70		%	Occupancy rate(3)(8)		72	%	71	%
Percent patient days—Medicare(3)(9)	Percent patient days—Medicare(3)(9)	41		%	37		%	39		%	38		%	Percent patient days—Medicare(3)(9)		39	%	36	%
Rehabilitation hospital data:	Rehabilitation hospital data:
Number of consolidated hospitals—start of period(1)
Number of consolidated hospitals—start of period(1)
Number of consolidated hospitals—start of period(1)	Number of consolidated hospitals—start of period(1)	20			20			20			20
Number of hospitals acquired	Number of hospitals acquired	—			—			—			—
Number of hospital start-ups	Number of hospital start-ups	—			—			—			—
Number of hospitals closed/sold	Number of hospitals closed/sold	—			—			—			—
Number of consolidated hospitals—end of period(1)	Number of consolidated hospitals—end of period(1)	20			20			20			20
Number of unconsolidated hospitals managed—end of period(2)	Number of unconsolidated hospitals managed—end of period(2)	11			12			11			12
Total number of hospitals (all)—end of period	Total number of hospitals (all)—end of period	31			32			31			32
Available licensed beds(3)	Available licensed beds(3)	1,391			1,443			1,391			1,443
Admissions(3)(4)	Admissions(3)(4)	7,450			7,865			14,632			15,523
Patient days(3)(5)	Patient days(3)(5)	108,812			109,680			212,614			218,047
Average length of stay (days)(3)(6)	Average length of stay (days)(3)(6)	15			14			15			14
Revenue per patient day(3)(7)	Revenue per patient day(3)(7)	$	1,928		$	2,008		$	1,935		$	1,989
Occupancy rate(3)(8)	Occupancy rate(3)(8)	86		%	84		%	85		%	85		%	Occupancy rate(3)(8)		86	%	87	%
Percent patient days—Medicare(3)(9)	Percent patient days—Medicare(3)(9)	47		%	48		%	47		%	49		%	Percent patient days—Medicare(3)(9)		49	%	49	%
Outpatient rehabilitation data:	Outpatient rehabilitation data:
Number of consolidated clinics—start of period	Number of consolidated clinics—start of period	1,584			1,632			1,572			1,622
Number of consolidated clinics—start of period
Number of consolidated clinics—start of period
Number of clinics acquired	Number of clinics acquired	8			4			10			13
Number of clinic start-ups	Number of clinic start-ups	13			9			25			21
Number of clinics closed/sold	Number of clinics closed/sold	(6)			(7)			(8)			(18)
Number of consolidated clinics—end of period	Number of consolidated clinics—end of period	1,599			1,638			1,599			1,638
Number of unconsolidated clinics managed—end of period	Number of unconsolidated clinics managed—end of period	321			306			321			306
Total number of clinics (all)—end of period	Total number of clinics (all)—end of period	1,920			1,944			1,920			1,944
Number of visits(3)(10)	Number of visits(3)(10)	2,450,912			2,720,490			4,760,998			5,357,260
Revenue per visit(3)(11)	Revenue per visit(3)(11)	$	103		$	100		$	103		$	100

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		Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
		2022		2023		2022		2023			2023	2024
Concentra data:	Concentra data:
Number of consolidated centers—start of period
Number of consolidated centers—start of period
Number of consolidated centers—start of period	Number of consolidated centers—start of period	518		539		518		540
Number of centers acquired	Number of centers acquired	2		1		3		1
Number of center start-ups	Number of center start-ups	—		—		—		—
Number of centers closed/sold	Number of centers closed/sold	(2)		—		(3)		(1)
Number of consolidated centers—end of period	Number of consolidated centers—end of period	518		540		518		540
Number of onsite clinics operated—end of period	Number of onsite clinics operated—end of period	148		141		148		141

Number of visits(3)(10)	Number of visits(3)(10)	3,214,512		3,267,894		6,331,410		6,485,839
Number of visits(3)(10)
Number of visits(3)(10)
Revenue per visit(3)(11)	Revenue per visit(3)(11)	$	127	$	134	$	126	$	134

(1)Represents the number of hospitals included in our consolidated financial results at the end of each period presented.

(2)Represents the number of hospitals which are managed by us at the end of each period presented. We have minority ownership interests in these businesses.

(3)Data excludes locations managed by the Company. For purposes of our Concentra segment, onsite clinics are excluded.

(4)Represents the number of patients admitted to our hospitals during the periods presented.

(5)Each patient day represents one patient occupying one bed for one day during the periods presented.

(6)Represents the average number of days in which patients were admitted to our hospitals. Average length of stay is calculated by dividing the number of patient days, as presented above, by the number of patients discharged from our hospitals during the periods presented.

(7)Represents the average amount of revenue recognized for each patient day. Revenue per patient day is calculated by dividing patient service revenues, excluding revenues from certain other ancillary and outpatient services provided at our hospitals, by the total number of patient days.

(8)Represents the portion of our hospitals being utilized for patient care during the periods presented. Occupancy rate is calculated using the number of patient days, as presented above, divided by the total number of bed days available during the period. Bed days available is derived by adding the daily number of available licensed beds for each of the periods presented.

(9)Represents the portion of our patient days which are paid by Medicare. The Medicare patient day percentage is calculated by dividing the total number of patient days which are paid by Medicare by the total number of patient days, as presented above.

(10)Represents the number of visits in which patients were treated at our outpatient rehabilitation clinics and Concentra centers during the periods presented. ~~COVID-19 screening and testing services provided by our Concentra segment are not included in these figures.~~

(11)Represents the average amount of revenue recognized for each patient visit. Revenue per visit is calculated by dividing patient service revenue, excluding revenues from certain other ancillary services, by the total number of visits. ~~For purposes of this computation for our Concentra segment, patient service revenue does not include onsite clinics or revenues generated from COVID-19 screening and testing services.~~

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Results of Operations

The following table outlines selected operating data as a percentage of revenue for the periods indicated:




		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2022		2023		2022		2023				2023		2024
Revenue	Revenue	100.0	%	100.0	%	100.0	%	100.0	%	Revenue		100.0	%	100.0	%
Costs and expenses:	Costs and expenses:
Cost of services, exclusive of depreciation and amortization(1)
Cost of services, exclusive of depreciation and amortization(1)
Cost of services, exclusive of depreciation and amortization(1)	Cost of services, exclusive of depreciation and amortization(1)	87.7		85.0		87.9		85.1
General and administrative	General and administrative	2.4		2.5		2.3		2.5
Depreciation and amortization	Depreciation and amortization	3.3		3.0		3.2		3.1
Total costs and expenses	Total costs and expenses	93.4		90.5		93.4		90.7
Other operating income	Other operating income	1.0		—		0.5		—
Income from operations	Income from operations	7.6		9.5		7.1		9.3

Equity in earnings of unconsolidated subsidiaries	Equity in earnings of unconsolidated subsidiaries	0.4		0.6		0.4		0.6
Equity in earnings of unconsolidated subsidiaries
Equity in earnings of unconsolidated subsidiaries

Interest expense

Interest expense

Interest expense	Interest expense	(2.6)		(2.9)		(2.5)		(2.9)
Income before income taxes	Income before income taxes	5.4		7.2		5.0		7.0
Income tax expense	Income tax expense	1.2		1.7		1.2		1.7
Net income	Net income	4.2		5.5		3.8		5.3
Net income attributable to non-controlling interests	Net income attributable to non-controlling interests	0.7		0.8		0.5		0.8
Net income attributable to Select Medical Holdings Corporation	Net income attributable to Select Medical Holdings Corporation	3.5	%	4.7	%	3.3	%	4.5	%	Net income attributable to Select Medical Holdings Corporation		4.3	%	5.4	%

(1)Cost of services includes salaries, wages and benefits, operating supplies, lease and rent expense, and other operating costs.

