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 ~~March 31,~~June 30, 2022


☐			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 ~~April 30,~~July 31, 2022, Select Medical Holdings Corporation had outstanding ~~130,627,340~~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.

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	78

	Notes to condensed consolidated financial statements	89

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1922

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3847

ITEM 4.	CONTROLS AND PROCEDURES	3847

PART II	OTHER INFORMATION	3948

ITEM 1.	LEGAL PROCEEDINGS	3948

ITEM 1A.	RISK FACTORS	3948

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	3948

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	3948

ITEM 4.	MINE SAFETY DISCLOSURES	3948

ITEM 5.	OTHER INFORMATION	3948

ITEM 6.	EXHIBITS	4049

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, 2021		March 31, 2022			December 31, 2021		June 30, 2022
ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	74,310	$	130,881	Cash and cash equivalents	$	74,310	$	94,669
Accounts receivable	Accounts receivable	889,303		941,434		Accounts receivable	889,303		921,623
Prepaid income taxes	Prepaid income taxes	55,620		40,761		Prepaid income taxes	55,620		42,642
Other current assets	Other current assets	120,206		137,775		Other current assets	120,206		162,114
Total Current Assets	Total Current Assets	1,139,439		1,250,851		Total Current Assets	1,139,439		1,221,048
Operating lease right-of-use assets	Operating lease right-of-use assets	1,078,754		1,102,710		Operating lease right-of-use assets	1,078,754		1,136,678
Property and equipment, net	Property and equipment, net	961,467		952,926		Property and equipment, net	961,467		955,752
Goodwill	Goodwill	3,448,912		3,465,456		Goodwill	3,448,912		3,476,213
Identifiable intangible assets, net	Identifiable intangible assets, net	374,879		368,850		Identifiable intangible assets, net	374,879		366,222
Other assets	Other assets	356,720		395,151		Other assets	356,720		395,745
Total Assets	Total Assets	$	7,360,171	$	7,535,944	Total Assets	$	7,360,171	$	7,551,658
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current Liabilities:	Current Liabilities:					Current Liabilities:
Overdrafts	Overdrafts	$	42,353	$	34,745	Overdrafts	$	42,353	$	31,298
Current operating lease liabilities	Current operating lease liabilities	229,334		234,420		Current operating lease liabilities	229,334		233,917
Current portion of long-term debt and notes payable	Current portion of long-term debt and notes payable	17,572		24,513		Current portion of long-term debt and notes payable	17,572		44,009
Accounts payable	Accounts payable	233,844		238,150		Accounts payable	233,844		231,472
Accrued payroll	Accrued payroll	247,292		242,749		Accrued payroll	247,292		257,612
Accrued vacation	Accrued vacation	144,048		148,114		Accrued vacation	144,048		152,281
Accrued interest	Accrued interest	29,002		9,932		Accrued interest	29,002		29,339
Accrued other	Accrued other	244,312		232,297		Accrued other	244,312		242,980
Government advances	Government advances	83,790		20,862		Government advances	83,790		6,471
Unearned government assistance	Unearned government assistance	93		194		Unearned government assistance	93		586

Income taxes payable	Income taxes payable	1,437		3,175		Income taxes payable	1,437		11,774
Total Current Liabilities	Total Current Liabilities	1,273,077		1,189,151		Total Current Liabilities	1,273,077		1,241,739
Non-current operating lease liabilities	Non-current operating lease liabilities	916,540		938,423		Non-current operating lease liabilities	916,540		974,657
Long-term debt, net of current portion	Long-term debt, net of current portion	3,556,385		3,738,299		Long-term debt, net of current portion	3,556,385		3,723,734
Non-current deferred tax liability	Non-current deferred tax liability	142,792		156,407		Non-current deferred tax liability	142,792		157,892
Other non-current liabilities	Other non-current liabilities	106,442		105,098		Other non-current liabilities	106,442		107,738
Total Liabilities	Total Liabilities	5,995,236		6,127,378		Total Liabilities	5,995,236		6,205,760
Commitments and contingencies (Note 14)	Commitments and contingencies (Note 14)	0		0		Commitments and contingencies (Note 14)	0		0
Redeemable non-controlling interests	Redeemable non-controlling interests	39,033		41,670		Redeemable non-controlling interests	39,033		42,197
Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Common stock, $0.001 par value, 700,000,000 shares authorized, 133,884,817 and 131,769,303 shares issued and outstanding at 2021 and 2022, respectively		134		132
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						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	Capital in excess of par	504,314		489,794		Capital in excess of par	504,314		441,769
Retained earnings	Retained earnings	593,251		596,079		Retained earnings	593,251		565,556
Accumulated other comprehensive income	Accumulated other comprehensive income	12,282		52,135		Accumulated other comprehensive income	12,282		63,962
Total Stockholders’ Equity	Total Stockholders’ Equity	1,109,981		1,138,140		Total Stockholders’ Equity	1,109,981		1,071,413
Non-controlling interests	Non-controlling interests	215,921		228,756		Non-controlling interests	215,921		232,288
Total Equity	Total Equity	1,325,902		1,366,896		Total Equity	1,325,902		1,303,701
Total Liabilities and Equity	Total Liabilities and Equity	$	7,360,171	$	7,535,944	Total Liabilities and Equity	$	7,360,171	$	7,551,658

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 March 31,			For the Three Months Ended June 30,						For the Six Months Ended June 30,
			2021			2022			2021		2022		2021		2022
Revenue	Revenue		$	1,546,463		$	1,599,547	Revenue	$	1,564,020	$	1,584,741	$	3,110,483	$	3,184,288
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		1,293,449			1,407,010		Cost of services, exclusive of depreciation and amortization	1,291,448		1,390,550		2,584,897		2,797,560
General and administrative	General and administrative		35,403			37,513		General and administrative	35,737		37,268		71,140		74,781
Depreciation and amortization	Depreciation and amortization		49,620			51,039		Depreciation and amortization	50,954		51,081		100,574		102,120
Total costs and expenses	Total costs and expenses		1,378,472			1,495,562		Total costs and expenses	1,378,139		1,478,899		2,756,611		2,974,461
Other operating income	Other operating income		34,021			—		Other operating income	98,087		15,125		132,108		15,125
Income from operations	Income from operations		202,012			103,985		Income from operations	283,968		120,967		485,980		224,952
Other income and expense:	Other income and expense:							Other income and expense:

Equity in earnings of unconsolidated subsidiaries	Equity in earnings of unconsolidated subsidiaries		9,919			5,397		Equity in earnings of unconsolidated subsidiaries	11,809		6,167		21,728		11,564

Interest income	Interest income		4,749			—		Interest income	—		—		4,749		—
Interest expense	Interest expense		(34,402)			(35,514)		Interest expense	(33,888)		(41,052)		(68,290)		(76,566)
Income before income taxes	Income before income taxes		182,278			73,868		Income before income taxes	261,889		86,082		444,167		159,950
Income tax expense	Income tax expense		45,064			17,942		Income tax expense	65,681		19,820		110,745		37,762
Net income	Net income		137,214			55,926		Net income	196,208		66,262		333,422		122,188
Less: Net income attributable to non-controlling interests	Less: Net income attributable to non-controlling interests		26,668			6,809		Less: Net income attributable to non-controlling interests	31,314		11,055		57,982		17,864
Net income attributable to Select Medical Holdings Corporation	Net income attributable to Select Medical Holdings Corporation		$	110,546		$	49,117	Net income attributable to Select Medical Holdings Corporation	$	164,894	$	55,207	$	275,440	$	104,324
Earnings per common share (Note 13):	Earnings per common share (Note 13):							Earnings per common share (Note 13):
Basic and diluted	Basic and diluted		$	0.82		$	0.37	Basic and diluted	$	1.22	$	0.43	$	2.04	$	0.79

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 March 31,			For the Three Months Ended June 30,						For the Six Months Ended June 30,
			2021			2022			2021		2022		2021		2022
Net income	Net income		$	137,214		$	55,926	Net income	$	196,208	$	66,262	$	333,422	$	122,188
Other comprehensive income, net of tax:
Gain on interest rate cap cash flow hedge			8,151			39,814
Other comprehensive income (loss), net of tax:								Other comprehensive income (loss), net of tax:
Gain (loss) on interest rate cash flow hedge								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	Reclassification adjustment for losses (gains) included in net income		—			39		Reclassification adjustment for losses (gains) included in net income	6		(6)		6		33
Net change, net of tax benefit (expense) of $(2,834) and $(13,284)			8,151			39,853
Net change, net of tax benefit (expense) of $486, $(3,942), $(2,348) and $(17,227)								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	Comprehensive income		145,365			95,779		Comprehensive income	194,811		78,089		340,176		173,868
Less: Comprehensive income attributable to non-controlling interests	Less: Comprehensive income attributable to non-controlling interests		26,668			6,809		Less: Comprehensive income attributable to non-controlling interests	31,314		11,055		57,982		17,864
Comprehensive income attributable to Select Medical Holdings Corporation	Comprehensive income attributable to Select Medical Holdings Corporation		$	118,697		$	88,970	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.

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, 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 0 (2) (2) 0 (2)
Balance at March 31, 2022 131,769 $ 132 $ 489,794 $ 596,079 $ 52,135 $ 1,138,140 $ 228,756 $ 1,366,896


		For the Three Months Ended March 31, 2021																For the Six Months Ended June 30, 2022

			Total Stockholders’ Equity																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			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, 2020		134,850	$	135	$	509,128	$	553,244	$	(2,027)	$	1,060,480	$	192,493	$	1,252,973
Balance at December 31, 2021																	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	Net income attributable to Select Medical Holdings Corporation						110,546				110,546				110,546		Net income attributable to Select Medical Holdings Corporation						49,117				49,117				49,117
Net income attributable to non-controlling interests	Net income attributable to non-controlling interests										—		17,042		17,042		Net income attributable to non-controlling interests										—		4,891		4,891
Cash dividends declared for common stockholders ($0.125 per share)																	Cash dividends declared for common stockholders ($0.125 per share)						(16,691)				(16,691)				(16,691)
Issuance of restricted stock	Issuance of restricted stock	2	0		0						—				—		Issuance of restricted stock	13	0		0						—				—
Forfeitures of unvested restricted stock		(14)	0		0						—				—

Vesting of restricted stock	Vesting of restricted stock				6,173						6,173				6,173		Vesting of restricted stock				8,288						8,288				8,288

Non-controlling interests acquired in business combination											—		8,193		8,193
Repurchase of common shares																	Repurchase of common shares	(2,128)	(2)		(23,459)		(28,215)				(51,676)				(51,676)
Issuance of non-controlling interests																	Issuance of non-controlling interests				651						651		4,578		5,229
Non-controlling interests acquired in business combination, measurement period adjustment																	Non-controlling interests acquired in business combination, measurement period adjustment										—		12,463		12,463
Distributions to and purchases of non-controlling interests	Distributions to and purchases of non-controlling interests				(787)						(787)		(13,458)		(14,245)		Distributions to and purchases of non-controlling interests										—		(9,097)		(9,097)
Redemption value adjustment on non-controlling interests	Redemption value adjustment on non-controlling interests						(38,405)				(38,405)				(38,405)		Redemption value adjustment on non-controlling interests						(1,381)				(1,381)				(1,381)
Other comprehensive income	Other comprehensive income								8,151		8,151				8,151		Other comprehensive income								39,853		39,853				39,853
Other	Other				(178)		(4)				(182)		371		189		Other				0		(2)				(2)		0		(2)
Balance at March 31, 2021		134,838	$	135	$	514,336	$	625,381	$	6,124	$	1,145,976	$	204,641	$	1,350,617
Balance at March 31, 2022																	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																	Net income attributable to Select Medical Holdings Corporation						55,207				55,207				55,207
Net income attributable to non-controlling interests																	Net income attributable to non-controlling interests										—		9,155		9,155
Cash dividends declared for common stockholders ($0.125 per share)																	Cash dividends declared for common stockholders ($0.125 per share)						(16,108)				(16,108)				(16,108)
Issuance of restricted stock																	Issuance of restricted stock	211	0		0						—				—
Forfeitures of unvested restricted stock																	Forfeitures of unvested restricted stock	(6)	0		0		3				3				3
Vesting of restricted stock																	Vesting of restricted stock				8,406						8,406				8,406
Repurchase of common shares																	Repurchase of common shares	(5,483)	(6)		(56,965)		(69,976)				(126,947)				(126,947)
Issuance of non-controlling interests																	Issuance of non-controlling interests										—		1,725		1,725
Distributions to and purchases of non-controlling interests																	Distributions to and purchases of non-controlling interests				534						534		(7,348)		(6,814)
Redemption value adjustment on non-controlling interests																	Redemption value adjustment on non-controlling interests						355				355				355
Other comprehensive income																	Other comprehensive income								11,827		11,827				11,827
Other																	Other				0		(4)				(4)				(4)

Balance at June 30, 2022																	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


	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.

