sem-20210930

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 September 30, 2021


☐			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 October 31, 2021, Select Medical Holdings Corporation had outstanding 134,144,993 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.

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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	8

	Notes to condensed consolidated financial statements	9

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	54

ITEM 4.	CONTROLS AND PROCEDURES	54

PART II	OTHER INFORMATION	55

ITEM 1.	LEGAL PROCEEDINGS	55

ITEM 1A.	RISK FACTORS	55

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	55

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	55

ITEM 4.	MINE SAFETY DISCLOSURES	55

ITEM 5.	OTHER INFORMATION	56

ITEM 6.	EXHIBITS	56

SIGNATURES

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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, 2020		September 30, 2021
ASSETS
Current Assets:
Cash and cash equivalents	$	577,061	$	747,983
Accounts receivable	896,763		898,823
Prepaid income taxes	5,686		15,460
Other current assets	114,490		117,075
Total Current Assets	1,594,000		1,779,341
Operating lease right-of-use assets	1,032,217		1,069,953
Property and equipment, net	943,420		936,695
Goodwill	3,379,014		3,399,794
Identifiable intangible assets, net	387,541		378,433
Other assets	319,207		335,257
Total Assets	$	7,655,399	$	7,899,473
LIABILITIES AND EQUITY
Current Liabilities:

Current operating lease liabilities	$	220,413	$	226,419
Current portion of long-term debt and notes payable	12,621		18,059
Accounts payable	177,087		192,393
Accrued payroll	224,876		295,897
Accrued vacation	132,811		140,363
Accrued interest	29,240		9,894
Accrued other	228,948		250,176
Government advances (Note 15)	321,807		159,505
Unearned government assistance (Note 15)	82,607		2,414

Income taxes payable	7,956		31,253
Total Current Liabilities	1,438,366		1,326,373
Non-current operating lease liabilities	875,367		909,950
Long-term debt, net of current portion	3,389,398		3,384,164
Non-current deferred tax liability	132,421		120,274
Other non-current liabilities	168,703		167,770
Total Liabilities	6,004,255		5,908,531
Commitments and contingencies (Note 14)
Redeemable non-controlling interests	398,171		627,330
Stockholders’ Equity:
Common stock, $0.001 par value, 700,000,000 shares authorized, 134,850,735 and 134,144,993 shares issued and outstanding at 2020 and 2021, respectively	135		134
Capital in excess of par	509,128		501,710
Retained earnings	553,244		639,451
Accumulated other comprehensive income (loss)	(2,027)		4,203
Total Stockholders’ Equity	1,060,480		1,145,498
Non-controlling interests	192,493		218,114
Total Equity	1,252,973		1,363,612
Total Liabilities and Equity	$	7,655,399	$	7,899,473

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

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Select Medical Holdings Corporation

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except per share amounts)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2021		2020		2021
Revenue	$	1,423,869	$	1,534,221	$	4,071,219	$	4,644,704
Costs and expenses:
Cost of services, exclusive of depreciation and amortization	1,180,951		1,297,682		3,463,778		3,882,579
General and administrative	35,516		37,885		102,808		109,025
Depreciation and amortization	50,110		50,128		154,133		150,702
Total costs and expenses	1,266,577		1,385,695		3,720,719		4,142,306
Other operating income	(1,160)		1,729		53,828		133,837
Income from operations	156,132		150,255		404,328		636,235
Other income and expense:

Equity in earnings of unconsolidated subsidiaries	8,765		11,452		19,677		33,180
Gain on sale of businesses	5,143		—		12,690		—
Interest income	—		—		—		4,749
Interest expense	(34,026)		(33,825)		(117,499)		(102,115)
Income before income taxes	136,014		127,882		319,196		572,049
Income tax expense	31,557		27,665		76,805		138,410
Net income	104,457		100,217		242,391		433,639
Less: Net income attributable to non-controlling interests	27,511		23,289		60,670		81,271
Net income attributable to Select Medical Holdings Corporation	$	76,946	$	76,928	$	181,721	$	352,368
Earnings per common share (Note 13):
Basic and diluted	$	0.57	$	0.57	$	1.35	$	2.61

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

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Select Medical Holdings Corporation

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

(in thousands)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2021		2020		2021
Net income	$	104,457	$	100,217	$	242,391	$	433,639
Other comprehensive income (loss), net of tax:
Gain (loss) on interest rate cap cash flow hedge	—		(536)		—		6,212
Reclassification adjustment for (gains) losses included in net income	—		12		—		18
Net change, net of tax benefit (expense) of $—, $182, $—, and $(2,166)	—		(524)		—		6,230