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The following table summarizes selected financial data by segment for the periods indicated:




		Three Months Ended June 30,								Six Months Ended June 30,									Three Months Ended March 31,
		2022			2023			% Change		2022			2023			% Change					2023				2024					% Change
		(in thousands, except percentages)																		(in thousands, except percentages)
Revenue:	Revenue:																	Revenue:
Critical illness recovery hospital	Critical illness recovery hospital	$	545,908		$	575,091		5.3	%	$	1,147,663		$	1,169,017		1.9	%	Critical illness recovery hospital			$	593,926		$	$	655,880		10.4			10.4	%
Rehabilitation hospital	Rehabilitation hospital	228,887			240,856			5.2		449,521			472,318			5.1
Outpatient rehabilitation	Outpatient rehabilitation	287,258			302,972			5.5		559,198			598,875			7.1
Concentra	Concentra	441,357			467,079			5.8		864,780			923,377			6.8
Other(1)	Other(1)	81,331			88,530			8.9		163,126			175,921			7.8
Total Company	Total Company	$	1,584,741		$	1,674,528		5.7	%	$	3,184,288		$	3,339,508		4.9	%	Total Company			$	1,664,980		$	$	1,788,809		7.4			7.4	%
Income (loss) from operations:	Income (loss) from operations:																	Income (loss) from operations:
Critical illness recovery hospital	Critical illness recovery hospital	$	5,416		$	51,610		852.9	%	$	26,765		$	111,746		317.5	%	Critical illness recovery hospital			$	60,136		$	$	98,783		64.3			64.3	%
Rehabilitation hospital	Rehabilitation hospital	42,670			47,802			12.0		78,247			88,130			12.6
Outpatient rehabilitation	Outpatient rehabilitation	25,471			24,071			(5.5)		44,038			45,813			4.0
Concentra	Concentra	73,341			82,108			12.0		143,463			157,368			9.7
Other(1)	Other(1)	(25,931)			(46,387)			N/M		(67,561)			(92,396)			N/M		Other(1)			(46,009)			(50,326)		(50,326)			N/M			N/M
Total Company	Total Company	$	120,967		$	159,204		31.6	%	$	224,952		$	310,661		38.1	%	Total Company			$	151,457		$	$	193,967		28.1			28.1	%
Adjusted EBITDA:	Adjusted EBITDA:																	Adjusted EBITDA:
Critical illness recovery hospital	Critical illness recovery hospital	$	20,019		$	65,496		227.2	%	$	55,986		$	142,269		154.1	%	Critical illness recovery hospital			$	76,773		$	$	115,940		51.0			51.0	%
Rehabilitation hospital	Rehabilitation hospital	49,845			54,689			9.7		92,224			101,905			10.5
Outpatient rehabilitation	Outpatient rehabilitation	33,601			32,850			(2.2)		60,197			63,049			4.7
Concentra	Concentra	92,607			100,391			8.4		182,076			194,139			6.6
Other(1)	Other(1)	(15,078)			(33,957)			N/M		(45,642)			(67,830)			N/M		Other(1)			(33,873)			(36,493)		(36,493)			N/M			N/M
Total Company	Total Company	$	180,994		$	219,469		21.3	%	$	344,841		$	433,532		25.7	%	Total Company			$	214,063		$	$	261,917		22.4			22.4	%
Adjusted EBITDA margins:	Adjusted EBITDA margins:																	Adjusted EBITDA margins:
Critical illness recovery hospital	Critical illness recovery hospital	3.7		%	11.4		%			4.9		%	12.2		%			Critical illness recovery hospital			12.9		%		17.7		%
Rehabilitation hospital	Rehabilitation hospital	21.8			22.7					20.5			21.6
Outpatient rehabilitation	Outpatient rehabilitation	11.7			10.8					10.8			10.5
Outpatient rehabilitation
Outpatient rehabilitation																					10.2				8.2
Concentra	Concentra	21.0			21.5					21.1			21.0					Concentra			20.5			20.6		20.6
Other(1)	Other(1)	N/M			N/M					N/M			N/M					Other(1)			N/M				N/M
Total Company	Total Company	11.4		%	13.1		%			10.8		%	13.0		%			Total Company			12.9		%		14.6		%
Total assets:	Total assets:																	Total assets:
Critical illness recovery hospital	Critical illness recovery hospital	$	2,387,516		$	2,492,370				$	2,387,516		$	2,492,370				Critical illness recovery hospital			$	2,507,265		$	$	2,608,979
Rehabilitation hospital	Rehabilitation hospital	1,194,739			1,209,737					1,194,739			1,209,737
Outpatient rehabilitation	Outpatient rehabilitation	1,360,600			1,399,782					1,360,600			1,399,782
Outpatient rehabilitation
Outpatient rehabilitation																					1,397,823				1,423,740
Concentra	Concentra	2,301,296			2,314,328					2,301,296			2,314,328					Concentra			2,300,632			2,362,848		2,362,848
Other(1)	Other(1)	307,507			285,652					307,507			285,652					Other(1)			290,947			228,868		228,868
Total Company	Total Company	$	7,551,658		$	7,701,869				$	7,551,658		$	7,701,869				Total Company			$	7,699,736		$	$	7,858,263
Purchases of property, equipment, and other assets:	Purchases of property, equipment, and other assets:																	Purchases of property, equipment, and other assets:
Critical illness recovery hospital	Critical illness recovery hospital	$	19,528		$	31,363				$	39,097		$	55,021
Rehabilitation hospital	Rehabilitation hospital	4,821			1,903					11,095			10,485
Rehabilitation hospital
Rehabilitation hospital																					8,582				7,101
Outpatient rehabilitation	Outpatient rehabilitation	9,314			10,476					18,728			20,408					Outpatient rehabilitation			9,932			9,500		9,500
Concentra	Concentra	8,716			15,846					18,956			30,246					Concentra			14,400			17,231		17,231
Other(1)	Other(1)	3,953			(74)					5,301			2,239					Other(1)			2,313			2,744		2,744
Total Company	Total Company	$	46,332		$	59,514				$	93,177		$	118,399				Total Company			$	58,885		$	$	52,517

(1) Other includes our corporate administration and shared services, as well as employee leasing services with our non-consolidating subsidiaries. Total assets include certain non-consolidating joint ventures and minority investments in other healthcare related businesses.