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Select Medical Holdings Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)


		For the Three Months Ended March 31,					For the Six Months Ended June 30,
		2021		2022			2021		2022
Operating activities	Operating activities					Operating activities
Net income	Net income	$	137,214	$	55,926	Net income	$	333,422	$	122,188
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Distributions from unconsolidated subsidiaries	Distributions from unconsolidated subsidiaries	11,633		7,486		Distributions from unconsolidated subsidiaries	19,384		11,140
Depreciation and amortization	Depreciation and amortization	49,620		51,039		Depreciation and amortization	100,574		102,120
Provision for expected credit losses	Provision for expected credit losses	67		94		Provision for expected credit losses	212		111
Equity in earnings of unconsolidated subsidiaries	Equity in earnings of unconsolidated subsidiaries	(9,919)		(5,397)		Equity in earnings of unconsolidated subsidiaries	(21,728)		(11,564)

Loss (gain) on sale or disposal of assets	Loss (gain) on sale or disposal of assets	72		(23)		Loss (gain) on sale or disposal of assets	494		(1,476)
Stock compensation expense	Stock compensation expense	6,709		8,823		Stock compensation expense	13,808		17,769
Amortization of debt discount, premium and issuance costs	Amortization of debt discount, premium and issuance costs	543		558		Amortization of debt discount, premium and issuance costs	1,095		1,123
Deferred income taxes	Deferred income taxes	(897)		420		Deferred income taxes	(8,323)		(1,965)
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	(60,142)		(52,225)		Accounts receivable	(31,751)		(32,431)
Other current assets	Other current assets	(4,425)		(1,819)		Other current assets	(12,856)		(2,128)
Other assets	Other assets	961		2,686		Other assets	(11,984)		1,275
Accounts payable	Accounts payable	23,460		16,074		Accounts payable	18,881		4,879
Accrued expenses	Accrued expenses	21,167		(31,076)		Accrued expenses	71,034		20,488
Government advances	Government advances	—		(62,928)		Government advances	(73,703)		(77,319)
Unearned government assistance	Unearned government assistance	19,207		101		Unearned government assistance	(78,509)		493

Income taxes	Income taxes	44,618		16,598		Income taxes	42,976		23,315
Net cash provided by operating activities	Net cash provided by operating activities	239,888		6,337		Net cash provided by operating activities	363,026		178,018
Investing activities	Investing activities					Investing activities
Business combinations, net of cash acquired	Business combinations, net of cash acquired	(6,314)		(5,186)		Business combinations, net of cash acquired	(10,081)		(19,241)
Purchases of property and equipment	Purchases of property and equipment	(39,719)		(46,845)		Purchases of property and equipment	(76,442)		(93,177)
Investment in businesses	Investment in businesses	(6,571)		(3,337)		Investment in businesses	(11,185)		(6,990)
Proceeds from sale of assets	Proceeds from sale of assets	19		37		Proceeds from sale of assets	9,463		5,314
Net cash used in investing activities	Net cash used in investing activities	(52,585)		(55,331)		Net cash used in investing activities	(88,245)		(114,094)
Financing activities	Financing activities					Financing activities
Borrowings on revolving facilities	Borrowings on revolving facilities	—		280,000		Borrowings on revolving facilities	—		565,000
Payments on revolving facilities	Payments on revolving facilities	—		(100,000)		Payments on revolving facilities	—		(375,000)

Borrowings of other debt	Borrowings of other debt	8,915		15,794		Borrowings of other debt	8,915		17,494
Principal payments on other debt	Principal payments on other debt	(9,342)		(9,188)		Principal payments on other debt	(15,314)		(16,874)
Dividends paid to common stockholders	Dividends paid to common stockholders	—		(16,691)		Dividends paid to common stockholders	(16,876)		(32,799)
Repurchase of common stock	Repurchase of common stock	—		(51,676)		Repurchase of common stock	(1,610)		(178,623)

Decrease in overdrafts	Decrease in overdrafts	—		(7,608)		Decrease in overdrafts	—		(11,055)
Proceeds from issuance of non-controlling interests	Proceeds from issuance of non-controlling interests	—		5,229		Proceeds from issuance of non-controlling interests	5,688		6,955
Distributions to and purchases of non-controlling interests	Distributions to and purchases of non-controlling interests	(13,663)		(10,295)		Distributions to and purchases of non-controlling interests	(29,152)		(18,663)

Net cash provided by (used in) financing activities		(14,090)		105,565
Net cash used in financing activities						Net cash used in financing activities	(48,349)		(43,565)
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	173,213		56,571		Net increase in cash and cash equivalents	226,432		20,359
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	577,061		74,310		Cash and cash equivalents at beginning of period	577,061		74,310
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	750,274	$	130,881	Cash and cash equivalents at end of period	$	803,493	$	94,669
Supplemental Information	Supplemental Information					Supplemental Information
Cash paid for interest	Cash paid for interest	$	52,470	$	53,517	Cash paid for interest	$	66,955	$	74,217
Cash paid for taxes	Cash paid for taxes	1,343		923		Cash paid for taxes	76,094		16,423

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, Select, and Select’s subsidiaries are collectively referred to as the “Company.” The unaudited condensed consolidated financial statements of the Company as of ~~March 31,~~June 30, 2022, and for the three and six month periods ended ~~March 31,~~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 ~~March 31,~~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 ~~both~~ December 31, 2021 and ~~March 31, 2022.~~June 30, 2022, respectively.

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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.

~~Table of Contents~~

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


		Three Months Ended March 31,					Six Months Ended June 30,
		2021		2022			2021		2022
		(in thousands)					(in thousands)
Balance as of January 1	Balance as of January 1	$	398,171	$	39,033	Balance as of January 1	$	398,171	$	39,033
Net income attributable to redeemable non-controlling interests	Net income attributable to redeemable non-controlling interests	9,626		1,918		Net income attributable to redeemable non-controlling interests	9,626		1,918

Distributions to and purchases of redeemable non-controlling interests	Distributions to and purchases of redeemable non-controlling interests	(614)		(1,198)		Distributions to and purchases of redeemable non-controlling interests	(614)		(1,198)

Redemption value adjustment on redeemable non-controlling interests	Redemption value adjustment on redeemable non-controlling interests	38,405		1,381		Redemption value adjustment on redeemable non-controlling interests	38,405		1,381
Other	Other	343		536		Other	343		536
Balance as of March 31	Balance as of March 31	$	445,931	$	41,670	Balance as of March 31	$	445,931	$	41,670
Net income attributable to redeemable non-controlling interests						Net income attributable to redeemable non-controlling interests	18,073		1,900
Distributions to and purchases of redeemable non-controlling interests						Distributions to and purchases of redeemable non-controlling interests	(1,987)		(1,553)
Redemption value adjustment on redeemable non-controlling interests						Redemption value adjustment on redeemable non-controlling interests	59,370		(355)
Other						Other	165		535
Balance as of June 30						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 ~~March 31,~~June 30, 2022, the total assets of the Company’s variable interest entities were $225.1 million and ~~$242.0~~$256.9 million, respectively, and are principally comprised of accounts receivable. As of December 31, 2021, and ~~March 31,~~June 30, 2022, the total liabilities of the Company’s variable interest entities were $74.8 million and ~~$79.1~~$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 ~~$163.4~~$172.7 million as of December 31, 2021, and ~~March 31,~~June 30, 2022, respectively. These intercompany balances are eliminated in consolidation.

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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

Three Months Ended March 31, 2021 Three Months Ended March 31, 2022
Unrelated Parties Related Parties Total Unrelated Parties Related Parties Total
(in thousands)
Operating lease cost $ 70,114 $ 1,799 $ 71,913 $ 73,962 $ 1,809 $ 75,771
Finance lease cost:
Amortization of right-of-use assets 35 — 35 347 — 347
Interest on lease liabilities 251 — 251 340 — 340
Short-term lease cost — — — 35 — 35
Variable lease cost 13,009 3 13,012 13,655 39 13,694
Sublease income (2,234) — (2,234) (1,966) — (1,966)
Total lease cost $ 81,175 $ 1,802 $ 82,977 $ 86,373 $ 1,848 $ 88,221

~~Table of Contents~~


	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:


		Three Months Ended March 31,					Six Months Ended June 30,
		2021		2022			2021		2022
		(in thousands)					(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	Operating cash flows for operating leases	$	72,437	$	77,689	Operating cash flows for operating leases	$	145,652	$	155,160
Operating cash flows for finance leases	Operating cash flows for finance leases	251		340		Operating cash flows for finance leases	505		676
Financing cash flows for finance leases	Financing cash flows for finance leases	58		344		Financing cash flows for finance leases	145		475
Right-of-use assets obtained in exchange for lease liabilities:	Right-of-use assets obtained in exchange for lease liabilities:					Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	Operating leases	$	79,987	$	88,636	Operating leases	$	138,606	$	185,739
Finance leases	Finance leases	138		—		Finance leases	138		312

~~Supplemental balance sheet information related to leases is as follows:~~

December 31, 2021 March 31, 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 $ 1,077,980 $ 24,730 $ 1,102,710
Current operating lease liabilities $ 222,865 $ 6,469 $ 229,334 $ 228,598 $ 5,822 $ 234,420
Non-current operating lease liabilities 894,104 22,436 916,540 916,887 21,536 938,423
Total operating lease liabilities $ 1,116,969 $ 28,905 $ 1,145,874 $ 1,145,485 $ 27,358 $ 1,172,843

December 31, 2021 March 31, 2022
Unrelated Parties Related Parties Total Unrelated Parties Related Parties Total
(in thousands)
Finance Leases
Property and equipment, net $ 8,505 $ — $ 8,505 $ 8,158 $ — $ 8,158
Current portion of long-term debt and notes payable $ 1,404 $ — $ 1,404 $ 1,436 $ — $ 1,436
Long-term debt, net of current portion 16,679 — 16,679 16,303 — 16,303
Total finance lease liabilities $ 18,083 $ — $ 18,083 $ 17,739 $ — $ 17,739

~~The weighted average remaining lease terms and discount rates are as follows:~~

December 31, 2021 March 31, 2022
Weighted average remaining lease term (in years):
Operating leases 7.8 7.6
Finance leases 24.7 24.8
Weighted average discount rate:
Operating leases 5.6 % 5.6 %
Finance leases 7.4 % 7.4 %

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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	$	1,208,574


	December 31, 2021						June 30, 2022
	Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total
	(in thousands)
Finance Leases


Property and equipment, net	$	8,505	$	—	$	8,505	$	8,125	$	—	$	8,125

Current portion of long-term debt and notes payable	$	1,404	$	—	$	1,404	$	1,544	$	—	$	1,544
Long-term debt, net of current portion	16,679		—		16,679		16,142		—		16,142
Total finance lease liabilities	$	18,083	$	—	$	18,083	$	17,686	$	—	$	17,686

The weighted average remaining lease terms and discount rates are as follows:


	December 31, 2021		June 30, 2022
Weighted average remaining lease term (in years):
Operating leases	7.8		7.7
Finance leases	24.7		24.6
Weighted average discount rate:
Operating leases	5.6	%	5.6	%
Finance leases	7.4	%	7.4	%

As of ~~March 31,~~June 30, 2022, maturities of lease liabilities are approximately as follows:


		Operating Leases		Finance Leases			Operating Leases		Finance Leases
		(in thousands)					(in thousands)
2022 (remainder of year)	2022 (remainder of year)	$	222,152	$	2,040	2022 (remainder of year)	$	151,002	$	1,360
2023	2023	259,672		2,747		2023	274,735		2,747
2024	2024	219,375		2,384		2024	235,883		2,384
2025	2025	175,699		2,101		2025	192,554		2,101
2026	2026	145,837		2,126		2026	161,205		2,126
Thereafter	Thereafter	495,998		28,181		Thereafter	558,633		28,181
Total undiscounted cash flows	Total undiscounted cash flows	1,518,733		39,579		Total undiscounted cash flows	1,574,012		38,899
Less: Imputed interest	Less: Imputed interest	345,890		21,840		Less: Imputed interest	365,438		21,213
Total discounted lease liabilities	Total discounted lease liabilities	$	1,172,843	$	17,739	Total discounted lease liabilities	$	1,208,574	$	17,686

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7. Intangible Assets

Goodwill

The following table shows changes in the carrying amounts of goodwill by reporting unit for the ~~three~~six months ended ~~March 31,~~June 30, 2022:


		Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Total			Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Total
		(in thousands)											(in thousands)
Balance as of December 31, 2021	Balance as of December 31, 2021	$	1,131,440	$	442,155	$	654,125	$	1,221,192	$	3,448,912	Balance as of December 31, 2021	$	1,131,440	$	442,155	$	654,125	$	1,221,192	$	3,448,912
Acquisition of businesses	Acquisition of businesses	—		—		409		2,884		3,293		Acquisition of businesses	6,505		—		3,618		3,927		14,050

Measurement period adjustment	Measurement period adjustment	13,251		—		—		—		13,251		Measurement period adjustment	13,251		—		—		—		13,251
Balance as of March 31, 2022		$	1,144,691	$	442,155	$	654,534	$	1,224,076	$	3,465,456
Balance as of June 30, 2022												Balance as of June 30, 2022	$	1,151,196	$	442,155	$	657,743	$	1,225,119	$	3,476,213

Identifiable Intangible Assets

The following table provides the gross carrying amounts, accumulated amortization, and net carrying amounts for the Company’s identifiable intangible assets:


		December 31, 2021						March 31, 2022							December 31, 2021						June 30, 2022
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
		(in thousands)													(in thousands)
Indefinite-lived intangible assets:	Indefinite-lived intangible assets:													Indefinite-lived intangible assets:
Trademarks	Trademarks	$	166,698	$	—	$	166,698	$	166,698	$	—	$	166,698	Trademarks	$	166,698	$	—	$	166,698	$	166,698	$	—	$	166,698
Certificates of need	Certificates of need	21,478		—		21,478		21,625		—		21,625		Certificates of need	21,478		—		21,478		22,966		—		22,966
Accreditations	Accreditations	1,874		—		1,874		1,874		—		1,874		Accreditations	1,874		—		1,874		1,874		—		1,874
Finite-lived intangible assets:	Finite-lived intangible assets:													Finite-lived intangible assets:
Trademarks	Trademarks	5,000		(5,000)		—		5,000		(5,000)		—		Trademarks	5,000		(5,000)		—		5,000		(5,000)		—
Customer relationships	Customer relationships	304,289		(141,111)		163,178		305,839		(148,283)		157,556		Customer relationships	304,289		(141,111)		163,178		309,109		(155,537)		153,572
Non-compete agreements	Non-compete agreements	36,746		(15,095)		21,651		37,087		(15,990)		21,097		Non-compete agreements	36,746		(15,095)		21,651		38,004		(16,892)		21,112
Total identifiable intangible assets	Total identifiable intangible assets	$	536,085	$	(161,206)	$	374,879	$	538,123	$	(169,273)	$	368,850	Total identifiable intangible assets	$	536,085	$	(161,206)	$	374,879	$	543,651	$	(177,429)	$	366,222

The Company’s accreditations and trademarks have renewal terms, and the costs to renew these intangible assets are expensed as incurred. At ~~March 31,~~June 30, 2022, the accreditations and trademarks have a weighted average time until next renewal of 1.5 years and ~~7.5~~7.2 years, respectively.

