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, 2022

OR

☐ 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, 2022, Select Medical Holdings Corporation had outstanding 125,916,075 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.

1

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	22
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	47
ITEM 4.	CONTROLS AND PROCEDURES	47
PART II	OTHER INFORMATION	48
ITEM 1.	LEGAL PROCEEDINGS	48
ITEM 1A.	RISK FACTORS	48
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	48
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	48
ITEM 4.	MINE SAFETY DISCLOSURES	48
ITEM 5.	OTHER INFORMATION	48
ITEM 6.	EXHIBITS	49
SIGNATURES

2

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, 2021		June 30, 2022
ASSETS
Current Assets:
Cash and cash equivalents	$	74,310	$	94,669
Accounts receivable	889,303		921,623
Prepaid income taxes	55,620		42,642
Other current assets	120,206		162,114
Total Current Assets	1,139,439		1,221,048
Operating lease right-of-use assets	1,078,754		1,136,678
Property and equipment, net	961,467		955,752
Goodwill	3,448,912		3,476,213
Identifiable intangible assets, net	374,879		366,222
Other assets	356,720		395,745
Total Assets	$	7,360,171	$	7,551,658
LIABILITIES AND EQUITY
Current Liabilities:
Overdrafts	$	42,353	$	31,298
Current operating lease liabilities	229,334		233,917
Current portion of long-term debt and notes payable	17,572		44,009
Accounts payable	233,844		231,472
Accrued payroll	247,292		257,612
Accrued vacation	144,048		152,281
Accrued interest	29,002		29,339
Accrued other	244,312		242,980
Government advances	83,790		6,471
Unearned government assistance	93		586
Income taxes payable	1,437		11,774
Total Current Liabilities	1,273,077		1,241,739
Non-current operating lease liabilities	916,540		974,657
Long-term debt, net of current portion	3,556,385		3,723,734
Non-current deferred tax liability	142,792		157,892
Other non-current liabilities	106,442		107,738
Total Liabilities	5,995,236		6,205,760
Commitments and contingencies (Note 14)
Redeemable non-controlling interests	39,033		42,197
Stockholders’ Equity:
Common stock, $0.001 par value, 700,000,000 shares authorized, 133,884,817 and 126,491,347 shares issued and outstanding at 2021 and 2022, respectively	134		126
Capital in excess of par	504,314		441,769
Retained earnings	593,251		565,556
Accumulated other comprehensive income	12,282		63,962
Total Stockholders’ Equity	1,109,981		1,071,413
Non-controlling interests	215,921		232,288
Total Equity	1,325,902		1,303,701
Total Liabilities and Equity	$	7,360,171	$	7,551,658

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

3

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,
	2021		2022		2021		2022
Revenue	$	1,564,020	$	1,584,741	$	3,110,483	$	3,184,288
Costs and expenses:
Cost of services, exclusive of depreciation and amortization	1,291,448		1,390,550		2,584,897		2,797,560
General and administrative	35,737		37,268		71,140		74,781
Depreciation and amortization	50,954		51,081		100,574		102,120
Total costs and expenses	1,378,139		1,478,899		2,756,611		2,974,461
Other operating income	98,087		15,125		132,108		15,125
Income from operations	283,968		120,967		485,980		224,952
Other income and expense:
Equity in earnings of unconsolidated subsidiaries	11,809		6,167		21,728		11,564
Interest income	—		—		4,749		—
Interest expense	(33,888)		(41,052)		(68,290)		(76,566)
Income before income taxes	261,889		86,082		444,167		159,950
Income tax expense	65,681		19,820		110,745		37,762
Net income	196,208		66,262		333,422		122,188
Less: Net income attributable to non-controlling interests	31,314		11,055		57,982		17,864
Net income attributable to Select Medical Holdings Corporation	$	164,894	$	55,207	$	275,440	$	104,324
Earnings per common share (Note 13):
Basic and diluted	$	1.22	$	0.43	$	2.04	$	0.79

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

4

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,
	2021		2022		2021		2022
Net income	$	196,208	$	66,262	$	333,422	$	122,188
Other comprehensive income (loss), net of tax:
Gain (loss) on interest rate cash flow hedge	(1,403)		11,833		6,748		51,647
Reclassification adjustment for losses (gains) included in net income	6		(6)		6		33
Net change, net of tax benefit (expense) of $486, $(3,942), $(2,348) and $(17,227)	(1,397)		11,827		6,754		51,680
Comprehensive income	194,811		78,089		340,176		173,868
Less: Comprehensive income attributable to non-controlling interests	31,314		11,055		57,982		17,864
Comprehensive income attributable to Select Medical Holdings Corporation	$	163,497	$	67,034	$	282,194	$	156,004

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

5

Select Medical Holdings Corporation

Condensed Consolidated Statements of Changes in Equity and Income

(unaudited)

(in thousands)

	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 income								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.