N/M — Not meaningful.

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Three Months Ended ~~June 30, 2023,~~March 31, 2024, Compared to Three Months Ended ~~June 30, 2022~~March 31, 2023

For the three months ended ~~June 30, 2023,~~March 31, 2024, we had revenue of ~~$1,674.5~~$1,788.8 million and income from operations of ~~$159.2~~$194.0 million, respectively, as compared to revenue of ~~$1,584.7~~$1,665.0 million and income from operations of ~~$121.0~~$151.5 million for the three months ended ~~June 30, 2022.~~March 31, 2023. For the three months ended ~~June 30, 2023,~~March 31, 2024, Adjusted EBITDA was ~~$219.5~~$261.9 million, with an Adjusted EBITDA margin of ~~13.1%~~14.6%, as compared to Adjusted EBITDA of ~~$181.0~~$214.1 million and an Adjusted EBITDA margin of ~~11.4%~~12.9% for the three months ended ~~June 30, 2022.~~March 31, 2023, respectively.

~~The most~~A significant contributor to the improvement in our financial performance for the three months ended ~~June 30, 2023,~~March 31, 2024, as compared to the three months ended ~~June 30, 2022,~~March 31, 2023, was ~~a decrease~~the increase in ~~labor costs~~revenue in our ~~critical illness recovery hospital segment~~Critical Illness Recovery Hospital and Rehabilitation Hospital segments, as the investments we made in the recruitment, hiring, and retention of full-time staff in 2022 resulted in a significant decrease in contract labor utilization. Additionally, reduced demand in the marketplace resulted in lower contract labor rates, which further contributed to the decrease in total contract labor costs. We believe the ratio of personnel expense to net revenue for the critical illness recovery hospital segment for the three months ended June 30, 2023, is indicative of a more stabilized labor environment. Other operating income during the three months ended June 30, 2022 included $15.1 million primarily related to the recognition of payments receiveddiscussed below under the Provider Relief Fund for health care related expenses and lost revenues attributable to COVID-19. There was no Provider Relief Fund related revenue recognized in other operating income during the three months ended June 30, 2023.“Revenue.”

Revenue

Critical Illness Recovery Hospital Segment. Revenue increased ~~5.3%~~10.4% to ~~$575.1~~$655.9 million for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~$545.9~~$593.9 million for the three months ended ~~June 30, 2022. The increase in revenue was principally due to an increase in revenue per patient day.~~March 31, 2023. Revenue per patient day increased ~~4.5%~~7.8% to ~~$2,076~~$2,219 for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~$1,987~~$2,058 for the three months ended ~~June 30, 2022.~~March 31, 2023. Our patient days increased ~~1.2%~~2.7% to ~~276,366~~294,622 for the three months ended March 31, 2024, compared to 286,746 days for the three months ended ~~June 30, 2023, compared to 273,133 days for the three months ended June 30, 2022. Occupancy~~March 31, 2023. Occupancy in our critical illness recovery hospitals was ~~68%~~71% and ~~67%~~72% for the three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ respectively.

Rehabilitation Hospital Segment. Revenue increased ~~5.2%~~14.8% to ~~$240.9~~$265.7 million for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~$228.9~~$231.5 million for the three months ended June 30, 2022. The increase in revenue was principally due to an increase in revenue per patient day. Revenue per patient day increased 4.1% to $2,008 for the three months ended June 30, 2023, compared to $1,928 for the three months ended June 30, 2022.March 31, 2023. Our patient days increased ~~0.8%~~8.3% to ~~109,680~~116,844 days for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~108,812~~107,910 days for the three months ended ~~June 30, 2022.~~March 31, 2023. Revenue per patient day increased 6.4% to $2,096 for the three months ended March 31, 2024, compared to $1,969 for the three months ended March 31, 2023. Occupancy in our rehabilitation hospitals was ~~84%~~87% and 86% for the three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ respectively.

Outpatient Rehabilitation Segment. Revenue increased ~~5.5%~~2.5% to ~~$303.0~~$303.2 million for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~$287.3~~$295.9 million for the three months ended ~~June 30, 2022.~~March 31, 2023. The increase in revenue was attributable to patient visits, which increased ~~11.0%~~3.7% to ~~2,720,490~~2,735,126 visits for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~2,450,912~~2,636,770 visits for the three months ended ~~June 30, 2022.~~March 31, 2023. Our revenue per visit was ~~$100~~$99 for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~$103~~$101 for the three months ended ~~June 30, 2022. The decrease in revenue per visit was primarily attributable~~March 31, 2023, principally due to a decrease in Medicare reimbursement ~~including the impact of sequestration as discussed above under “Regulatory Changes~~”,and changes in payor ~~mix, and an increase in variable discounts.~~mix.

Concentra Segment. Revenue increased ~~5.8%~~2.5% to ~~$467.1~~$467.6 million for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~$441.4~~$456.3 million for the three months ended ~~June 30, 2022.~~March 31, 2023. The increase in revenue was ~~primarily due~~attributable to ~~an increase in revenue per visit. Our~~ revenue per visit, which increased ~~5.5%~~4.5% to ~~$134~~$139 for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~$127~~$133 for the three months ended ~~June 30, 2022.~~March 31, 2023. Our patient visits ~~increased 1.7%~~were 3,155,655 for the three months ended March 31, 2024, compared to ~~3,267,894~~3,217,945 visits for the three months ended June 30, 2023, compared to 3,214,512 visits for the three months ended June 30, 2022. COVID-19 screening and testing services did not contribute to the Concentra segment’s revenue for the three months ended June 30, 2023, compared to $7.7 million of revenue from these services during the three months ended June 30, 2022.March 31, 2023.

~~Table of Contents~~

Operating Expenses

Our operating expenses consist principally of cost of services and general and administrative expenses. Our operating expenses were ~~$1,466.1~~$1,543.1 million, or ~~87.5%~~86.3% of revenue, for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~$1,427.8~~$1,461.1 million, or ~~90.1%~~87.7% of revenue, for the three months ended ~~June 30, 2022.~~March 31, 2023. Our cost of services, a major component of which is labor expense, was ~~$1,423.6~~$1,494.6 million, or ~~85.0%~~83.6% of revenue, for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~$1,390.6~~$1,418.8 million, or ~~87.7%~~85.2% of revenue, for the three months ended ~~June 30, 2022.~~ March 31, 2023. The decrease in our operating expenses relative to our revenue was principally attributable to ~~the decreased labor costs within~~an increase in revenue in our ~~critical illness recovery hospital segment, as explained further within the “~~Critical Illness Recovery Hospital and Rehabilitation Hospital segments. ~~Adjusted EBITDA” discussion.~~General and administrative expenses were ~~$42.5~~$48.4 million, or 2.7% of revenue, for the three months ended March 31, 2024, compared to $42.3 million, or 2.5% of revenue, for the three months ended ~~June 30, 2023, compared to $37.3~~March 31, 2023. General and administrative expenses included $2.3 million ~~or 2.4%~~ of ~~revenue,~~Concentra separation transaction costs for the three months ended ~~June 30, 2022.~~March 31, 2024.