The Company’s finite-lived intangible assets amortize over their estimated useful lives. Amortization expense was ~~$7.1~~$7.3 million and ~~$7.6~~$7.7 million for the three months ended ~~March 31,~~June 30, 2021 and 2022, respectively. Amortization expense was $14.4 million and $15.2 million for the six months ended June 30, 2021 and 2022, respectively.

~~Table of Contents~~

8. Long-Term Debt and Notes Payable

As of ~~March 31,~~June 30, 2022, the Company’s long-term debt and notes payable were 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)
6.250% senior notes	6.250% senior notes	$	1,225,000	$	26,131	$	(13,212)	$	1,237,919	$	1,262,118	6.250% senior notes	$	1,225,000	$	24,613	$	(12,463)	$	1,237,150	$	1,142,313
Credit facilities:	Credit facilities:											Credit facilities:
Revolving facility	Revolving facility	340,000		—		—		340,000		338,725		Revolving facility	350,000		—		—		350,000		348,688
Term loan	Term loan	2,103,437		(5,890)		(6,421)		2,091,126		2,079,773		Term loan	2,103,437		(5,390)		(5,875)		2,092,172		2,008,782
Other debt, including finance leases	Other debt, including finance leases	93,961		—		(194)		93,767		93,767		Other debt, including finance leases	88,595		—		(174)		88,421		88,421
Total debt	Total debt	$	3,762,398	$	20,241	$	(19,827)	$	3,762,812	$	3,774,383	Total debt	$	3,767,032	$	19,223	$	(18,512)	$	3,767,743	$	3,588,204

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


		2022		2023		2024		2025		2026		Thereafter		Total			2022		2023		2024		2025		2026		Thereafter		Total
		(in thousands)															(in thousands)
6.250% senior notes	6.250% senior notes	$	—	$	—	$	—	$	—	$	1,225,000	$	—	$	1,225,000	6.250% senior notes	$	—	$	—	$	—	$	—	$	1,225,000	$	—	$	1,225,000
Credit facilities:	Credit facilities:															Credit facilities:
Revolving facility	Revolving facility	—		—		340,000		—		—		—		340,000		Revolving facility	—		—		350,000		—		—		—		350,000
Term loan	Term loan	—		4,757		11,150		2,087,530		—		—		2,103,437		Term loan	—		4,757		11,150		2,087,530		—		—		2,103,437
Other debt, including finance leases	Other debt, including finance leases	22,143		31,064		26,081		1,824		1,286		11,563		93,961		Other debt, including finance leases	14,264		33,399		26,164		1,920		1,286		11,562		88,595
Total debt	Total debt	$	22,143	$	35,821	$	377,231	$	2,089,354	$	1,226,286	$	11,563	$	3,762,398	Total debt	$	14,264	$	38,156	$	387,314	$	2,089,450	$	1,226,286	$	11,562	$	3,767,032

As of December 31, 2021, the Company’s long-term debt and notes payable were as follows:


	Principal Outstanding		Unamortized Premium (Discount)		Unamortized Issuance Costs		Carrying Value		Fair Value
	(in thousands)
6.250% senior notes	$	1,225,000	$	27,635	$	(13,951)	$	1,238,684	$	1,297,104
Credit facilities:
Revolving facility	160,000		—		—		160,000		159,400
Term loan	2,103,437		(6,386)		(6,961)		2,090,090		2,087,661
Other debt, including finance leases	85,398		—		(215)		85,183		85,183
Total debt	$	3,573,835	$	21,249	$	(21,127)	$	3,573,957	$	3,629,348

9. Interest Rate Cap

The Company is subject to market risk exposure arising from changes in interest rates on its term loan, which bears interest at a rate that is indexed to one-month LIBOR. 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 one-month LIBOR rate 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 became effective March 31, 2021, for the monthly periods from and including April 30, 2021, 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 one-month LIBOR 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.

~~Table of Contents~~

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


		Three Months Ended March 31,					Six Months Ended June 30,
		2021		2022			2021		2022
		(in thousands)					(in thousands)
Balance as of January 1	Balance as of January 1	$	(2,027)	$	12,282	Balance as of January 1	$	(2,027)	$	12,282
Gain on interest rate cap cash flow hedge	Gain on interest rate cap cash flow hedge	8,151		39,814		Gain on interest rate cap cash flow hedge	8,151		39,814
Amounts reclassified from accumulated other comprehensive income	Amounts reclassified from accumulated other comprehensive income	—		39		Amounts reclassified from accumulated other comprehensive income	—		39
Balance as of March 31	Balance as of March 31	$	6,124	$	52,135	Balance as of March 31	$	6,124	$	52,135
Gain (loss) on interest rate cap cash flow hedge						Gain (loss) on interest rate cap cash flow hedge	(1,403)		11,833
Amounts reclassified from accumulated other comprehensive income						Amounts reclassified from accumulated other comprehensive income	6		(6)
Balance as of June 30						Balance as of June 30	$	4,727	$	63,962

The Company expects that approximately ~~$16.9~~$40.3 million of estimated pre-tax gains will be reclassified from accumulated other comprehensive income into interest expense within the next twelve months.

Refer to Note 10 – Fair Value of Financial Instruments for information on the fair value of the Company’s interest rate cap contract and its balance sheet classification.

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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, 2021

March 31, 2022

Financial Instrument

Balance Sheet Classification

Level

December 31, 2021

June 30, 2022

Asset:

(in thousands)

Asset:

(in thousands)

Interest rate cap contract, current portion

Other current assets

Level 2

—

15,745

Interest rate cap contract, current portion

Other current assets

Level 2

—

39,488

Interest rate cap contract, non-current portion

Other assets

Level 2

18,055

55,523

Interest rate cap contract, non-current portion

Other assets

Level 2

18,055

47,918

Liability:

Interest rate cap contract, current portion

Accrued other

Level 2

330

—

Interest rate cap contract, current portion

Accrued other

Level 2

330

—

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 8 – Long-Term Debt and Notes Payable, approximates fair value.


			December 31, 2021				March 31, 2022						December 31, 2021				June 30, 2022
Financial Instrument	Financial Instrument	Level	Carrying Value		Fair Value		Carrying Value		Fair Value		Financial Instrument	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
			(in thousands)										(in thousands)
6.250% senior notes	6.250% senior notes	Level 2	$	1,238,684	$	1,297,104	$	1,237,919	$	1,262,118	6.250% senior notes	Level 2	$	1,238,684	$	1,297,104	$	1,237,150	$	1,142,313
Credit facilities:	Credit facilities:										Credit facilities:
Revolving facility	Revolving facility	Level 2	160,000		159,400		340,000		338,725		Revolving facility	Level 2	160,000		159,400		350,000		348,688
Term loan	Term loan	Level 2	2,090,090		2,087,661		2,091,126		2,079,773		Term loan	Level 2	2,090,090		2,087,661		2,092,172		2,008,782

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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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, 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 March 31,			Three Months Ended June 30,						Six Months Ended June 30,
			2021			2022			2021		2022		2021		2022
			(in thousands)						(in thousands)
Revenue:	Revenue:							Revenue:
Critical illness recovery hospital	Critical illness recovery hospital		$	594,872		$	601,755	Critical illness recovery hospital	$	544,059	$	545,908	$	1,138,931	$	1,147,663
Rehabilitation hospital	Rehabilitation hospital		207,804			220,634		Rehabilitation hospital	212,666		228,887		420,470		449,521
Outpatient rehabilitation	Outpatient rehabilitation		251,961			271,940		Outpatient rehabilitation	280,409		287,258		532,370		559,198
Concentra	Concentra		422,840			423,423		Concentra	456,372		441,357		879,212		864,780
Other	Other		68,986			81,795		Other	70,514		81,331		139,500		163,126
Total Company	Total Company		$	1,546,463		$	1,599,547	Total Company	$	1,564,020	$	1,584,741	$	3,110,483	$	3,184,288
Adjusted EBITDA:	Adjusted EBITDA:							Adjusted EBITDA:
Critical illness recovery hospital	Critical illness recovery hospital		$	113,272		$	35,967	Critical illness recovery hospital	$	72,904	$	20,019	$	186,176	$	55,986
Rehabilitation hospital	Rehabilitation hospital		50,534			42,379		Rehabilitation hospital	50,768		49,845		101,302		92,224
Outpatient rehabilitation	Outpatient rehabilitation		26,329			26,596		Outpatient rehabilitation	45,633		33,601		71,962		60,197
Concentra			82,015			89,469
Concentra(1)								Concentra(1)	137,060		92,607		219,075		182,076
Other~~(1)~~(2)	Other~~(1)~~(2)		(13,809)			(30,564)		Other~~(1)~~(2)	35,656		(15,078)		21,847		(45,642)
Total Company	Total Company		$	258,341		$	163,847	Total Company	$	342,021	$	180,994	$	600,362	$	344,841
Total assets:	Total assets:							Total assets:
Critical illness recovery hospital	Critical illness recovery hospital		$	2,233,067		$	2,367,490	Critical illness recovery hospital	$	2,187,181	$	2,387,516	$	2,187,181	$	2,387,516
Rehabilitation hospital	Rehabilitation hospital		1,188,387			1,187,118		Rehabilitation hospital	1,186,886		1,194,739		1,186,886		1,194,739
Outpatient rehabilitation	Outpatient rehabilitation		1,321,268			1,350,374		Outpatient rehabilitation	1,333,661		1,360,600		1,333,661		1,360,600
Concentra	Concentra		2,468,157			2,339,940		Concentra	2,518,369		2,301,296		2,518,369		2,301,296
Other	Other		709,902			291,022		Other	730,282		307,507		730,282		307,507
Total Company	Total Company		$	7,920,781		$	7,535,944	Total Company	$	7,956,379	$	7,551,658	$	7,956,379	$	7,551,658
Purchases of property and equipment:	Purchases of property and equipment:							Purchases of property and equipment:
Critical illness recovery hospital	Critical illness recovery hospital		$	14,385		$	19,569	Critical illness recovery hospital	$	16,499	$	19,528	$	30,884	$	39,097
Rehabilitation hospital	Rehabilitation hospital		665			6,274		Rehabilitation hospital	3,257		4,821		3,922		11,095
Outpatient rehabilitation	Outpatient rehabilitation		7,335			9,414		Outpatient rehabilitation	7,448		9,314		14,783		18,728
Concentra	Concentra		12,680			10,240		Concentra	7,591		8,716		20,271		18,956
Other	Other		4,654			1,348		Other	1,928		3,953		6,582		5,301
Total Company	Total Company		$	39,719		$	46,845	Total Company	$	36,723	$	46,332	$	76,442	$	93,177

_______________________________________________________________________________

(1) For the three and six months ended ~~March 31,~~June 30, 2021, Adjusted EBITDA included other operating income of ~~$16.1~~$32.3 million related to the recognition of payments received under the Provider Relief Fund for health care related expenses and loss of revenue attributable to the coronavirus disease 2019 (“COVID-19”).

(2) For the three and six months ended June 30, 2022, Adjusted EBITDA included other operating income of $15.1 million. For the three and six months ended June 30, 2021, Adjusted EBITDA included other operating income of $65.8 million and $81.9 million, respectively. 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.