Comprehensive income	104,457		99,693		242,391		439,869
Less: Comprehensive income attributable to non-controlling interests	27,511		23,289		60,670		81,271
Comprehensive income attributable to Select Medical Holdings Corporation	$	76,946	$	76,404	$	181,721	$	358,598

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

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Select Medical Holdings Corporation

Condensed Consolidated Statements of Changes in Equity and Income

(unaudited)

(in thousands)


	For the Nine Months Ended September 30, 2021

		Total Stockholders’ Equity
	Common Stock Issued	Common Stock Par Value		Capital in Excess of Par		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity		Non-controlling Interests		Total Equity
Balance at December 31, 2020	134,850	$	135	$	509,128	$	553,244	$	(2,027)	$	1,060,480	$	192,493	$	1,252,973
Net income attributable to Select Medical Holdings Corporation						110,546				110,546				110,546
Net income attributable to non-controlling interests										—		17,042		17,042
Issuance of restricted stock	2	0		0						—				—
Forfeitures of unvested restricted stock	(14)	0		0						—				—
Vesting of restricted stock				6,173						6,173				6,173


Non-controlling interests acquired in business combination										—		8,193		8,193
Distributions to and purchases of non-controlling interests				(787)						(787)		(13,458)		(14,245)
Redemption value adjustment on non-controlling interests						(38,405)				(38,405)				(38,405)
Other comprehensive income								8,151		8,151				8,151
Other				(178)		(4)				(182)		371		189
Balance at March 31, 2021	134,838	$	135	$	514,336	$	625,381	$	6,124	$	1,145,976	$	204,641	$	1,350,617
Net income attributable to Select Medical Holdings Corporation						164,894				164,894				164,894
Net income attributable to non-controlling interests										—		13,241		13,241
Dividends declared for common stockholders ($0.125 per share)						(16,876)				(16,876)				(16,876)
Issuance of restricted stock	211	0		0						—				—
Forfeitures of unvested restricted stock	(2)	0		0						—				—
Vesting of restricted stock				6,564						6,564				6,564
Repurchase of common shares	(42)	0		(707)		(903)				(1,610)				(1,610)
Issuance of non-controlling interests				(1,051)						(1,051)		6,739		5,688
Distributions to and purchases of non-controlling interests				(2,970)						(2,970)		(9,324)		(12,294)
Redemption value adjustment on non-controlling interests						(59,370)				(59,370)				(59,370)
Other comprehensive loss								(1,397)		(1,397)				(1,397)
Other						65				65		370		435
Balance at June 30, 2021	135,005	$	135	$	516,172	$	713,191	$	4,727	$	1,234,225	$	215,667	$	1,449,892
Net income attributable to Select Medical Holdings Corporation						76,928				76,928				76,928
Net income attributable to non-controlling interests										—		10,709		10,709
Dividends declared for common stockholders ($0.125 per share)						(16,940)				(16,940)				(16,940)
Issuance of restricted stock	954	1		(1)						—				—
Forfeitures of unvested restricted stock	(2)	0		0						—				—
Vesting of restricted stock				7,659						7,659				7,659
Repurchase of common shares	(1,813)	(2)		(26,712)		(37,726)				(64,440)				(64,440)
Issuance of non-controlling interests				4,592						4,592		9,646		14,238
Distributions to and purchases of non-controlling interests										—		(18,278)		(18,278)
Redemption value adjustment on non-controlling interests						(96,000)				(96,000)				(96,000)
Other comprehensive loss								(524)		(524)				(524)
Other						(2)				(2)		370		368
Balance at September 30, 2021	134,144	$	134	$	501,710	$	639,451	$	4,203	$	1,145,498	$	218,114	$	1,363,612

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

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	For the Nine Months Ended September 30, 2020