Other Operating Income

For the three months ended ~~June 30, 2023,~~March 31, 2024, we had other operating income of ~~$0.7 million, compared to $15.1 million for the three months ended June 30, 2022.~~$2.3 million. The other operating income for the three months ended ~~June 30, 2022~~March 31, 2024 is principally included within the operating results of our ~~other activities, and is primarily related to the recognition~~Critical Illness Recovery Hospital segment.

Table of ~~payments received under the Provider Relief Fund for health care related expenses and lost revenues attributable to COVID-19.~~Contents

Adjusted EBITDA

Critical Illness Recovery Hospital Segment. Adjusted EBITDA increased ~~227.2%~~51.0% to ~~$65.5~~$115.9 million for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~$20.0~~$76.8 million for the three months ended ~~June 30, 2022.~~March 31, 2023. Our Adjusted EBITDA margin for the critical illness recovery hospital segment was ~~11.4%~~17.7% for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~3.7%~~12.9% for the three months ended ~~June 30, 2022.~~March 31, 2023. The increases in our Adjusted EBITDA and Adjusted EBITDA margin during the three months ended ~~June 30, 2023,~~March 31, 2024, as compared to the three months ended ~~June 30, 2022,~~March 31, 2023, were principally due to an increase in ~~net revenue as well as a decrease in labor costs. The decrease in labor costs resulted from~~revenue. Additionally, our efforts in 2022 to hire additional full-time nursing staff, improve retention among our employees, and decrease our reliance on contract labor, as well as the lower contract labor rates due to reduced demand in the marketplace. Our total contract labor costs decreased by approximately ~~62%~~20% during the ~~three months~~year ended ~~June 30, 2023~~,March 31, 2024, as compared to the ~~three months~~year ended ~~June 30, 2022,~~March 31, 2023, which was driven by an approximate ~~44%~~20% decrease in ~~the~~ utilization of contract registered nurses and an approximate ~~31%~~7% decrease in the rate per hour for contract registered nurses.

Rehabilitation Hospital Segment. Adjusted EBITDA increased ~~9.7%~~30.0% to ~~$54.7~~$61.4 million for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~$49.8~~$47.2 million for the three months ended ~~June 30, 2022.~~March 31, 2023. Our Adjusted EBITDA margin for the rehabilitation hospital segment was ~~22.7%~~23.1% for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~21.8%~~20.4% for the three months ended ~~June 30, 2022.~~March 31, 2023. The increases in our Adjusted EBITDA and Adjusted EBITDA margin for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, were ~~primarily driven by~~principally attributable to an increase in revenue.

Outpatient Rehabilitation Segment. Adjusted EBITDA was ~~$32.9~~$24.9 million for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~$33.6~~$30.2 million for the three months ended ~~June 30, 2022.~~March 31, 2023. Our Adjusted EBITDA margin for the outpatient rehabilitation segment was ~~10.8%~~8.2% for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~11.7%~~10.2% for the three months ended ~~June 30, 2022.~~March 31, 2023. The ~~decrease~~decreases in our Adjusted EBITDA and Adjusted EBITDA margin ~~were primarily due to an increase in labor costs and a decrease in revenue per visit during~~for the three months ended ~~June 30, 2023,~~ March 31, 2024, as compared to the three months ended ~~June 30, 2022.~~March 31, 2023, were principally attributable due to higher labor costs, partially offset by an increase in revenue.

Concentra Segment. Adjusted EBITDA increased ~~8.4%~~2.6% to ~~$100.4~~$96.1 million for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~$92.6~~$93.7 million for the three months ended ~~June 30, 2022.~~March 31, 2023. Our Adjusted EBITDA margin for the Concentra segment was ~~21.5%~~20.6% for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~21.0%~~20.5% for the three months ended ~~June 30, 2022.~~March 31, 2023. The ~~increases~~increase in Adjusted EBITDA ~~and Adjusted EBITDA margin during the three months ended June 30, 2023, as compared to the three months ended June 30, 2022, were primarily~~was principally due to an increase in revenue.

Depreciation and Amortization

Depreciation and amortization expense was ~~$49.9~~$54.1 million for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~$51.1~~$52.4 million for the three months ended ~~June 30, 2022.~~

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March 31, 2023.

Income from Operations

For the three months ended ~~June 30, 2023,~~March 31, 2024, we had income from operations of ~~$159.2~~$194.0 million, compared to ~~$121.0~~$151.5 million for the three months ended ~~June 30, 2022.~~March 31, 2023. The ~~decline in labor costs experienced within our critical illness recovery hospital segment was the primary cause of the~~ increase in income from operations is principally attributable to increases in revenue within our Critical Illness Recovery Hospital and Rehabilitation Hospital segments, as discussed above under “~~Adjusted EBITDA~~Revenue”.” Other operating income during the three months ended June 30, 2022 included $15.1 million primarily related to the recognition of payments received under the Provider Relief Fund for health care related expenses and lost revenues attributable to COVID-19. There was no Provider Relief Fund related revenue recognized in other operating income during the three months ended June 30, 2023.

Equity in Earnings of Unconsolidated Subsidiaries

For the three months ended ~~June 30, 2023,~~March 31, 2024, we had equity in earnings of unconsolidated subsidiaries of ~~$10.5~~$10.4 million, compared to ~~$6.2~~$8.6 million for the three months ended ~~June 30, 2022.~~March 31, 2023. The increase in equity in earnings is principally due to the improved operating performance of our rehabilitation businesses in which we are a minority owner.

~~Interest~~

~~Our term loan is subject to an interest rate cap, which limits the variable interest rate to 1.0% on $2.0 billion of principal outstanding under the term loan. The Adjusted Term SOFR rate was~~ ~~5.20%~~ ~~at June 30, 2023, compared to 1.79% at June 30, 2022.~~ Interest expense was $49.0 million for the three months ended June 30, 2023, compared to $41.1 million for the three months ended June 30, 2022. The increase in interest expense was caused by an increase in the borrowings made under the revolving facility, as well as an increase in the variable interest rate to the extent not mitigated by the interest rate cap.