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


		Three Months Ended March 31, 2021													Three Months Ended June 30, 2021
		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	$	113,272	$	50,534	$	26,329	$	82,015	$	(13,809)			Adjusted EBITDA	$	72,904	$	50,768	$	45,633	$	137,060	$	35,656
Depreciation and amortization	Depreciation and amortization	(13,050)		(7,060)		(7,191)		(19,898)		(2,421)				Depreciation and amortization	(12,936)		(6,939)		(7,345)		(21,230)		(2,504)
Stock compensation expense	Stock compensation expense	—		—		—		(536)		(6,173)				Stock compensation expense	—		—		—		(535)		(6,564)
Income (loss) from operations		$	100,222	$	43,474	$	19,138	$	61,581	$	(22,403)	$	202,012
Income from operations														Income from operations	$	59,968	$	43,829	$	38,288	$	115,295	$	26,588	$	283,968

Equity in earnings of unconsolidated subsidiaries	Equity in earnings of unconsolidated subsidiaries											9,919		Equity in earnings of unconsolidated subsidiaries											11,809

Interest income												4,749

Interest expense	Interest expense											(34,402)		Interest expense											(33,888)
Income before income taxes	Income before income taxes											$	182,278	Income before income taxes											$	261,889


		Three Months Ended March 31, 2022													Three Months Ended June 30, 2022
		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	$	35,967	$	42,379	$	26,596	$	89,469	$	(30,564)			Adjusted EBITDA	$	20,019	$	49,845	$	33,601	$	92,607	$	(15,078)
Depreciation and amortization	Depreciation and amortization	(14,618)		(6,802)		(8,029)		(18,812)		(2,778)				Depreciation and amortization	(14,603)		(7,175)		(8,130)		(18,730)		(2,443)
Stock compensation expense	Stock compensation expense	—		—		—		(535)		(8,288)				Stock compensation expense	—		—		—		(536)		(8,410)
Income (loss) from operations	Income (loss) from operations	$	21,349	$	35,577	$	18,567	$	70,122	$	(41,630)	$	103,985	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											5,397		Equity in earnings of unconsolidated subsidiaries											6,167

Interest expense	Interest expense											(35,514)		Interest expense											(41,052)
Income before income taxes	Income before income taxes											$	73,868	Income before income taxes											$	86,082


	Six Months Ended June 30, 2021
	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
	(in thousands)
Adjusted EBITDA	$	186,176	$	101,302	$	71,962	$	219,075	$	21,847
Depreciation and amortization	(25,986)		(13,999)		(14,536)		(41,128)		(4,925)
Stock compensation expense	—		—		—		(1,071)		(12,737)
Income from operations	$	160,190	$	87,303	$	57,426	$	176,876	$	4,185	$	485,980

Equity in earnings of unconsolidated subsidiaries											21,728

Interest income											4,749
Interest expense											(68,290)
Income before income taxes											$	444,167


	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

Table of Contents

12. Revenue from Contracts with Customers

The following tables disaggregate the Company’s revenue for the three and six months ended ~~March 31,~~June 30, 2021 and 2022:


		Three Months Ended March 31, 2021													Three Months Ended June 30, 2021
		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)
Patient service revenue:	Patient service revenue:													Patient service revenue:
Medicare	Medicare	$	232,140	$	102,375	$	36,291	$	230	$	—	$	371,036	Medicare	$	201,198	$	103,865	$	45,291	$	295	$	—	$	350,649
Non-Medicare	Non-Medicare	361,152		95,342		200,819		420,654		—		1,077,967		Non-Medicare	340,929		98,443		217,893		454,125		—		1,111,390
Total patient services revenues	Total patient services revenues	593,292		197,717		237,110		420,884		—		1,449,003		Total patient services revenues	542,127		202,308		263,184		454,420		—		1,462,039
Other revenue	Other revenue	1,580		10,087		14,851		1,956		68,986		97,460		Other revenue	1,932		10,358		17,225		1,952		70,514		101,981
Total revenue	Total revenue	$	594,872	$	207,804	$	251,961	$	422,840	$	68,986	$	1,546,463	Total revenue	$	544,059	$	212,666	$	280,409	$	456,372	$	70,514	$	1,564,020


		Three Months Ended March 31, 2022													Three Months Ended June 30, 2022
		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)
Patient service revenue:	Patient service revenue:													Patient service revenue:
Medicare	Medicare	$	218,987	$	103,021	$	41,904	$	177	$	—	$	364,089	Medicare	$	213,680	$	105,030	$	44,433	$	195	$	—	$	363,338
Non-Medicare	Non-Medicare	380,986		107,142		214,113		422,046		—		1,124,287		Non-Medicare	329,118		113,001		224,957		439,779		—		1,106,855
Total patient services revenues	Total patient services revenues	599,973		210,163		256,017		422,223		—		1,488,376		Total patient services revenues	542,798		218,031		269,390		439,974		—		1,470,193
Other revenue	Other revenue	1,782		10,471		15,923		1,200		81,795		111,171		Other revenue	3,110		10,856		17,868		1,383		81,331		114,548
Total revenue	Total revenue	$	601,755	$	220,634	$	271,940	$	423,423	$	81,795	$	1,599,547	Total revenue	$	545,908	$	228,887	$	287,258	$	441,357	$	81,331	$	1,584,741


	Six Months Ended June 30, 2021
	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
	(in thousands)
Patient service revenue:
Medicare	$	433,338	$	206,240	$	81,582	$	525	$	—	$	721,685
Non-Medicare	702,081		193,785		418,712		874,779		—		2,189,357
Total patient services revenues	1,135,419		400,025		500,294		875,304		—		2,911,042
Other revenue	3,512		20,445		32,076		3,908		139,500		199,441
Total revenue	$	1,138,931	$	420,470	$	532,370	$	879,212	$	139,500	$	3,110,483


	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

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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 ~~March 31,~~June 30, 2021 and 2022.

(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					Basic and Diluted EPS				Basic and Diluted EPS
		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
			2021		2022				2021		2022		2021		2022
			(in thousands)						(in thousands)
Net income	Net income		$	137,214	$	55,926		Net income	$	196,208	$	66,262	$	333,422	$	122,188
Less: net income attributable to non-controlling interests	Less: net income attributable to non-controlling interests		26,668		6,809			Less: net income attributable to non-controlling interests	31,314		11,055		57,982		17,864
Net income attributable to the Company	Net income attributable to the Company		110,546		49,117			Net income attributable to the Company	164,894		55,207		275,440		104,324
Less: Distributed and undistributed income attributable to participating securities	Less: Distributed and undistributed income attributable to participating securities		3,698		1,643			Less: Distributed and undistributed income attributable to participating securities	5,560		1,920		9,250		3,558
Distributed and undistributed income attributable to common shares	Distributed and undistributed income attributable to common shares		$	106,848	$	47,474		Distributed and undistributed income attributable to common shares	$	159,334	$	53,287	$	266,190	$	100,766

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


		Three Months Ended March 31,											Three Months Ended June 30,
		2021					2022						2021					2022
		Net Income Allocation		Shares(1)	Basic and Diluted EPS		Net Income Allocation		Shares(1)	Basic and Diluted EPS			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	$	106,848	130,329	$	0.82	$	47,474	129,010	$	0.37	Common shares	$	159,334	130,396	$	1.22	$	53,287	124,897	$	0.43
Participating securities	Participating securities	3,698		4,511	$	0.82	1,643		4,464	$	0.37	Participating securities	5,560		4,550	$	1.22	1,920		4,500	$	0.43
Total Company	Total Company	$	110,546				$	49,117				Total Company	$	164,894				$	55,207


	Six Months Ended June 30,
	2021					2022
	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	$	266,190	130,362	$	2.04	$	100,766	126,942	$	0.79
Participating securities	9,250		4,530	$	2.04	3,558		4,482	$	0.79
Total Company	$	275,440				$	104,324

_______________________________________________________________________________

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

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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 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. 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 for most joint ventures. 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 which, due to their nature or amount, are not covered by or not fully covered by the Company’s professional and general liability insurance policies. These insurance policies also do not generally cover punitive damages 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. On August 24, 2020, the Company and Select Specialty Hospital – Oklahoma City, Inc. (“SSH–Oklahoma City”) received Civil Investigative Demands 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 government’s investigation appears to be focused on respiratory therapy services and billings. The Company does not know whether the subpoena has been issued in connection with a qui tam lawsuit or in connection with possible civil, criminal or administrative proceedings by the government. The Company is producing documents in response to the subpoena and is fully cooperating with this investigation. At this time, the Company is unable to predict the timing and outcome of this matter.

~~Table of Contents~~

~~New Jersey Litigation.~~ In December 2020, the United States District Court for the District of New Jersey unsealed a qui tam complaint in the United States of America and State of New Jersey ex rel. Keith A. DiLello, Sr. v. Hackensack Meridian Health, Jersey Shore University Medical Center, Ocean Medical Center, Seaview Orthopaedics, Shrewsbury Surgery Center, Kessler Rehabilitation, Dr. Halambros Demetriades, Dr. Theodore Kutzan, Dr. Adam Myers, Dr. Hoan-Vu Nguyen, Dr. Frederick De Paola, ABC Corporations 1-10, and John/Jane Does 1-10, Case 3:20-cv-02949-FLW-ZNQ. The complaint was filed under seal in March 2020 and was unsealed after the United States and the State of New Jersey declined to intervene in the case. In the complaint, the plaintiff-relator, an automobile accident victim and former patient of the defendant providers, alleges that they routinely billed both personal injury protection (“PIP”) carriers and CMS. He alleges that they violated federal and state law by billing CMS when other insurance is available and failing to return payment to CMS after payment was made by the PIP carriers. In March 2021, defendant Kessler Rehabilitation waived service of process of the complaint. In April 2022, the Court granted defendant Kessler Rehabilitation’s motion to dismiss the complaint, dismissing all counts without prejudice. The Court also gave the plaintiff-relator leave to amend his complaint, within 30 days of the Court’s order, to cure the deficiencies outlined in the Court’s opinion. The Company intends to vigorously defend this action, but at this time the Company is unable to predict the timing and outcome of this matter.

Physical Therapy Billing. On October 7, 2021, the Company received a ~~one-page~~ letter from a Trial Attorney at the U.S. Department of Justice, Civil Division, Commercial Litigation Branch, Fraud Section (“DOJ”)~~. The letter stated~~ stating that the DOJ, in conjunction with the U.S. Department of ~~Health~~health and Human Services, 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 offor physical therapy ~~services.~~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 May and July 2022, 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 and Concentra. The Company is ~~producing documents and data in response to such letter and is~~ fully cooperating with the DOJ on this investigation. At this time, the Company is unable to predict the timing and outcome of this matter.

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15. Subsequent Event

On ~~May 5,~~August 2, 2022, the Company’s board of directors declared a cash dividend of $0.125 per share. The dividend will be payable on or about ~~June 1,~~September 2, 2022, to stockholders of record as of the close of business on ~~May 19,~~August 16, 2022.

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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:

•developments related to the COVID-19 pandemic including, but not limited to, the duration and severity of the pandemic, additional measures taken by government authorities and the private sector to limit the spread of COVID-19, and 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;

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

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

•shortages in qualified nurses, therapists, physicians, or other licensed providers, or the inability to attract or retain healthcare professionals due to the heightened risk of infection related to the COVID-19 pandemic, could increase our operating costs significantly or limit our ability to staff our facilities;

•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

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•other factors discussed from time to time in our filings with the SEC, including factors discussed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, as such risk factors may be updated from time to time in our periodic filings with the SEC.

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 ~~March 31,~~June 30, 2022, we had operations in 46 states and the District of Columbia. We operated 105 critical illness recovery hospitals in 28 states, 3031 rehabilitation hospitals in 12 states, and ~~1,901~~1,920 outpatient rehabilitation clinics in 38 states and the District of Columbia. Concentra operated 518 occupational health centers in 41 states as of ~~March 31,~~June 30, 2022. Concentra also provides contract services 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 ~~$1,599.5~~$3,184.3 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022. Of this total, we earned approximately ~~38%~~36% of our revenue from our critical illness recovery hospital segment, approximately 14% from our rehabilitation hospital segment, approximately ~~17%~~18% from our outpatient rehabilitation segment, and approximately ~~26%~~27% 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 services.

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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, 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 March 31,					Three Months Ended June 30,				Six Months Ended June 30,
			2021		2022				2021		2022		2021		2022
			(in thousands)						(in thousands)
Net income	Net income		$	137,214	$	55,926		Net income	$	196,208	$	66,262	$	333,422	$	122,188
Income tax expense	Income tax expense		45,064		17,942			Income tax expense	65,681		19,820		110,745		37,762
Interest expense	Interest expense		34,402		35,514			Interest expense	33,888		41,052		68,290		76,566
Interest income	Interest income		(4,749)		—			Interest income	—		—		(4,749)		—

Equity in earnings of unconsolidated subsidiaries	Equity in earnings of unconsolidated subsidiaries		(9,919)		(5,397)			Equity in earnings of unconsolidated subsidiaries	(11,809)		(6,167)		(21,728)		(11,564)

Income from operations	Income from operations		202,012		103,985			Income from operations	283,968		120,967		485,980		224,952
Stock compensation expense:	Stock compensation expense:							Stock compensation expense:
Included in general and administrative	Included in general and administrative		5,460		6,949			Included in general and administrative	5,620		7,046		11,080		13,995
Included in cost of services	Included in cost of services		1,249		1,874			Included in cost of services	1,479		1,900		2,728		3,774
Depreciation and amortization	Depreciation and amortization		49,620		51,039			Depreciation and amortization	50,954		51,081		100,574		102,120
Adjusted EBITDA	Adjusted EBITDA		$	258,341	$	163,847		Adjusted EBITDA	$	342,021	$	180,994	$	600,362	$	344,841

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Effects of the COVID-19 Pandemic on our Results of Operations

We have provided revenue and certain operating statistics below for each of our segments for the three and six months ended ~~March 31,~~June 30, 2022 and 2021, as well as the comparable pre-COVID-19 pandemic period in 2019. We believe this additional data provides insight into how each segment has performed in comparison to the year prior to the widespread emergence of COVID-19 in the United States. The effects of the COVID-19 pandemic, including the duration and extent of disruption on our operations, continues to create uncertainties about our future operating results and financial condition. Please refer to the risk factors in Item 1A and the section titled “Effects of the COVID-19 Pandemic on our Results of Operations” in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021 for further discussion.