		Total Stockholders’ Equity
	Common Stock Issued	Common Stock Par Value		Capital in Excess of Par		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity		Non-controlling Interests		Total Equity
Balance at December 31, 2019	134,328	$	134	$	491,038	$	279,800	$	—	$	770,972	$	158,063	$	929,035
Net income attributable to Select Medical Holdings Corporation						53,125				53,125				53,125
Net income attributable to non-controlling interests										—		10,067		10,067
Issuance of restricted stock	2	0		0						—				—
Forfeitures of unvested restricted stock	(15)	0		0						—				—
Vesting of restricted stock				6,136						6,136				6,136
Repurchase of common shares	(492)	0		(5,350)		(3,341)				(8,691)				(8,691)
Issuance of non-controlling interests										—		1,679		1,679
Distributions to and purchases of non-controlling interests						(2,726)				(2,726)		(4,048)		(6,774)
Redemption value adjustment on non-controlling interests						(10,123)				(10,123)				(10,123)
Other						(55)				(55)		420		365
Balance at March 31, 2020	133,823	$	134	$	491,824	$	316,680	$	—	$	808,638	$	166,181	$	974,819
Net income attributable to Select Medical Holdings Corporation						51,650				51,650				51,650
Net income attributable to non-controlling interests										—		12,572		12,572
Issuance of restricted stock	200	0		0						—				—
Forfeitures of unvested restricted stock	(7)	0		0						—				—
Vesting of restricted stock				6,262						6,262				6,262
Repurchase of common shares	(46)	0		(441)		(283)				(724)				(724)

Issuance of non-controlling interests										—		7		7
Distributions to and purchases of non-controlling interests				(65)						(65)		(418)		(483)
Redemption value adjustment on non-controlling interests						127,916				127,916				127,916
Other				(795)		1				(794)		1,205		411
Balance at June 30, 2020	133,970	$	134	$	496,785	$	495,964	$	—	$	992,883	$	179,547	$	1,172,430
Net income attributable to Select Medical Holdings Corporation						76,946				76,946				76,946
Net income attributable to non-controlling interests										—		10,183		10,183
Issuance of restricted stock	1,049	1		(1)						—				—
Forfeitures of unvested restricted stock	(2)	0		0						—				—
Vesting of restricted stock				6,456						6,456				6,456
Repurchase of common shares	(254)	0		(2,366)		(2,461)				(4,827)				(4,827)


Distributions to and purchases of non-controlling interests				98		(416)				(318)		(10,020)		(10,338)
Redemption value adjustment on non-controlling interests						(32,555)				(32,555)				(32,555)
Other						1				1		349		350
Balance at September 30, 2020	134,763	$	135	$	500,972	$	537,479	$	—	$	1,038,586	$	180,059	$	1,218,645

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

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Select Medical Holdings Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)


	For the Nine Months Ended September 30,
	2020		2021
Operating activities
Net income	$	242,391	$	433,639
Adjustments to reconcile net income to net cash provided by operating activities:
Distributions from unconsolidated subsidiaries	21,720		27,772
Depreciation and amortization	154,133		150,702
Provision for expected credit losses	281		172
Equity in earnings of unconsolidated subsidiaries	(19,677)		(33,180)

Gain on sale or disposal of assets and businesses	(24,723)		(87)
Stock compensation expense	20,828		22,002
Amortization of debt discount, premium and issuance costs	1,635		1,655
Deferred income taxes	(14,556)		(11,965)
Changes in operating assets and liabilities, net of effects of business combinations:
Accounts receivable	(91,413)		645
Other current assets	(22,815)		(1,822)
Other assets	16,335		(3,124)
Accounts payable	24,246		22,914
Accrued expenses	117,781		84,796
Government advances	318,116		(165,470)
Unearned government assistance	66,938		(80,193)

Income taxes	9,415		13,524
Net cash provided by operating activities	820,635		461,980
Investing activities
Business combinations, net of cash acquired	(14,076)		(26,830)
Purchases of property and equipment	(105,572)		(125,386)
Investment in businesses	(25,857)		(16,367)
Proceeds from sale of assets and businesses	83,320		11,257
Net cash used in investing activities	(62,185)		(157,326)
Financing activities
Borrowings on revolving facilities	470,000		—
Payments on revolving facilities	(470,000)		—

Payments on term loans	(39,843)		—



Borrowings of other debt	35,086		19,515
Principal payments on other debt	(42,820)		(22,910)
Dividends paid to common stockholders	—		(33,816)
Repurchase of common stock	(14,242)		(66,050)


Proceeds from issuance of non-controlling interests	1,686		19,926
Distributions to and purchases of non-controlling interests	(28,196)		(50,397)
Purchase of membership interests of Concentra Group Holdings Parent	(366,203)		—
Net cash used in financing activities	(454,532)		(133,732)
Net increase in cash and cash equivalents	303,918		170,922
Cash and cash equivalents at beginning of period	335,882		577,061
Cash and cash equivalents at end of period	$	639,800	$	747,983
Supplemental Information
Cash paid for interest	$	140,174	$	118,570
Cash paid for taxes	81,945		136,857

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

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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 and Select and its subsidiaries are collectively referred to as the “Company.” The unaudited condensed consolidated financial statements of the Company as of September 30, 2021, and for the three and nine month periods ended September 30, 2020 and 2021, 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 nine months ended September 30, 2021, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2021. 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, 2020, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 25, 2021.