~~Income Taxes~~

We recorded income tax expense of $28.8 million for the three months ended June 30, 2023, which represented an effective tax rate of 23.9%. We recorded income tax expense of $19.8 million for the three months ended June 30, 2022, which represented an effective tax rate of 23.0%. Our income tax expense is computed based on annual estimates which we allocate throughout the year based on our income. This intra-period tax allocation may cause our effective tax rate to reflect variances when compared to the prior year as estimates of our annual income and the components of our income tax expense change throughout the year.

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~~Six Months Ended June 30, 2023, Compared to Six Months Ended June 30, 2022~~

For the six months ended June 30, 2023, we had revenue of $3,339.5 million and income from operations of $310.7 million, respectively, as compared to revenue of $3,184.3 million and income from operations of $225.0 million for the six months ended June 30, 2022. For the six months ended June 30, 2023, Adjusted EBITDA was $433.5 million, with an Adjusted EBITDA margin of 13.0%, as compared to Adjusted EBITDA of $344.8 million and an Adjusted EBITDA margin of 10.8% for the six months ended June 30, 2022, respectively.

The most significant contributor to the improvement in our financial performance for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, was a decrease in labor costs in our critical illness recovery hospital segment as the investments we made in the recruitment, hiring, and retention of full-time staff in 2022 resulted in a significant decrease in contract labor utilization. Additionally, reduced demand in the marketplace resulted in lower contract labor rates, which further contributed to the decrease in total contract labor costs. We believe the ratio of personnel expense to net revenue for the critical illness recovery hospital segment for the six months ended June 30, 2023, is indicative of a more stabilized labor environment. Other operating income during the six months ended June 30, 2022 included $15.1 million primarily related to the recognition of payments received under the Provider Relief Fund for health care related expenses and lost revenues attributable to COVID-19. There was no Provider Relief Fund related revenue recognized in other operating income during the six months ended June 30, 2023.

~~Revenue~~

~~Critical Illness Recovery Hospital Segment.~~ Revenue increased 1.9% to $1,169.0 million for the six months ended June 30, 2023, compared to $1,147.7 million for the six months ended June 30, 2022. Revenue per patient day increased 1.7% to $2,067 for the six months ended June 30, 2023, compared to $2,032 for the six months ended June 30, 2022. The increase in revenue per patient day is inclusive of the reinstatement of the 2.0% cut to Medicare payments due to sequestration. Our patient days were 563,112 for the six months ended June 30, 2023, compared to 562,350 days for the six months ended June 30, 2022. ~~Occupancy in our critical illness recovery hospitals was 70% and 69% for the six months ended June 30, 2023 and 2022, respectively.~~

~~Rehabilitation Hospital Segment.~~ Revenue increased 5.1% to $472.3 million for the six months ended June 30, 2023, compared to $449.5 million for the six months ended June 30, 2022. Revenue per patient day increased 2.8% to $1,989 for the six months ended June 30, 2023, compared to $1,935 for the six months ended June 30, 2022. Our patient days increased 2.6% to 218,047 days for the six months ended June 30, 2023, compared to 212,614 days for the six months ended June 30, 2022. Occupancy in our rehabilitation hospitals was 85% for both the six months ended June 30, 2023 and 2022.

~~Outpatient Rehabilitation Segment.~~ Revenue increased 7.1% to $598.9 million for the six months ended June 30, 2023, compared to $559.2 million for the six months ended June 30, 2022. The increase in revenue was attributable to patient visits, which increased 12.5% to 5,357,260 visits for the six months ended June 30, 2023, compared to 4,760,998 visits for the six months ended June 30, 2022. Our revenue per visit decreased to $100 for the six months ended June 30, 2023, compared to $103 for the six months ended June 30, 2022, primarily due to a decrease in Medicare reimbursement, including the impact of sequestration, changes in payor mix, and an increase in variable discounts.

~~Concentra Segment.~~ Revenue increased 6.8% to $923.4 million for the six months ended June 30, 2023, compared to $864.8 million for the six months ended June 30, 2022. The increase in revenue was due to increases in both revenue per visit and patient visits. Our revenue per visit increased 6.3% to $134 for the six months ended June 30, 2023, compared to $126 for the six months ended June 30, 2022. Our patient visits increased 2.4% to 6,485,839 for the six months ended June 30, 2023, compared to 6,331,410 visits for the six months ended June 30, 2022. COVID-19 screening and testing services did not contribute to the Concentra segment’s revenue for the six months ended June 30, 2023, compared to $16.7 million of revenue from these services during the six months ended June 30, 2022.

~~Operating Expenses~~

Our operating expenses consist principally of cost of services and general and administrative expenses. Our operating expenses were $2,927.2 million, or 87.6% of revenue, for the six months ended June 30, 2023, compared to $2,872.3 million, or 90.2% of revenue, for the six months ended June 30, 2022. Our cost of services, a major component of which is labor expense, was $2,842.4 million, or 85.1% of revenue, for the six months ended June 30, 2023, compared to $2,797.6 million, or 87.9% of revenue, for the six months ended June 30, 2022. The decrease in our operating expenses relative to our revenue was principally attributable to the decreased labor costs within our critical illness recovery hospital segment, as explained further within the “~~Adjusted EBITDA” discussion.~~ General and administrative expenses were $84.8 million, or 2.5% of revenue, for the six months ended June 30, 2023, compared to $74.8 million, or 2.3% of revenue, for the six months ended June 30, 2022.

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~~Other Operating Income~~

~~For the six~~months ended June 30, 2023, we had other operating income of $0.7 million, compared to $15.1 million for the six months ended June 30, 2022. The other operating income for the six months ended June 30, 2022 is included within the operating results of our other activities, and is primarily related to the recognition of payments received under the Provider Relief Fund for health care related expenses and lost revenues attributable to COVID-19.

~~Adjusted EBITDA~~

~~Critical Illness Recovery Hospital Segment.~~ Adjusted EBITDA increased 154.1% to $142.3 million for the six months ended June 30, 2023, compared to $56.0 million for the six months ended June 30, 2022. Our Adjusted EBITDA margin for the critical illness recovery hospital segment was 12.2% for the six months ended June 30, 2023, compared to 4.9% for the six months ended June 30, 2022. The increases in our Adjusted EBITDA and Adjusted EBITDA margin during the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, were principally due to lower labor costs as well as an increase in net revenue. The decrease in labor costs resulted from our efforts in 2022 to hire additional full-time nursing staff, improve retention among our employees, and decrease our reliance on contract labor, as well as the lower contract labor rates due to reduced demand in the marketplace. Our total contract labor costs ~~decreased by approximately~~ ~~71%~~ ~~during the~~ ~~six~~ ~~months ended~~ ~~June 30, 2023, as compared to the~~ ~~six~~ ~~months ended~~ ~~June 30, 2022, which was driven by an approximate 49% decrease in the utilization of contract registered nurses and an approximate 38% decrease in the rate per hour for contract registered nurses.~~