Critical Illness Recovery Hospital
Revenue Patient Days Occupancy Rate
Number of Hospitals(1)
2019 2021 2022 2019 2021 2022 2019 2021 2022 2019 2021 2022
(in thousands)
Three Months Ended March 31 $ 457,534 $ 594,872 $ 601,755 258,129 293,118 289,217 71 % 75 % 71 % 96 99 105


	Critical Illness Recovery Hospital

	Revenue						Patient Days			Occupancy Rate				Number of Hospitals(1)
	2019		2021		2022			2019	2021		2022	2019			2021		2022		2019	2021	2022
	(in thousands)



Three Months Ended March 31	$	457,534	$	594,872	$	601,755		258,129	293,118		289,217	71	%		75	%	71	%	96	99	105




Three Months Ended June 30	$	461,143	$	544,059	$	545,908		262,860	272,981		273,133	69	%		69	%	67	%	99	99	105
Six Months Ended June 30	$	918,677	$	1,138,931	$	1,147,663		520,989	566,099		562,350	70	%		72	%	69	%	99	99	105

Rehabilitation Hospital
Revenue Patient Days Occupancy Rate
Number of Hospitals(1)
2019 2021 2022 2019 2021 2022 2019 2021 2022 2019 2021 2022
(in thousands)
Three Months Ended March 31 $ 154,558 $ 207,804 $ 220,634 82,816 102,439 103,802 76 % 84 % 84 % 18 20 20


	Rehabilitation Hospital

	Revenue						Patient Days			Occupancy Rate				Number of Hospitals(1)
	2019		2021		2022			2019	2021		2022	2019			2021		2022		2019	2021	2022
	(in thousands)



Three Months Ended March 31	$	154,558	$	207,804	$	220,634		82,816	102,439		103,802	76	%		84	%	84	%	18	20	20




Three Months Ended June 30	$	160,374	$	212,666	$	228,887		86,525	104,948		108,812	75	%		85	%	86	%	19	20	20
Six Months Ended June 30	$	314,932	$	420,470	$	449,521		169,341	207,387		212,614	76	%		84	%	85	%	19	20	20

Outpatient Rehabilitation
Revenue Visits
Working Days(2)
2019 2021 2022 2019 2021 2022 2019 2021 2022
(in thousands)
Three Months Ended March 31 $ 246,905 $ 251,961 $ 271,940 2,054,483 2,100,154 2,310,086 63 63 64


	Outpatient Rehabilitation

	Revenue						Visits			Working Days(2)
	2019		2021		2022			2019	2021		2022	2019	2021	2022
	(in thousands)



Three Months Ended March 31	$	246,905	$	251,961	$	271,940		2,054,483	2,100,154		2,310,086	63	63	64




Three Months Ended June 30	$	261,891	$	280,409	$	287,258		2,203,505	2,404,861		2,450,912	64	64	64
Six Months Ended June 30	$	508,796	$	532,370	$	559,198		4,257,988	4,505,015		4,760,998	127	127	128

Concentra
Revenue Visits
Working Days(2)
2019 2021 2022 2019 2021 2022 2019 2021 2022
(in thousands)
Three Months Ended March 31 $ 396,321 $ 422,840 $ 423,423 2,911,607 2,795,574 3,116,898 63 63 64


	Concentra

	Revenue						Visits			Working Days(2)
	2019		2021		2022			2019	2021		2022	2019	2021	2022
	(in thousands)



Three Months Ended March 31	$	396,321	$	422,840	$	423,423		2,911,607	2,795,574		3,116,898	63	63	64




Three Months Ended June 30	$	413,451	$	456,372	$	441,357		3,103,089	3,030,078		3,214,512	64	64	64
Six Months Ended June 30	$	809,772	$	879,212	$	864,780		6,014,696	5,825,652		6,331,410	127	127	128

_______________________________________________________________________________

(1) Represents the number of hospitals included in our consolidated financial results at the end of each period presented and does not include the managed hospitals in which we have a minority ownership interest.

(2) Represents the number of days in which normal business operations were conducted during the periods presented.

Please refer to “Summary Financial Results” and “Results of Operations” for further discussion of our segment performance measures for the three and six months ended ~~March 31,~~June 30, 2021 and 2022. Please refer to “Operating Statistics” for further discussion regarding the uses and calculations of the metrics provided above, as well as the operating statistics data for each segment for the three and six months ended ~~March 31,~~June 30, 2021 and 2022.

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Other Significant Events

Dividend Payments

On February 17, 2022, ~~the Company’s~~and May 5, 2022, our board of directors declared a cash dividend of $0.125 per share. ~~The dividend,~~On March 16, 2022, and June 1, 2022, cash dividends totaling $16.7 million ~~was paid on March 16, 2022 to stockholders of record as of the close of business on March 4, 2022.~~and $16.1 million, respectively, were paid.

~~Table of Contents~~

Summary Financial Results

Three Months Ended ~~March 31,~~June 30, 2022

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


		Three Months Ended March 31, 2022																		Three Months Ended June 30, 2022
		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)
Revenue	Revenue	$	601,755		$	220,634		$	271,940		$	423,423		$	81,795	$	1,599,547		Revenue	$	545,908		$	228,887		$	287,258		$	441,357		$	81,331	$	1,584,741
Operating expenses	Operating expenses	(565,788)			(178,255)			(245,344)			(334,489)			(120,647)		(1,444,523)			Operating expenses	(525,889)			(179,042)			(253,657)			(349,267)			(119,963)		(1,427,818)
Depreciation and amortization	Depreciation and amortization	(14,618)			(6,802)			(8,029)			(18,812)			(2,778)		(51,039)			Depreciation and amortization	(14,603)			(7,175)			(8,130)			(18,730)			(2,443)		(51,081)

Other operating income (expense)																			Other operating income (expense)	—			—			—			(19)			15,144		15,125
Income (loss) from operations	Income (loss) from operations	$	21,349		$	35,577		$	18,567		$	70,122		$	(41,630)	$	103,985		Income (loss) from operations	$	5,416		$	42,670		$	25,471		$	73,341		$	(25,931)	$	120,967
Depreciation and amortization	Depreciation and amortization	14,618			6,802			8,029			18,812			2,778		51,039			Depreciation and amortization	14,603			7,175			8,130			18,730			2,443		51,081
Stock compensation expense	Stock compensation expense	—			—			—			535			8,288		8,823			Stock compensation expense	—			—			—			536			8,410		8,946
Adjusted EBITDA	Adjusted EBITDA	$	35,967		$	42,379		$	26,596		$	89,469		$	(30,564)	$	163,847		Adjusted EBITDA	$	20,019		$	49,845		$	33,601		$	92,607		$	(15,078)	$	180,994
Adjusted EBITDA margin	Adjusted EBITDA margin	6.0		%	19.2		%	9.8		%	21.1		%	N/M		10.2		%	Adjusted EBITDA margin	3.7		%	21.8		%	11.7		%	21.0		%	N/M		11.4		%


		Three Months Ended March 31, 2021																		Three Months Ended June 30, 2021
		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)
Revenue	Revenue	$	594,872		$	207,804		$	251,961		$	422,840		$	68,986	$	1,546,463		Revenue	$	544,059		$	212,666		$	280,409		$	456,372		$	70,514	$	1,564,020
Operating expenses	Operating expenses	(499,487)			(157,270)			(225,632)			(341,361)			(105,102)		(1,328,852)			Operating expenses	(471,155)			(161,898)			(234,776)			(352,163)			(107,193)		(1,327,185)
Depreciation and amortization	Depreciation and amortization	(13,050)			(7,060)			(7,191)			(19,898)			(2,421)		(49,620)			Depreciation and amortization	(12,936)			(6,939)			(7,345)			(21,230)			(2,504)		(50,954)
Other operating income	Other operating income	17,887			—			—			—			16,134		34,021			Other operating income	—			—			—			32,316			65,771		98,087
Income (loss) from operations		$	100,222		$	43,474		$	19,138		$	61,581		$	(22,403)	$	202,012
Income from operations																			Income from operations	$	59,968		$	43,829		$	38,288		$	115,295		$	26,588	$	283,968
Depreciation and amortization	Depreciation and amortization	13,050			7,060			7,191			19,898			2,421		49,620			Depreciation and amortization	12,936			6,939			7,345			21,230			2,504		50,954
Stock compensation expense	Stock compensation expense	—			—			—			536			6,173		6,709			Stock compensation expense	—			—			—			535			6,564		7,099
Adjusted EBITDA	Adjusted EBITDA	$	113,272		$	50,534		$	26,329		$	82,015		$	(13,809)	$	258,341		Adjusted EBITDA	$	72,904		$	50,768		$	45,633		$	137,060		$	35,656	$	342,021
Adjusted EBITDA margin	Adjusted EBITDA margin	19.0		%	24.3		%	10.4		%	19.4		%	N/M		16.7		%	Adjusted EBITDA margin	13.4		%	23.9		%	16.3		%	30.0		%	N/M		21.9		%

Net income was ~~$55.9~~$66.3 million for the three months ended ~~March 31,~~June 30, 2022, compared to ~~$137.2~~$196.2 million for the three months ended ~~March 31,~~June 30, 2021.

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The following table summarizes changes in segment performance measures for the three months ended June 30, 2022, compared to the three months ended June 30, 2021:


	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
Change in revenue	0.3	%	7.6	%	2.4	%	(3.3)	%	15.3	%	1.3	%
Change in income from operations	(91.0)	%	(2.6)	%	(33.5)	%	(36.4)	%	N/M		(57.4)	%
Change in Adjusted EBITDA	(72.5)	%	(1.8)	%	(26.4)	%	(32.4)	%	N/M		(47.1)	%

_______________________________________________________________________________

N/M — Not meaningful.

Six Months Ended June 30, 2022

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


	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		%


	Six Months Ended June 30, 2021
	Critical Illness Recovery Hospital			Rehabilitation Hospital			Outpatient Rehabilitation			Concentra			Other		Total
	(in thousands)
Revenue	$	1,138,931		$	420,470		$	532,370		$	879,212		$	139,500	$	3,110,483
Operating expenses	(970,642)			(319,168)			(460,408)			(693,524)			(212,295)		(2,656,037)
Depreciation and amortization	(25,986)			(13,999)			(14,536)			(41,128)			(4,925)		(100,574)
Other operating income	17,887			—			—			32,316			81,905		132,108
Income from operations	$	160,190		$	87,303		$	57,426		$	176,876		$	4,185	$	485,980
Depreciation and amortization	25,986			13,999			14,536			41,128			4,925		100,574
Stock compensation expense	—			—			—			1,071			12,737		13,808
Adjusted EBITDA	$	186,176		$	101,302		$	71,962		$	219,075		$	21,847	$	600,362
Adjusted EBITDA margin	16.3		%	24.1		%	13.5		%	24.9		%	N/M		19.3		%

Net income was $122.2 million for the six months ended June 30, 2022, compared to $333.4 million for the six months ended June 30, 2021.

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The following table summarizes the changes in our segment performance measures for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to the ~~three~~six months ended ~~March 31,~~June 30, 2021:


		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	1.2	%	6.2	%	7.9	%	0.1	%	18.6	%	3.4	%	Change in revenue	0.8	%	6.9	%	5.0	%	(1.6)	%	16.9	%	2.4	%
Change in income from operations	Change in income from operations	(78.7)	%	(18.2)	%	(3.0)	%	13.9	%	N/M		(48.5)	%	Change in income from operations	(83.3)	%	(10.4)	%	(23.3)	%	(18.9)	%	N/M		(53.7)	%
Change in Adjusted EBITDA	Change in Adjusted EBITDA	(68.2)	%	(16.1)	%	1.0	%	9.1	%	N/M		(36.6)	%	Change in Adjusted EBITDA	(69.9)	%	(9.0)	%	(16.3)	%	(16.9)	%	N/M		(42.6)	%

_______________________________________________________________________________

N/M — Not meaningful.

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Regulatory Changes

Our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 24, 2022, 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 23% of our revenue for both the ~~three~~six months ended ~~March 31,~~June 30, 2022, and for the year ended December 31, 2021.