2. Accounting Policies

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.

Recent Accounting Pronouncements

Convertible Instruments and Contracts on an Entity’s Own Equity

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. As part of this update, convertible instruments are to be included in diluted earnings per share using the if-converted method, rather than the treasury stock method. Further, contracts which can be settled in cash or shares, excluding liability-classified share-based payment awards, are to be included in diluted earnings per share on an if-converted basis if the effect is dilutive, regardless of whether the entity or the counterparty can choose between cash and share settlement. The share-settlement presumption may not be rebutted based on past experience or a stated policy. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021. The Company plans to adopt this pronouncement as of January 1, 2022. The use of either the modified retrospective or fully retrospective method of transition is permitted.

Under the terms of the Amended and Restated Limited Liability Company Agreement of Concentra Group Holdings Parent, certain members of Concentra Group Holdings Parent have put rights that obligate the Company to purchase certain of such members’ equity interests in Concentra Group Holdings Parent when exercised. The Company can elect to pay the purchase price for those equity interests in cash or in shares of Holdings’ common stock. Under ASU 2020-06, the Company is no longer able to rebut the share-settlement presumption based on its past experience. Accordingly, if any of the put rights provided for under the Amended and Restated Limited Liability Company Agreement of Concentra Group Holdings Parent are outstanding upon adoption of ASU 2020-06, the shares which are potentially issuable will be included in diluted earnings per share, on an if-converted basis. At this time, the Company cannot reasonably estimate the impact that the adoption of ASU 2020-06 will have on its financial statements.

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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 18% and 12% of the Company’s accounts receivable is due from Medicare at December 31, 2020, and September 30, 2021, 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 Company’s redeemable non-controlling interests are comprised primarily of the voting membership interests owned by outside members of Concentra Group Holdings Parent, each of which have put rights with respect to their interests in Concentra Group Holdings Parent.

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


	Nine Months Ended September 30,
	2020		2021
	(in thousands)
Balance as of January 1	$	974,541	$	398,171
Net income attributable to redeemable non-controlling interests	7,256		9,626

Distributions to and purchases of redeemable non-controlling interests	(5,687)		(614)
Purchase of membership interests of Concentra Group Holdings Parent	(366,203)		—
Redemption value adjustment on redeemable non-controlling interests	10,123		38,405
Other	347		343
Balance as of March 31	$	620,377	$	445,931
Net income attributable to redeemable non-controlling interests	3,264		18,073
Distributions to and purchases of redeemable non-controlling interests	(30)		(1,987)
Redemption value adjustment on redeemable non-controlling interests	(127,916)		59,370
Other	292		165
Balance as of June 30	$	495,987	$	521,552
Net income attributable to redeemable non-controlling interests	17,328		12,580
Distributions to and purchases of redeemable non-controlling interests	(4,171)		(2,967)
Redemption value adjustment on redeemable non-controlling interests	32,555		96,000
Other	157		165
Balance as of September 30	$	541,856	$	627,330

5. Variable Interest Entities

Certain states prohibit the “corporate practice of medicine,” which restricts the Company from owning medical practices which directly employ physicians and from exercising control over medical decisions by physicians. In these states, the Company enters into long-term management agreements with medical practices that are owned by licensed physicians, which, in turn, employ or contract with physicians who provide professional medical services. The management agreements provide for the Company to direct the transfer of ownership of the medical practices to new licensed physicians at any time. 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, 2020 and September 30, 2021, the total assets of the Company’s variable interest entities were $208.4 million and $257.8 million, respectively, and are principally comprised of accounts receivable. As of December 31, 2020 and September 30, 2021, the total liabilities of these variable interest entities were $55.1 million and $84.4 million, respectively, and are principally comprised of accounts payable and accrued expenses. The Company’s variable interest entities have obligations payable for services received under the aforementioned management agreements of $151.8 million and $172.9 million as of December 31, 2020 and September 30, 2021, 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 was as follows:


	Three Months Ended September 30, 2020						Three Months Ended September 30, 2021
	Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total
	(in thousands)
Operating lease cost	$	69,308	$	1,799	$	71,107	$	71,647	$	1,791	$	73,438
Finance lease cost:
Amortization of right-of-use assets	147		—		147		156		—		156
Interest on lease liabilities	255		—		255		270		—		270

Variable lease cost	12,121		156		12,277		13,147		141		13,288
Sublease income	(2,566)		—		(2,566)		(2,253)		—		(2,253)
Total lease cost	$	79,265	$	1,955	$