~~Rehabilitation Hospital Segment.~~ Adjusted EBITDA increased 10.5% to $101.9 million for the six months ended June 30, 2023, compared to $92.2 million for the six months ended June 30, 2022. Our Adjusted EBITDA margin for the rehabilitation hospital segment was 21.6% for the six months ended June 30, 2023, compared to 20.5% for the six months ended June 30, 2022. The increase in Adjusted EBITDA and Adjusted EBITDA margin for the six months ended June 30, 2023, ~~as compared to the six months ended June 30, 2022, was primarily attributable to an increase in revenue.~~

~~Outpatient Rehabilitation Segment.~~ Adjusted EBITDA increased 4.7% to $63.0 million for the six months ended June 30, 2023, compared to $60.2 million for the six months ended June 30, 2022. Our Adjusted EBITDA margin for the outpatient rehabilitation segment was 10.5% for the six months ended June 30, 2023, compared to 10.8% for the six months ended June 30, 2022. The increase in our Adjusted EBITDA was primarily due to an increase in patient visits, partially offset by increases in labor costs and a decrease in revenue per visit ~~for the~~ ~~six~~ ~~months ended June 30, 2023, as compared to the~~ ~~six~~ ~~months ended June 30, 2022.~~

~~Concentra Segment.~~ Adjusted EBITDA increased 6.6% to $194.1 million for the six months ended June 30, 2023, compared to $182.1 million for the six months ended June 30, 2022. Our Adjusted EBITDA margin for the Concentra segment was 21.0% for the six months ended June 30, 2023, compared to 21.1% for the six months ended June 30, 2022. The increase in Adjusted EBITDA was primarily due to an increase in revenue, ~~partially offset by increases in labor costs~~ ~~for the~~ ~~six~~ ~~months ended June 30, 2023, as compared to the~~ ~~six~~ ~~months ended June 30, 2022.~~

~~Depreciation and Amortization~~

~~Depreciation and amortization expense was $102.4 million for the six months ended June 30, 2023, compared to $102.1 million for the six months ended June 30, 2022.~~

~~Income from Operations~~

For the six months ended June 30, 2023, we had income from operations of $310.7 million, compared to $225.0 million for the six months ended June 30, 2022. The decline in labor costs experienced within our critical illness recovery hospital segment was the primary cause of the increase in income from operations, as discussed above under “~~Adjusted EBITDA~~.” Other operating income during the six months ended June 30, 2022 included $15.1 million primarily related to the recognition of payments received under the Provider Relief Fund for health care related expenses and lost revenues attributable to COVID-19. There was no Provider Relief Fund related revenue recognized in other operating income during the six months ended June 30, 2023.

~~Equity in Earnings of Unconsolidated Subsidiaries~~

For the six months ended June 30, 2023, we had equity in earnings of unconsolidated subsidiaries of $19.1 million, compared to $11.6 million for the six months ended June 30, 2022. The increase in equity in earnings is principally due to the improved operating performance of our rehabilitation businesses in which we are a minority owner.

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Interest

Our term loan is subject to an interest rate cap, which limits the variable interest rate to 1.0% on $2.0 billion of principal outstanding under the term loan. The ~~Adjusted~~ Term SOFR rate was ~~5.20%~~5.33% at ~~June 30, 2023,~~March 31, 2024, compared to ~~1.79%~~the one-month LIBOR rate of 4.86% at ~~June 30, 2022.~~March 31, 2023. Interest expense was ~~$97.6~~$50.8 million for the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~$76.6~~$48.6 million for the ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023. The increase in interest expense was ~~caused by an~~principally due to the increase in the ~~borrowings made under~~borrowing spread on the ~~revolving facility, as well as an increase in the variable interest rate~~term loan resulting from Amendment No. 8 to the ~~extent not mitigated by the interest rate cap.~~senior secured credit agreement.

Income Taxes

We recorded income tax expense of ~~$55.0~~$36.5 million for the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, which represented an effective tax rate of 23.7%. We recorded income tax expense of ~~$37.8~~$26.2 million for the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, which represented an effective tax rate of ~~23.6%~~23.5%.

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Liquidity and Capital Resources

Cash Flows for the ~~Six~~Three Months Ended ~~June 30, 2023~~March 31, 2024 and ~~Six~~Three Months Ended ~~June 30, 2022~~March 31, 2023

In the following, we discuss cash flows from operating activities, investing activities, and financing activities.

Six Months Ended June 30,
2022 2023
(in thousands)
Cash flows provided by operating activities $ 178,018 $ 286,278
Cash flows used in investing activities (114,094) (135,875)
Cash flows used in financing activities (43,565) (147,142)
Net increase in cash and cash equivalents 20,359 3,261
Cash and cash equivalents at beginning of period 74,310 97,906
Cash and cash equivalents at end of period $ 94,669 $ 101,167


	Three Months Ended March 31,
	2023		2024
	(in thousands)
Net cash provided by (used in) operating activities	$	51,440	$	(66,689)
Net cash used in investing activities	(69,062)		(57,657)
Net cash provided by financing activities	3,419		132,960
Net increase (decrease) in cash and cash equivalents	(14,203)		8,614
Cash and cash equivalents at beginning of period	97,906		84,006
Cash and cash equivalents at end of period	$	83,703	$	92,620

Operating activities ~~provided $286.3~~used $66.7 million of cash flows for the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~$178.0~~$51.4 million of cash flows provided by operating activities for the ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023. The ~~cash flows from operating activities during the six months ended June 30, 2022 included the repayment of $77.3 million of Medicare advance payments. The remaining~~ change in cash flows provided by operating activities year over year is principally due to an increase in accounts receivable, partially offset by an increase in net income. Our patient billing and collection processes were impacted by the cyber attack on Change Healthcare, which was a driver of the increase in our accounts receivable, in addition to the increase in revenue.

Our days sales outstanding was 58 days at March 31, 2024, compared to 52 days at ~~June 30,~~December 31, 2023. Our days sales outstanding was 54 days at March 31, 2023, compared to 55 days at December 31, 2022. ~~Our days sales outstanding was 53 days at June 30, 2022, compared to 52 days at December 31, 2021.~~ Our days sales outstanding will fluctuate based upon variability in our collection cycles and patient volumes. The increase in our days sales outstanding at March 31, 2024 was primarily due to the impact of the Change Healthcare cybersecurity incident.

Investing activities used ~~$135.9~~$57.7 million of cash flows for the ~~six~~three months ended ~~June 30, 2023.~~March 31, 2024. The principal uses of cash were ~~$118.4~~$52.5 million for purchases of property, equipment, and other assets, and ~~$17.5~~$5.4 million for investments in and acquisitions of businesses. Investing activities used ~~$114.1~~$69.1 million of cash flows for the ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023. The principal uses of cash were ~~$93.2~~$58.9 million for purchases of property, ~~and~~ equipment, and ~~$26.2~~other assets, and $10.2 million for investments in and acquisitions of businesses.