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 90-day periods effective on April 26, 2020, July 25, 2020, October 23, 2020, January 21, 2021, April 21, 2021, July 20, 2021, October 18, 2021, January 16, 2022, ~~and~~ April 16, 2022, and July 15, 2022. On March 13, 2020, President Trump declared a national emergency due to the COVID-19 pandemic and 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 excuse health care providers or suppliers from specific program requirements. The following blanket waivers, while in effect, may impact our results of operations:

i.Inpatient rehabilitation facilities (“IRFs”), IRF units, and hospitals and units applying to be classified as IRFs, can exclude patients admitted solely to respond to the emergency from the calculation of the “60 percent rule” thresholds to receive payment as an IRF.

ii.Long-term care hospitals (“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. Hospitals seeking LTCH classification can exclude patient stays from the greater-than-25-day average length of stay requirement where the patient was admitted or discharged to meet the demands of the COVID-19 public health emergency.

iii.Medicare expanded the types of health care professionals who can furnish telehealth services to include all those who are eligible to bill Medicare for their professional services. This allows health care professionals who were previously ineligible to furnish and bill for Medicare telehealth services, including physical therapists, occupational therapists, speech language pathologists, and others, to receive payment for Medicare telehealth services.

iv.Medicare will not require out-of-state physician and non-physician practitioners to be licensed in the state where they are providing services when they are licensed in another state, subject to certain conditions and state or local licensure requirements.

v.Many requirements under the hospital conditions of participation (“CoPs”) are waived during the emergency period to give hospitals more flexibility in treating COVID-19 patients.

vi.Hospitals can operate temporary expansion locations without meeting the provider-based entity requirements or certain requirements in the physical environment CoP for hospitals during the emergency. This waiver also allows hospitals to change the status of their current provider-based department locations to meet patient needs as part of the state or local pandemic plan.

vii.The HHS Secretary waived sanctions under the physician self-referral law (i.e., Stark law) for certain types of remuneration and referral arrangements that are related to a COVID-19 purpose. The Office of the Inspector General (“OIG”) will also exercise enforcement discretion to not impose administrative sanctions under the federal anti-kickback statute for many payments covered by the Stark law waivers.

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Pursuant to the Coronavirus Preparedness and Response Supplemental Appropriations Act, Public Law 116-123, CMS has waived Medicare telehealth payment requirements during the emergency so that beneficiaries in all areas of the country (not just rural areas) can receive telehealth services, including in their homes, beginning on March 6, 2020. CMS issued additional waivers to permit more than 160 additional services to be furnished by telehealth, allow physicians to monitor patient services remotely, and fulfill face-to-face requirements in IRFs.

In addition to these agency actions, the CARES Act was enacted on March 27, 2020. It provides additional waivers, reimbursement, grants and other funds to assist health care providers during the COVID-19 public health emergency. Some of the CARES Act provisions that may impact our operations include:

i.$100 billion in appropriations for the Public Health and Social Services Emergency 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.” The Paycheck Protection Program and Health Care Enhancement Act, Public Law 116-139, added $75 billion to this fund. The Consolidated Appropriations Act, 2021, added another $3 billion to this fund. HHS began distributing these funds to providers in April 2020. HHS initially allocated funds for a general distribution to providers that received Medicare fee-for-service payments in 2019. Later general distributions required providers to submit an application to HHS. Other funding was allocated for targeted distributions for specific provider types. Recipients of payments must 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. Any funds that a provider does not apply towards expenses or lost revenue attributable to COVID-19 must be returned to HHS within 30 calendar days after the end of the applicable reporting period. 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.

ii.Expansion of the Accelerated and Advance Payment Program to advance three months of payments to Medicare providers. CMS has the ability to recoup the advanced payments through future Medicare claims. Section 2501 of the Continuing Appropriations Act, 2021 and Other Extensions Act, Public Law 116-159, modified the terms of repayment so that a provider can request no recoupment for one year after the advanced payment was issued, followed by a 25% offset the next 11 months, and a 50% offset the last 6 months. Any amounts that remain unpaid after 29 months will be subject to a 4% interest rate (instead of 10.25%). CMS began recouping advance payments on March 30, 2021, but the actual date for each provider is based on the first anniversary of when the provider received the first payment. CMS publishes repayment data every six ~~months, beginning June 28, 2021.~~months.

iii.Temporary suspension of the 2% cut to Medicare payments due to sequestration so that, for the period of May 1, 2020, to December 31, 2020, the Medicare program would be exempt from any sequestration order. The Consolidated Appropriations Act, 2021, extended this temporary suspension of the 2% sequestration cut through March 31, 2021. The Medicare sequester relief bill, which became Public Law 117-7, extended the temporary suspension of the sequestration cut again, through December 31, 2021. To pay for the continued suspension of the sequestration cuts through December 31, 2021, Congress increased the sequestration cut that will apply in fiscal year 2030. The Protecting Medicare and American Farmers from Sequester Cuts Act, signed into law by President Biden on December 10, 2021, further extended the suspension of the sequestration cut through March 31, 2022, and reduces the sequestration cut to 1% from April 1, 2022, through June 30, 2022. The full 2% sequestration cut ~~will resume~~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. The same legislation defers an across-the-board 4% payment cut due to the American Rescue Plan from the FY 2022 Statutory Pay-As-You-Go (“PAYGO”) scorecard to the FY 2023 PAYGO scorecard.

iv.Two waivers of Medicare statutory requirements regarding site neutral payment to LTCHs. The first waives the LTCH discharge payment percentage requirement (i.e., 50% rule) for the cost reporting period(s) that include the emergency period. The second waives application of the site neutral payment rate so that all LTCH cases admitted during the emergency period will be paid the LTCH-PPS standard federal rate.

v.Waiver of the IRF 3-hour rule so that IRF services provided during the public health emergency period do not need to meet the coverage requirement that patients receive at least 3 hours of therapy a day or 15 hours of therapy per week.

vi.Broader waiver authority for HHS under section 1135 of the Social Security Act to issue additional telehealth waivers.

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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 2021. On September 18, 2020, CMS published the final rule updating policies and payment rates for the LTCH-PPS for fiscal year 2021 (affecting discharges and cost reporting periods beginning on or after October 1, 2020, through September 30, 2021). Certain errors in the final rule were corrected in a document published December 7, 2020. The standard federal rate was set at $43,755, an increase from the standard federal rate applicable during fiscal year 2020 of $42,678. The update to the standard federal rate for fiscal year 2021 included a market basket increase of 2.3% with no productivity adjustment. The standard federal rate also included an area wage budget neutrality factor of 1.0016837. The fixed-loss amount for high cost outlier cases paid under LTCH-PPS was set at $27,195, an increase from the fixed-loss amount in the 2020 fiscal year of $26,778. The fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate was set at $29,064, an increase from the fixed-loss amount in the 2020 fiscal year of $26,552.

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. As a result of the CARES Act, all LTCH cases are paid at the standard federal rate during the public health emergency. If the public health emergency ends during fiscal year 2022, then CMS will return 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 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 ~~April 18,~~August 1, 2022, CMS released a display copy of the ~~proposed~~final rule to update 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). ~~CMS is expected to issue the final rule in August 2022 or shortly thereafter.~~ The ~~proposed~~ standard federal rate for fiscal year 2023 is ~~$45,953,~~$46,433, an increase from the standard federal rate applicable during fiscal year 2022 of $44,714. The ~~proposed~~ update to the standard federal rate for fiscal year 2023 includes a market basket increase of ~~3.1%~~4.1%, less a productivity adjustment of ~~0.4%~~0.3%. The ~~proposed~~ standard federal rate also includes an area wage budget neutrality factor of ~~1.000691.~~1.0004304. As a result of the CARES Act, all LTCH cases are paid at the standard federal rate during the public health emergency. If the public health emergency ends before or during fiscal year 2023, then CMS will return to using the site-neutral payment rate for reimbursement of cases that do not meet the LTCH patient criteria. The ~~proposed~~ fixed-loss amount for high cost outlier cases paid under LTCH-PPS is ~~$44,182,~~$38,518, an increase from the fixed-loss amount in the 2022 fiscal year of $33,015. The ~~proposed~~ fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate is ~~$43,214,~~$38,859, an increase from the fixed-loss amount in the 2022 fiscal year of $30,988.

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 2021. On August 10, 2020, CMS published the final rule updating policies and payment rates for the IRF-PPS for fiscal year 2021 (affecting discharges and cost reporting periods beginning on or after October 1, 2020, through September 30, 2021). The standard payment conversion factor for discharges for fiscal year 2021 was set at $16,856, an increase from the standard payment conversion factor applicable during fiscal year 2020 of $16,489. The update to the standard payment conversion factor for fiscal year 2021 included a market basket increase of 2.4% with no productivity adjustment. CMS decreased the outlier threshold amount for fiscal year 2021 to $7,906 from $9,300 established in the final rule for fiscal year 2020.

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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 ~~April 6,~~August 1, 2022, CMS published ~~a proposed~~the final rule ~~to update~~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 ~~if adopted, would be~~was set at ~~$17,698,~~$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 ~~if adopted, would include~~included a market basket increase of ~~3.2%~~4.2%, less a productivity adjustment of ~~0.4%~~0.3%. CMS ~~proposed to increase~~increased the outlier threshold amount for fiscal year 2023 to ~~$13,038~~$12,526 from $9,491 established in the final rule for fiscal year 2022.

Medicare Reimbursement of Outpatient Rehabilitation Clinic Services

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. For services provided in 2017 through 2019, a 0.5% update was applied each year to the fee schedule payment rates, subject to an adjustment beginning in 2019 under the Merit-Based Incentive Payment System (“MIPS”). In 2019, CMS added physical and occupational therapists to the list of MIPS eligible clinicians. For these therapists in private practice, payments under the fee schedule are subject to adjustment in a later year based on their performance in MIPS according to established performance standards. Calendar year 2021 is the first year that payments ~~are~~were adjusted, based upon the therapist’s performance under MIPS in 2019. Providers in facility-based outpatient therapy settings are excluded from MIPS eligibility and therefore not subject to this payment adjustment. For services provided in 2020 through 2025, a 0.0% percent update will be applied each year to the fee schedule payment rates, subject to adjustments under MIPS and the alternative payment models (“APMs”). In 2026 and subsequent years, eligible professionals participating in APMs who meet certain criteria would receive annual updates of 0.75%, while all other professionals would receive annual updates of 0.25%.

Each year from 2019 through 2024 eligible clinicians who receive a significant share of their revenues through an advanced APM (such as accountable care organizations or bundled payment arrangements) that involves risk of financial losses and a quality measurement component will receive a 5% bonus. The bonus payment for APM participation is intended to encourage participation and testing of new APMs and to promote the alignment of incentives across payors.

In the 2020 Medicare physician fee schedule final rule, CMS revised coding, documentation guidelines, and increased the valuation for evaluation and management (“E/M”) office visit codes, beginning in 2021. Because the Medicare physician fee schedule is budget-neutral, any revaluation of E/M services that will increase spending by more than $20 million requires a budget neutrality adjustment. To increase values for the E/M codes while maintaining budget neutrality under the fee schedule, CMS cut the values of other codes to make up the difference, beginning in 2021.

In the 2021 Medicare physician fee schedule final rule, CMS increased the values for the E/M office visit codes and cuts to other specialty codes to maintain budget neutrality. As a result, therapy services provided in our outpatient rehabilitation clinics received an estimated 3.6% decrease in payment from Medicare in calendar year 2021. The Consolidated Appropriations Act, 2021, provided relief in the form of a one-time 3.75% increase in payments in calendar year 2021 for therapy services and other services paid under the physician fee schedule.

In the calendar year 2022 physician fee schedule final rule, CMS announced that Medicare payments for the therapy specialty are expected to decrease 1% in 2022. After CMS issued the final rule, Congress passed the Protecting Medicare and American Farmers from Sequester Cuts Act, which provided in Section 3 a one-time 3% increase in payments in calendar year 2022 to offset most of the 3.75% cut to payments for therapy services and other services paid under the physician fee schedule. In the final rule, CMS also adopted its plan to transition the MIPS program to MIPS Value Pathways (“MVPs”). CMS will begin the transition to MVPs in 2023 with an initial set of MVPs in which reporting is voluntary. Beginning in 2026, multispecialty groups must form subgroups to report MVPs. CMS plans to develop more MVPs from 2024 to 2027 and is considering that MVP reporting would become mandatory in 2028. Each MVP would include population health claims-based measures and require clinicians to report on the Promoting Interoperability performance category measures. In addition, MVP participants would select certain quality measures and improvement activities and then report data for such measures and activities.

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In the display copy of the calendar year 2023 physician fee schedule proposed rule, CMS announced that it calculated the proposed payment rates for the physician fee schedule as if the 3% payment increase in calendar year 2022 from the Protecting Medicare and American Farmers from Sequester Cuts Act was never applied. The statute stated that the 3% payment increase for 2022 shall not be taken into account in determining the payment rates for subsequent years. As a result, physician fee schedule payments are expected to decrease in 2023, unless Congress provides additional funding for a payment increase as it has done the prior two years. CMS stated in the proposed rule that it expects that its proposed policies for 2023 would result in a 1% decrease in Medicare payments for the therapy specialty. The calendar year 2023 proposed rule also includes further development of MVPs. First, CMS proposed revisions to the first set of seven MVPs that it adopted in the calendar year 2022 final rule. CMS would remove certain improvement activities from these seven MVPs and add other quality measures that participants in these MVPs could choose to report data on. In addition, CMS proposed to add five new MVPs. If finalized, these new MVPs would be available for voluntary reporting for the calendar year 2023 performance period.