6

	For the Six Months Ended June 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

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

7

Select Medical Holdings Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

	For the Six Months Ended June 30,
	2021		2022
Operating activities
Net income	$	333,422	$	122,188
Adjustments to reconcile net income to net cash provided by operating activities:
Distributions from unconsolidated subsidiaries	19,384		11,140
Depreciation and amortization	100,574		102,120
Provision for expected credit losses	212		111
Equity in earnings of unconsolidated subsidiaries	(21,728)		(11,564)
Loss (gain) on sale or disposal of assets	494		(1,476)
Stock compensation expense	13,808		17,769
Amortization of debt discount, premium and issuance costs	1,095		1,123
Deferred income taxes	(8,323)		(1,965)
Changes in operating assets and liabilities, net of effects of business combinations:
Accounts receivable	(31,751)		(32,431)
Other current assets	(12,856)		(2,128)
Other assets	(11,984)		1,275
Accounts payable	18,881		4,879
Accrued expenses	71,034		20,488
Government advances	(73,703)		(77,319)
Unearned government assistance	(78,509)		493
Income taxes	42,976		23,315
Net cash provided by operating activities	363,026		178,018
Investing activities
Business combinations, net of cash acquired	(10,081)		(19,241)
Purchases of property and equipment	(76,442)		(93,177)
Investment in businesses	(11,185)		(6,990)
Proceeds from sale of assets	9,463		5,314
Net cash used in investing activities	(88,245)		(114,094)
Financing activities
Borrowings on revolving facilities	—		565,000
Payments on revolving facilities	—		(375,000)
Borrowings of other debt	8,915		17,494
Principal payments on other debt	(15,314)		(16,874)
Dividends paid to common stockholders	(16,876)		(32,799)
Repurchase of common stock	(1,610)		(178,623)
Decrease in overdrafts	—		(11,055)
Proceeds from issuance of non-controlling interests	5,688		6,955
Distributions to and purchases of non-controlling interests	(29,152)		(18,663)
Net cash used in financing activities	(48,349)		(43,565)
Net increase in cash and cash equivalents	226,432		20,359
Cash and cash equivalents at beginning of period	577,061		74,310
Cash and cash equivalents at end of period	$	803,493	$	94,669
Supplemental Information
Cash paid for interest	$	66,955	$	74,217
Cash paid for taxes	76,094		16,423

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

8

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, 2022, and for the three and six month periods ended June 30, 2021 and 2022, 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, 2022, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2022. 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, 2021, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 24, 2022.

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.

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 15% and 17% of the Company’s accounts receivable is due from Medicare at December 31, 2021 and June 30, 2022, respectively.

9

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,
	2021		2022
	(in thousands)
Balance as of January 1	$	398,171	$	39,033
Net income attributable to redeemable non-controlling interests	9,626		1,918
Distributions to and purchases of redeemable non-controlling interests	(614)		(1,198)
Redemption value adjustment on redeemable non-controlling interests	38,405		1,381
Other	343		536
Balance as of March 31	$	445,931	$	41,670
Net income attributable to redeemable non-controlling interests	18,073		1,900
Distributions to and purchases of redeemable non-controlling interests	(1,987)		(1,553)
Redemption value adjustment on redeemable non-controlling interests	59,370		(355)
Other	165		535
Balance as of June 30	$	521,552	$	42,197

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.

As of December 31, 2021, and June 30, 2022, the total assets of the Company’s variable interest entities were $225.1 million and $256.9 million, respectively, and are principally comprised of accounts receivable. As of December 31, 2021, and June 30, 2022, the total liabilities of the Company’s variable interest entities were $74.8 million and $85.2 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 $150.3 million and $172.7 million as of December 31, 2021, and June 30, 2022, respectively. These intercompany balances are eliminated in consolidation.

10

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, 2021						Three Months Ended June 30, 2022
	Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total
	(in thousands)
Operating lease cost	$	70,739	$	1,798	$	72,537	$	73,969	$	1,809	$	75,778
Finance lease cost:
Amortization of right-of-use assets	105		—		105		377		—		377
Interest on lease liabilities	254		—		254		336		—		336
Short-term lease cost	—		—		—		15		—		15
Variable lease cost	13,086		141		13,227		14,407		141		14,548
Sublease income	(2,229)		—		(2,229)		(1,940)		—		(1,940)
Total lease cost	$	81,955	$	1,939	$	83,894	$	87,164	$	1,950	$	89,114

	Six Months Ended June 30, 2021						Six Months Ended June 30, 2022
	Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total
	(in thousands)
Operating lease cost	$	140,853	$	3,597	$	144,450	$	147,931	$	3,618	$	151,549
Finance lease cost:
Amortization of right-of-use assets	140		—		140		724		—		724
Interest on lease liabilities	505		—		505		676		—		676
Short-term lease cost	—		—		—		50		—		50
Variable lease cost	26,095		144		26,239		28,062		180		28,242
Sublease income	(4,463)		—		(4,463)		(3,906)		—		(3,906)
Total lease cost	$	163,130	$	3,741	$	166,871	$	173,537	$	3,798	$	177,335

Supplemental cash flow information related to leases is as follows:

	Six Months Ended June 30,
	2021		2022
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	145,652	$	155,160
Operating cash flows for finance leases	505		676
Financing cash flows for finance leases	145		475
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	138,606	$	185,739
Finance leases	138		312

11

Supplemental balance sheet information related to leases is as follows:

	December 31, 2021						June 30, 2022
	Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total
	(in thousands)
Operating Leases
Operating lease right-of-use assets	$	1,052,603	$	26,151	$	1,078,754	$	1,113,431	$	23,247	$	1,136,678
Current operating lease liabilities	$	222,865	$	6,469	$	229,334	$	228,920	$	4,997	$	233,917
Non-current operating lease liabilities	894,104		22,436		916,540		953,918		20,739		974,657
Total operating lease liabilities	$	1,116,969	$	28,905	$	1,145,874	$	1,182,838	$	25,736	$