Financing activities ~~used $147.1~~provided $133.0 million of cash flows for the ~~six~~three months ended June 30, 2023. The principal uses of cash were net repayments under our revolving facility of $100.0 million, $31.8 million of dividend payments to common stockholders, and $24.1 million for distributions to and purchases of non-controlling interests. Financing activities used $43.6 million of cash flows for the six months ended June 30, 2022. The principal uses of cash were $178.6 million for repurchases of common stock, $32.8 million of dividend payments to common stockholders and $18.7 million for distributions to and purchases of non-controlling interests.March 31, 2024. The principal source of cash was net borrowings under our revolving facility of ~~$190.0~~$230.0 million. The principal uses of cash were payments of $79.1 million on our term loan, $16.0 million of dividend payments to common stockholders, and $12.8 million for distributions to and purchases of non-controlling interests. Financing activities provided $3.4 million of cash flows for the three months ended March 31, 2023. The principal source of cash was net borrowings under our revolving facility of $15.0 million and net borrowings on our other debt of $10.3 million. The principal uses of cash were $15.9 million of dividend payments to common stockholders and $8.0 million for distributions to and purchases of non-controlling interests.

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Capital Resources

Working capital. We had net working capital of ~~$116.3~~$256.0 million at ~~June 30, 2023,~~March 31, 2024, compared to ~~$116.2~~$9.2 million at December 31, ~~2022.~~2023. The increase in net working capital was principally due to an increase in accounts receivable and a decrease in our accrued expenses.

Credit facilities. ~~On May~~At March 31, 2023, Select entered into Amendment No. 7 to the Select credit agreement. Amendment No. 7 replaced the interest rate based on LIBOR and LIBOR-based mechanics applicable to borrowings under the Select credit agreement with an interest rate based on Adjusted Term SOFR (as defined in the credit agreement). The Adjusted Term SOFR Rate includes a credit spread adjustment of 0.10%.

~~At June 30, 2023,~~2024, Select had outstanding borrowings under its credit facilities consisting of a ~~$2,103.4~~$2,013.4 million term loan (excluding unamortized original issue discounts and debt issuance costs of ~~$7.1~~$14.1 million) and borrowings of ~~$345.0~~$510.0 million under its revolving facility. At ~~June 30, 2023,~~March 31, 2024, Select had ~~$248.8~~$202.4 million of availability under its revolving facility after giving effect to ~~$56.2~~$57.6 million of outstanding letters of credit.

Stock Repurchase Program. Holdings’ Board of Directors has authorized a common stock repurchase program to repurchase up to $1.0 billion worth of shares of its common stock. The common stock repurchase program will remain in effect until December 31, ~~2023,~~2025, unless further extended or earlier terminated by the Board of Directors. Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as Holdings deems appropriate. Holdings funds this program with cash on hand and borrowings under its revolving facility. Holdings did not repurchase shares under the program during the ~~six~~three months ended ~~June 30, 2023.~~March 31, 2024. Since the inception of the program through ~~June 30, 2023,~~March 31, 2024, Holdings has repurchased 48,234,823 shares at a cost of approximately $600.3 million, or $12.45 per share, which includes transaction costs. The Inflation Reduction Act of 2022, which enacted a 1% excise tax on stock repurchases that exceed $1.0 million, became effective January 1, 2023.

Use of Capital Resources. We may from time to time pursue opportunities to develop new joint venture relationships with large, regional health systems and other healthcare providers. We also intend to open new outpatient rehabilitation clinics and occupational health centers in local areas that we currently serve where we can benefit from existing referral relationships and brand awareness to produce incremental growth. In addition to our development activities, we may grow through opportunistic acquisitions.

Liquidity

We believe our internally generated cash flows and borrowing capacity under our revolving facility will allow us to finance our operations in both the short and long term. As of ~~June 30, 2023,~~March 31, 2024, we had cash and cash equivalents of ~~$101.2~~$92.6 million and ~~$248.8~~$202.4 million of availability under the revolving facility after giving effect to ~~$345.0~~$510.0 million of outstanding borrowings and ~~$56.2~~$57.6 million of outstanding letters of credit.

We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions, tender offers or otherwise. Such repurchases or exchanges, if any, may be funded from operating cash flows or other sources and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Dividend

On ~~August 2, 2023,~~May 1, 2024, our Board of Directors declared a cash dividend of $0.125 per share. The dividend will be payable on or about ~~September 1, 2023~~May 30, 2024 to stockholders of record as of the close of business on ~~August 15, 2023.~~May 16, 2024.

There is no assurance that future dividends will be declared. The declaration and payment of dividends in the future are at the discretion of our Board of Directors after taking into account various factors, including, but not limited to, our financial condition, operating results, available cash and current and anticipated cash needs, the terms of our indebtedness, and other factors our Board of Directors may deem to be relevant.

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Effects of Inflation

The healthcare industry is labor intensive and our largest expenses are labor related costs. Wage and other expenses increase during periods of inflation and when labor shortages occur in the marketplace. We have recently experienced higher labor costs related to ~~the current~~an inflationary environment and competitive labor market. In addition, suppliers have passed along rising costs to us in the form of higher prices. We cannot predict our ability to pass along cost increases to our customers.

Recent Accounting Pronouncements

Refer to Note 2 – Accounting Policies of the notes to our condensed consolidated financial statements included herein for information regarding recent accounting pronouncements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to interest rate risk in connection with our variable rate long-term indebtedness. Our principal interest rate exposure relates to the loans outstanding under our credit facilities, which bear interest rates that are indexed against Term SOFR.

At ~~June 30, 2023,~~March 31, 2024, Select had outstanding borrowings under its credit facilities consisting of a ~~$2,103.4~~$2,013.4 million term loan (excluding unamortized original issue discounts and debt issuance costs of ~~$7.1~~$14.1 million) and ~~$345.0~~$510.0 million of borrowings under its revolving facility.

In order to mitigate our exposure to rising interest rates, we ~~entered into~~have an interest rate cap ~~transaction to limit our variable interest~~which limits the Term SOFR rate to 1.0% on $2.0 billion of principal outstanding under our term loan. The agreement applies to interest payments through September 30, 2024. As of ~~June 30, 2023,~~March 31, 2024, the ~~Adjusted~~ Term SOFR rate was ~~5.20%~~5.33%. As of ~~June 30, 2023, $103.4~~March 31, 2024, $13.4 million of our term loan borrowings are subject to variable interest rates. Subsequent to the expiration of our interest rate cap on September 30, 2024, all of our term loan borrowings will be subject to variable interest rates.