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

In the Medicare physician fee schedule final rule for calendar year 2019, CMS established two new modifiers (CQ and CO) to identify services furnished in whole or in part by physical therapy assistants (“PTAs”) or occupational therapy assistants (“OTAs”). These modifiers were mandated by the Bipartisan Budget Act of 2018, which requires that claims for outpatient therapy services furnished in whole or part by therapy assistants on or after January 1, 2020, include the appropriate modifier. In the final 2020 Medicare physician fee schedule rule, CMS clarified that when the physical therapist is involved for the entire duration of the service and the PTA provides skilled therapy alongside the physical therapist, the CQ modifier is not required. Also, when the same service (code) is furnished separately by the physical therapist and PTA, CMS will apply the de minimis standard to each 15-minute unit of codes, not on the total physical therapist and PTA time of the service, allowing the separate reporting, on two different claim lines, of the number of units to which the new modifiers apply and the number of units to which the modifiers do not apply. In the calendar year 2022 physician fee schedule final rule, CMS implemented the final part of the requirements in the Bipartisan Budget Act of 2018 regarding PTA and OTA services. For dates of service on and after January 1, 2022, CMS ~~will pay~~pays for physical therapy and occupational therapy services provided by PTAs and OTAs at 85% of the otherwise applicable Part B payment amount. CMS ~~also~~ modified the de minimis standard ~~for~~in the calendar year ~~2022. Specifically, CMS will~~2022 final rule to allow a timed service to be billed without the CQ or CO modifier when a PTA or OTA participates in providing care, but the physical therapist or occupational therapist meets the Medicare billing requirements without including the PTA’s or OTA’s minutes. This occurs when the physical therapist or occupational therapist provides more minutes than the 15-minute midpoint.

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Operating Statistics

The following table sets forth operating statistics for each of our reportable 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 March 31,						Three Months Ended June 30,					Six Months Ended June 30,
			2021			2022				2021			2022			2021			2022
Critical illness recovery hospital data:	Critical illness recovery hospital data:								Critical illness recovery hospital data:
Number of consolidated hospitals—start of period	Number of consolidated hospitals—start of period		99			104			Number of consolidated hospitals—start of period	99			105			99			104
Number of hospitals acquired	Number of hospitals acquired		—			—			Number of hospitals acquired	—			2			—			2
Number of hospital start-ups	Number of hospital start-ups		—			1			Number of hospital start-ups	—			—			—			1
Number of hospitals closed/sold	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)		99			105			Number of consolidated hospitals—end of period(1)	99			105			99			105

Available licensed beds(3)	Available licensed beds(3)		4,380			4,524			Available licensed beds(3)	4,322			4,509			4,322			4,509
Admissions(3)(4)	Admissions(3)(4)		9,859			9,457			Admissions(3)(4)	9,026			8,806			18,885			18,263
Patient days(3)(5)	Patient days(3)(5)		293,118			289,217			Patient days(3)(5)	272,981			273,133			566,099			562,350
Average length of stay (days)(3)(6)	Average length of stay (days)(3)(6)		30			30			Average length of stay (days)(3)(6)	29			30			30			30
Revenue per patient day(3)(7)	Revenue per patient day(3)(7)		$	2,024		$	2,075		Revenue per patient day(3)(7)	$	1,986		$	1,987		$	2,006		$	2,032
Occupancy rate(3)(8)	Occupancy rate(3)(8)		75		%	71		%	Occupancy rate(3)(8)	69		%	67		%	72		%	69		%
Percent patient days—Medicare(3)(9)	Percent patient days—Medicare(3)(9)		40		%	37		%	Percent patient days—Medicare(3)(9)	38		%	41		%	39		%	39		%
Rehabilitation hospital data:	Rehabilitation hospital data:								Rehabilitation hospital data:
Number of consolidated hospitals—start of period	Number of consolidated hospitals—start of period		19			20			Number of consolidated hospitals—start of period	20			20			19			20
Number of hospitals acquired	Number of hospitals acquired		1			—			Number of hospitals acquired	—			—			1			—
Number of hospital start-ups	Number of hospital start-ups		—			—			Number of hospital start-ups	—			—			—			—
Number of hospitals closed/sold	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			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)		10			10			Number of unconsolidated hospitals managed—end of period(2)	10			11			10			11
Total number of hospitals (all)—end of period	Total number of hospitals (all)—end of period		30			30			Total number of hospitals (all)—end of period	30			31			30			31
Available licensed beds(3)	Available licensed beds(3)		1,361			1,391			Available licensed beds(3)	1,361			1,391			1,361			1,391
Admissions(3)(4)	Admissions(3)(4)		7,131			7,182			Admissions(3)(4)	7,360			7,450			14,491			14,632
Patient days(3)(5)	Patient days(3)(5)		102,439			103,802			Patient days(3)(5)	104,948			108,812			207,387			212,614
Average length of stay (days)(3)(6)	Average length of stay (days)(3)(6)		15			15			Average length of stay (days)(3)(6)	14			15			14			15
Revenue per patient day(3)(7)	Revenue per patient day(3)(7)		$	1,853		$	1,943		Revenue per patient day(3)(7)	$	1,849		$	1,928		$	1,851		$	1,935
Occupancy rate(3)(8)	Occupancy rate(3)(8)		84		%	84		%	Occupancy rate(3)(8)	85		%	86		%	84		%	85		%
Percent patient days—Medicare(3)(9)	Percent patient days—Medicare(3)(9)		49		%	47		%	Percent patient days—Medicare(3)(9)	49		%	47		%	49		%	47		%
Outpatient rehabilitation data:	Outpatient rehabilitation data:								Outpatient rehabilitation data:
Number of consolidated clinics—start of period	Number of consolidated clinics—start of period		1,503			1,572			Number of consolidated clinics—start of period	1,517			1,584			1,503			1,572
Number of clinics acquired	Number of clinics acquired		8			2			Number of clinics acquired	4			8			12			10
Number of clinic start-ups	Number of clinic start-ups		10			12			Number of clinic start-ups	12			13			22			25
Number of clinics closed/sold	Number of clinics closed/sold		(4)			(2)			Number of clinics closed/sold	(5)			(6)			(9)			(8)
Number of consolidated clinics—end of period	Number of consolidated clinics—end of period		1,517			1,584			Number of consolidated clinics—end of period	1,528			1,599			1,528			1,599
Number of unconsolidated clinics managed—end of period	Number of unconsolidated clinics managed—end of period		292			317			Number of unconsolidated clinics managed—end of period	305			321			305			321
Total number of clinics (all)—end of period	Total number of clinics (all)—end of period		1,809			1,901			Total number of clinics (all)—end of period	1,833			1,920			1,833			1,920
Number of visits(3)(10)	Number of visits(3)(10)		2,100,154			2,310,086			Number of visits(3)(10)	2,404,861			2,450,912			4,505,015			4,760,998
Revenue per visit(3)(11)	Revenue per visit(3)(11)		$	104		$	102		Revenue per visit(3)(11)	$	102		$	103		$	103		$	103

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		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
			2021		2022				2021		2022		2021		2022
Concentra data:	Concentra data:							Concentra data:
Number of consolidated centers—start of period	Number of consolidated centers—start of period		517		518			Number of consolidated centers—start of period	519		518		517		518
Number of centers acquired	Number of centers acquired		3		1			Number of centers acquired	—		2		3		3
Number of center start-ups	Number of center start-ups		—		—			Number of center start-ups	—		—		—		—
Number of centers closed/sold	Number of centers closed/sold		(1)		(1)			Number of centers closed/sold	(1)		(2)		(2)		(3)
Number of consolidated centers—end of period	Number of consolidated centers—end of period		519		518			Number of consolidated centers—end of period	518		518		518		518
Number of onsite clinics operated—end of period	Number of onsite clinics operated—end of period		133		140			Number of onsite clinics operated—end of period	131		148		131		148

Number of visits(3)(10)	Number of visits(3)(10)		2,795,574		3,116,898			Number of visits(3)(10)	3,030,078		3,214,512		5,825,652		6,331,410
Revenue per visit(3)(11)	Revenue per visit(3)(11)		$	125	$	125		Revenue per visit(3)(11)	$	125	$	127	$	125	$	126

(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.

(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.

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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 March 31,				Three Months Ended June 30,				Six Months Ended June 30,
			2021		2022			2021		2022		2021		2022
Revenue	Revenue		100.0	%	100.0	%	Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Costs and expenses:	Costs and expenses:						Costs and expenses:
Cost of services, exclusive of depreciation and amortization(1)	Cost of services, exclusive of depreciation and amortization(1)		83.6		88.0		Cost of services, exclusive of depreciation and amortization(1)	82.6		87.7		83.1		87.9
General and administrative	General and administrative		2.3		2.3		General and administrative	2.3		2.4		2.3		2.3
Depreciation and amortization	Depreciation and amortization		3.2		3.2		Depreciation and amortization	3.2		3.3		3.2		3.2
Total costs and expenses	Total costs and expenses		89.1		93.5		Total costs and expenses	88.1		93.4		88.6		93.4
Other operating income	Other operating income		2.2		—		Other operating income	6.3		1.0		4.2		0.5
Income from operations	Income from operations		13.1		6.5		Income from operations	18.2		7.6		15.6		7.1

Equity in earnings of unconsolidated subsidiaries	Equity in earnings of unconsolidated subsidiaries		0.6		0.3		Equity in earnings of unconsolidated subsidiaries	0.8		0.4		0.7		0.4

Interest income	Interest income		0.3		—		Interest income	—		—		0.2		—
Interest expense	Interest expense		(2.2)		(2.2)		Interest expense	(2.3)		(2.6)		(2.2)		(2.5)
Income before income taxes	Income before income taxes		11.8		4.6		Income before income taxes	16.7		5.4		14.3		5.0
Income tax expense	Income tax expense		2.9		1.1		Income tax expense	4.2		1.2		3.6		1.2
Net income	Net income		8.9		3.5		Net income	12.5		4.2		10.7		3.8
Net income attributable to non-controlling interests	Net income attributable to non-controlling interests		1.8		0.4		Net income attributable to non-controlling interests	2.0		0.7		1.8		0.5
Net income attributable to Select Medical Holdings Corporation	Net income attributable to Select Medical Holdings Corporation		7.1	%	3.1	%	Net income attributable to Select Medical Holdings Corporation	10.5	%	3.5	%	8.9	%	3.3	%