As of ~~June 30, 2023,~~March 31, 2024, each 0.25% increase in market interest rates will impact the annual interest expense on our variable rate debt by ~~$1.1 million.~~$3.8 million per year, which includes the impact of the expiration of the interest rate cap on September 30, 2024.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered in this report. Based on this evaluation, as of ~~June 30, 2023,~~March 31, 2024, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures, including the accumulation and communication of disclosure to our principal executive officer and principal financial officer as appropriate to allow timely decisions regarding disclosure, are effective to provide reasonable assurance that material information required to be included in our periodic SEC reports is recorded, processed, summarized, and reported within the time periods specified in the relevant SEC rules and forms.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) identified in connection with the evaluation required by Rule 13a-15(d) of the Securities Exchange Act of 1934 that occurred during the ~~second~~first quarter ended ~~June 30, 2023,~~March 31, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions.

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PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Refer to the “Litigation” section contained within Note 1314 – Commitments and Contingencies of the notes to our condensed consolidated financial statements included herein.

ITEM 1A. RISK FACTORS

There have been no material changes from our risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2022.~~2023.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer

Holdings’ Board of Directors authorized a common stock repurchase program to repurchase up to $1.0 billion worth of shares of its common stock. The program will remain in effect until December 31, ~~2023,~~2025, unless further extended or earlier terminated by the Board of Directors. Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as Holdings deems appropriate.

~~The following table provides information regarding repurchases of our common stock during~~During the three months ended ~~June 30, 2023.~~

Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under Plans or Programs
April 1 - April 30, 2023(1)
49,370 $ 30.50 — $ 399,677,961
May 1 - May 31, 2023 — — — 399,677,961
June 1 - June 30, 2023 — — — 399,677,961
Total 49,370 $ 30.50 — $ 399,677,961

~~(1) The~~March 31, 2024, Holdings did not repurchase shares ~~purchased represent~~under the authorized common stock ~~surrendered to us to satisfy tax withholding obligations associated with the vesting~~repurchase program. The common stock repurchase program has an available capacity of ~~restricted shares issued to employees, pursuant to the provisions~~$399.7 million as of ~~our equity incentive plans.~~March 31, 2024.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Rule 10b5-1 Trading Plans

During the three months ended ~~June 30, 2023,~~March 31, 2024, none of our directors or executive officers adopted or terminated any contract, instruction, or written plan for the purchase or sale of our securities to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement.

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ITEM 6. EXHIBITS


Number						Description
~~10.1~~						Amendment No. 7 dated as of May 31, 2023, to the Credit Agreement dated as of March 6, 2017, by and among Select Medical Holdings Corporation, Select Medical Corporation, JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, and the other lenders and issuing banks party thereto, as amended by Amendment No. 1, dated as of March 22, 2018, Amendment No. 2, dated as of October 26, 2018, Amendment No. 3, dated as of August 1, 2019, Amendment No. 4, dated as of December 10, 2019, Amendment No. 5, dated as of June 2, 2021, and Amendment No. 6, dated as of February 21, 2023 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (file No. 001-34465) filed on May 31, 2023).
31.1						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certification of Executive Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1						Certification of Chief Executive Officer, and Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						Inline XBRL Taxonomy Extension Schema Document.
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104						Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


			SELECT MEDICAL HOLDINGS CORPORATION


			By:			/s/ ~~Martin~~Michael F. ~~Jackson~~Malatesta
						~~Martin~~Michael F. ~~Jackson~~Malatesta
						Executive Vice President and Chief Financial Officer
						(Duly Authorized Officer)

			By:			/s/ Christopher S. Weigl
						Christopher S. Weigl
						Senior Vice President, Controller & Chief Accounting Officer
						(Principal Accounting Officer)

Dated: ~~August 3, 2023~~May 2, 2024

4436


	For the Six Months Ended June 30, 2022

		Total Stockholders’ Equity
	Common Stock Issued	Common Stock Par Value		Capital in Excess of Par		Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity		Non-controlling Interests		Total Equity
Balance at December 31, 2021	133,884	$	134	$	504,314	$	593,251	$	12,282	$	1,109,981	$	215,921	$	1,325,902
Net income attributable to Select Medical Holdings Corporation						49,117				49,117				49,117
Net income attributable to non-controlling interests										—		4,891		4,891
Cash dividends declared for common stockholders ($0.125 per share)						(16,691)				(16,691)				(16,691)
Issuance of restricted stock	13	0		0						—				—

Vesting of restricted stock				8,288						8,288				8,288
Repurchase of common shares	(2,128)	(2)		(23,459)		(28,215)				(51,676)				(51,676)
Issuance of non-controlling interests				651						651		4,578		5,229
Non-controlling interests acquired in business combination, measurement period adjustment										—		12,463		12,463
Distributions to and purchases of non-controlling interests										—		(9,097)		(9,097)
Redemption value adjustment on non-controlling interests						(1,381)				(1,381)				(1,381)
Other comprehensive income								39,853		39,853				39,853
Other						(2)				(2)				(2)
Balance at March 31, 2022	131,769	$	132	$	489,794	$	596,079	$	52,135	$	1,138,140	$	228,756	$	1,366,896
Net income attributable to Select Medical Holdings Corporation						55,207				55,207				55,207
Net income attributable to non-controlling interests										—		9,155		9,155
Cash dividends declared for common stockholders ($0.125 per share)						(16,108)				(16,108)				(16,108)
Issuance of restricted stock	211	0		0						—				—
Forfeitures of unvested restricted stock	(6)	0		0		3				3				3
Vesting of restricted stock				8,406						8,406				8,406
Repurchase of common shares	(5,483)	(6)		(56,965)		(69,976)				(126,947)				(126,947)
Issuance of non-controlling interests				—						—		1,725		1,725
Distributions to and purchases of non-controlling interests				534						534		(7,348)		(6,814)
Redemption value adjustment on non-controlling interests						355				355				355
Other comprehensive loss								11,827		11,827				11,827
Other						(4)				(4)		—		(4)
Balance at June 30, 2022	126,491	$	126	$	441,769	$	565,556	$	63,962	$	1,071,413	$	232,288	$	1,303,701


	Six Months Ended June 30, 2022						Six Months Ended June 30, 2023
	Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total
	(in thousands)
Operating lease cost	$	147,931	$	3,618	$	151,549	$	153,524	$	3,667	$	157,191
Finance lease cost:
Amortization of right-of-use assets	724		—		724		798		—		798
Interest on lease liabilities	676		—		676		707		—		707
Short-term lease cost	50		—		50		—		—		—
Variable lease cost	28,062		180		28,242		32,293		84		32,377
Sublease income	(3,906)		—		(3,906)		(3,394)		—		(3,394)
Total lease cost	$	173,537	$	3,798	$	177,335	$	183,928	$	3,751	$	187,679


	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under Plans or Programs
April 1 - April 30, 2023(1)	49,370	$	30.50	—	$	399,677,961
May 1 - May 31, 2023	—	—		—	399,677,961
June 1 - June 30, 2023	—	—		—	399,677,961
Total	49,370	$	30.50	—	$	399,677,961