(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 March 31,						Three Months Ended June 30,							Six Months Ended June 30,
			2021			2022			% Change			2021			2022			% Change		2021			2022			% Change
			(in thousands, except percentages)									(in thousands, except percentages)
Revenue:	Revenue:										Revenue:
Critical illness recovery hospital	Critical illness recovery hospital		$	594,872		$	601,755		1.2	%	Critical illness recovery hospital	$	544,059		$	545,908		0.3	%	$	1,138,931		$	1,147,663		0.8	%
Rehabilitation hospital	Rehabilitation hospital		207,804			220,634			6.2		Rehabilitation hospital	212,666			228,887			7.6		420,470			449,521			6.9
Outpatient rehabilitation	Outpatient rehabilitation		251,961			271,940			7.9		Outpatient rehabilitation	280,409			287,258			2.4		532,370			559,198			5.0
Concentra	Concentra		422,840			423,423			0.1		Concentra	456,372			441,357			(3.3)		879,212			864,780			(1.6)
Other(1)	Other(1)		68,986			81,795			18.6		Other(1)	70,514			81,331			15.3		139,500			163,126			16.9
Total Company	Total Company		$	1,546,463		$	1,599,547		3.4	%	Total Company	$	1,564,020		$	1,584,741		1.3	%	$	3,110,483		$	3,184,288		2.4	%
Income (loss) from operations:	Income (loss) from operations:										Income (loss) from operations:
Critical illness recovery hospital(2)	Critical illness recovery hospital(2)		$	100,222		$	21,349		(78.7)	%	Critical illness recovery hospital(2)	$	59,968		$	5,416		(91.0)	%	$	160,190		$	26,765		(83.3)	%
Rehabilitation hospital	Rehabilitation hospital		43,474			35,577			(18.2)		Rehabilitation hospital	43,829			42,670			(2.6)		87,303			78,247			(10.4)
Outpatient rehabilitation	Outpatient rehabilitation		19,138			18,567			(3.0)		Outpatient rehabilitation	38,288			25,471			(33.5)		57,426			44,038			(23.3)
Concentra			61,581			70,122			13.9
Concentra(2)											Concentra(2)	115,295			73,341			(36.4)		176,876			143,463			(18.9)
Other(1)(2)	Other(1)(2)		(22,403)			(41,630)			N/M		Other(1)(2)	26,588			(25,931)			N/M		4,185			(67,561)			N/M
Total Company	Total Company		$	202,012		$	103,985		(48.5)	%	Total Company	$	283,968		$	120,967		(57.4)	%	$	485,980		$	224,952		(53.7)	%
Adjusted EBITDA:	Adjusted EBITDA:										Adjusted EBITDA:
Critical illness recovery hospital(2)	Critical illness recovery hospital(2)		$	113,272		$	35,967		(68.2)	%	Critical illness recovery hospital(2)	$	72,904		$	20,019		(72.5)	%	$	186,176		$	55,986		(69.9)	%
Rehabilitation hospital	Rehabilitation hospital		50,534			42,379			(16.1)		Rehabilitation hospital	50,768			49,845			(1.8)		101,302			92,224			(9.0)
Outpatient rehabilitation	Outpatient rehabilitation		26,329			26,596			1.0		Outpatient rehabilitation	45,633			33,601			(26.4)		71,962			60,197			(16.3)
Concentra			82,015			89,469			9.1
Concentra(2)											Concentra(2)	137,060			92,607			(32.4)		219,075			182,076			(16.9)
Other(1)(2)	Other(1)(2)		(13,809)			(30,564)			N/M		Other(1)(2)	35,656			(15,078)			N/M		21,847			(45,642)			N/M
Total Company	Total Company		$	258,341		$	163,847		(36.6)	%	Total Company	$	342,021		$	180,994		(47.1)	%	$	600,362		$	344,841		(42.6)	%
Adjusted EBITDA margins:	Adjusted EBITDA margins:										Adjusted EBITDA margins:
Critical illness recovery hospital(2)	Critical illness recovery hospital(2)		19.0		%	6.0		%			Critical illness recovery hospital(2)	13.4		%	3.7		%			16.3		%	4.9		%
Rehabilitation hospital	Rehabilitation hospital		24.3			19.2					Rehabilitation hospital	23.9			21.8					24.1			20.5
Outpatient rehabilitation	Outpatient rehabilitation		10.4			9.8					Outpatient rehabilitation	16.3			11.7					13.5			10.8
Concentra			19.4			21.1
Concentra(2)											Concentra(2)	30.0			21.0					24.9			21.1
Other(1)(2)	Other(1)(2)		N/M			N/M					Other(1)(2)	N/M			N/M					N/M			N/M
Total Company	Total Company		16.7		%	10.2		%			Total Company	21.9		%	11.4		%			19.3		%	10.8		%
Total assets:	Total assets:										Total assets:
Critical illness recovery hospital	Critical illness recovery hospital		$	2,233,067		$	2,367,490				Critical illness recovery hospital	$	2,187,181		$	2,387,516				$	2,187,181		$	2,387,516
Rehabilitation hospital	Rehabilitation hospital		1,188,387			1,187,118					Rehabilitation hospital	1,186,886			1,194,739					1,186,886			1,194,739
Outpatient rehabilitation	Outpatient rehabilitation		1,321,268			1,350,374					Outpatient rehabilitation	1,333,661			1,360,600					1,333,661			1,360,600
Concentra	Concentra		2,468,157			2,339,940					Concentra	2,518,369			2,301,296					2,518,369			2,301,296
Other(1)	Other(1)		709,902			291,022					Other(1)	730,282			307,507					730,282			307,507
Total Company	Total Company		$	7,920,781		$	7,535,944				Total Company	$	7,956,379		$	7,551,658				$	7,956,379		$	7,551,658
Purchases of property and equipment:	Purchases of property and equipment:										Purchases of property and equipment:
Critical illness recovery hospital	Critical illness recovery hospital		$	14,385		$	19,569				Critical illness recovery hospital	$	16,499		$	19,528				$	30,884		$	39,097
Rehabilitation hospital	Rehabilitation hospital		665			6,274					Rehabilitation hospital	3,257			4,821					3,922			11,095
Outpatient rehabilitation	Outpatient rehabilitation		7,335			9,414					Outpatient rehabilitation	7,448			9,314					14,783			18,728
Concentra	Concentra		12,680			10,240					Concentra	7,591			8,716					20,271			18,956
Other(1)	Other(1)		4,654			1,348					Other(1)	1,928			3,953					6,582			5,301
Total Company	Total Company		$	39,719		$	46,845				Total Company	$	36,723		$	46,332				$	76,442		$	93,177

(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.

(2) During the three months ended ~~March 31,~~June 30, 2022 and 2021, we recognized other operating income of ~~$34.0 million.~~$15.1 million and $98.1 million, respectively. During the six months ended June 30, 2022 and 2021, we recognized other operating income of $15.1 million and $132.1 million, respectively. The impact of this income on the operating results of our critical illness recovery hospital segment, Concentra segment, and other activities is outlined within the ~~table~~tables presented under “Summary Financial Results” for the three and six months ended ~~March 31,~~June 30, 2022 and 2021.

N/M — Not meaningful.

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Three Months Ended ~~March 31,~~June 30, 2022, Compared to Three Months Ended ~~March 31,~~June 30, 2021

In the following, we discuss our results of operations related to revenue, operating expenses, other operating income, Adjusted EBITDA, depreciation and amortization, income from operations, equity in earnings of unconsolidated subsidiaries, interest, income taxes, and net income attributable to non-controlling interests.

Please refer to “Effects of the COVID-19 Pandemic on our Results of Operations” above for further discussion.

Revenue

Our revenue increased 1.3% to $1,584.7 million for the three months ended June 30, 2022, compared to $1,564.0 million for the three months ended June 30, 2021.

Critical Illness Recovery Hospital Segment. Revenue was $545.9 million for the three months ended June 30, 2022, compared to $544.1 million for the three months ended June 30, 2021. Revenue per patient day was $1,987 for the three months ended June 30, 2022, compared to $1,986 for the three months ended June 30, 2021. Our patient days were 273,133 days for the three months ended June 30, 2022, compared to 272,981 days for the three months ended June 30, 2021, and 262,860 days for the three months ended June 30, 2019. Occupancy in our critical illness recovery hospitals was 67%, 69%, and 69% for the three months ended June 30, 2022, 2021, and 2019, respectively.

Rehabilitation Hospital Segment. Revenue increased 7.6% to $228.9 million for the three months ended June 30, 2022, compared to $212.7 million for the three months ended June 30, 2021. The increase in revenue was principally due to an increase in revenue per patient day. Revenue per patient day increased 4.3% to $1,928 for the three months ended June 30, 2022, compared to $1,849 for the three months ended June 30, 2021. We experienced increases in both our non-Medicare and Medicare revenue per patient day during the three months ended June 30, 2022, compared to the three months ended June 30, 2021. Our patient days increased 3.7% to 108,812 days for the three months ended June 30, 2022, compared to 104,948 days for the three months ended June 30, 2021. Occupancy in our rehabilitation hospitals was 86%, 85%, and 75% for the three months ended June 30, 2022, 2021, and 2019, respectively.

Outpatient Rehabilitation Segment. Revenue increased 2.4% to $287.3 million for the three months ended June 30, 2022, compared to $280.4 million for the three months ended June 30, 2021. The increase in revenue was attributable to patient visits, which increased 1.9% to 2,450,912 visits for the three months ended June 30, 2022, compared to 2,404,861 visits for the three months ended June 30, 2021. Patient visits for the three months ended June 30, 2022, increased 11.2% compared to 2,203,505 visits for the three months ended June 30, 2019 (the comparable pre-COVID-19 pandemic period). The increase in visits was attributable to outpatient rehabilitation clinics we have acquired and developed since June 30, 2021. Our revenue per visit was $103 for the three months ended June 30, 2022, compared to $102 for the three months ended June 30, 2021.

Concentra Segment. Revenue was $441.4 million for the three months ended June 30, 2022, compared to $456.4 million for the three months ended June 30, 2021. The decrease is primarily attributable to a decline in revenue generated from COVID-19 screening and testing services. These services contributed $7.7 million of revenue during the three months ended June 30, 2022, compared to $55.0 million during the three months ended June 30, 2021. This was offset by an increase in our patient visits of 6.1% to 3,214,512 visits for the three months ended June 30, 2022, compared to 3,030,078 visits for the three months ended June 30, 2021. Patient visits for the three months ended June 30, 2022, increased 3.6% compared to 3,103,089 visits for the three months ended June 30, 2019 (the comparable pre-COVID-19 pandemic period). During the three months ended June 30, 2022, our revenue per visit increased to $127, compared to $125 for the three months ended June 30, 2021.

Operating Expenses

Our operating expenses consist principally of cost of services and general and administrative expenses. Our operating expenses were $1,427.8 million, or 90.1% of revenue, for the three months ended June 30, 2022, compared to $1,327.2 million, or 84.9% of revenue, for the three months ended June 30, 2021. Our cost of services, a major component of which is labor expense, was $1,390.6 million, or 87.7% of revenue, for the three months ended June 30, 2022, compared to $1,291.4 million, or 82.6% of revenue, for the three months ended June 30, 2021. The increase in our operating expenses relative to our revenue was principally attributable to the incurrence of additional operating expenses within our critical illness recovery hospital and rehabilitation hospital segments, as explained further within the “Adjusted EBITDA” discussion. General and administrative expenses were $37.3 million, or 2.4% of revenue, for the three months ended June 30, 2022, compared to $35.7 million, or 2.3% of revenue, for the three months ended June 30, 2021.

Table of Contents

Other Operating Income

For the threemonths ended June 30, 2022, we had other operating income of $15.1 million, compared to $98.1 million for the three months ended June 30, 2021. The other operating income 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.

For the three months ended June 30, 2022, $15.1 million of other operating income is included within the operating results of our other activities. For the three months ended June 30, 2021, $65.8 million of other operating income is included within the operating results of our other activities and $32.3 million of other operating income is included within the operating results of our Concentra segment.

Adjusted EBITDA

Critical Illness Recovery Hospital Segment. Adjusted EBITDA was $20.0 million for the three months ended June 30, 2022, compared to $72.9 million for the three months ended June 30, 2021. Our Adjusted EBITDA margin for the critical illness recovery hospital segment was 3.7% for the three months ended June 30, 2022, compared to 13.4% for the three months ended June 30, 2021. Our Adjusted EBITDA and Adjusted EBITDA margin for the three months ended June 30, 2022 were adversely affected by a shortage of healthcare workers, which has led to the incurrence of additional labor costs, comprised of contract labor, sign-on and retention bonuses, and orientation costs, compared to the three months ended June 30, 2021. Our increased contract labor costs are due to higher utilization and increased rates. During the three months ended June 30, 2022, we have hired more full-time nursing staff in an effort to reduce our agency costs, which has led to an increase in administrative nursing hours during the onboarding process. For the three months ended June 30, 2022, our contracted registered nurses represented approximately 32.9% of our total registered nursing hours, compared to approximately 32.3% for the three months ended June 30, 2021. Additionally, the cost of contract registered nurses has risen due to the demand for healthcare professionals. These costs were approximately 3.1% higher during the three months ended June 30, 2022, as compared to the three months ended June 30, 2021.

Rehabilitation Hospital Segment. Adjusted EBITDA was $49.8 million for the three months ended June 30, 2022, compared to $50.8 million for the three months ended June 30, 2021. Our Adjusted EBITDA margin for the rehabilitation hospital segment was 21.8% for the three months ended June 30, 2022, compared to 23.9% for the three months ended June 30, 2021. Our Adjusted EBITDA and Adjusted EBITDA margin for the three months ended June 30, 2022, were adversely affected by the incurrence of additional labor costs. Constrained staffing due to a shortage of healthcare workers has led to increases in incentive and retention pay for our employees and greater dependence on higher cost contract clinical workers. The increase in contracted clinical labor costs occurred predominantly within our hospitals operating in California and New Jersey.

Outpatient Rehabilitation Segment. Adjusted EBITDA was $33.6 million for the three months ended June 30, 2022, compared to $45.6 million for the three months ended June 30, 2021. Our Adjusted EBITDA margin for the outpatient rehabilitation segment was 11.7% for the three months ended June 30, 2022, compared to 16.3% for the three months ended June 30, 2021. Our Adjusted EBITDA and Adjusted EBITDA margin for the three months ended June 30, 2022, were affected by increases in both labor costs and other operating expenses compared to the three months ended June 30, 2021.

Concentra Segment. Adjusted EBITDA was $92.6 million for the three months ended June 30, 2022, compared to $137.1 million for the three months ended June 30, 2021. Our Adjusted EBITDA margin for the Concentra segment was 21.0% for the three months ended June 30, 2022, compared to 30.0% for the three months ended June 30, 2021. Our Adjusted EBITDA and Adjusted EBITDA margin for the three months ended June 30, 2022, were affected by a decline in revenue generated from COVID-19 screening and testing services, as discussed in the “Revenue” section above. Our Concentra segment also recognized $32.3 million of Provider Relief Funds during the three months ended June 30, 2021, as described further above under “Other Operating Income.”

Depreciation and Amortization

Depreciation and amortization expense was $51.1 million for the three months ended June 30, 2022, compared to $51.0 million for the three months ended June 30, 2021.

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Income from Operations

For the three months ended June 30, 2022, we had income from operations of $121.0 million, compared to $284.0 million for the three months ended June 30, 2021. The increase in labor costs experienced within our critical illness recovery hospital and rehabilitation hospital segments was the primary cause of the decrease in income from operations, as discussed above under “Adjusted EBITDA.” Additionally, we recognized other operating income of $15.1 million during the three months ended June 30, 2022, compared to $98.1 million during the three months ended June 30, 2021, as described further under “Other Operating Income.”

Equity in Earnings of Unconsolidated Subsidiaries

For the three months ended June 30, 2022, we had equity in earnings of unconsolidated subsidiaries of $6.2 million, compared to $11.8 million for the three months ended June 30, 2021. The decrease in equity in earnings is due in part to an increase in labor costs incurred by the rehabilitation businesses in which we are a minority owner.

Interest

Interest expense was $41.1 million for the three months ended June 30, 2022, compared to $33.9 million for the three months ended June 30, 2021. The increase in interest expense was attributable to an increase in the LIBOR rate, compared to the three months ended June 30, 2021, and borrowings made under our revolving facility during the three months ended June 30, 2022.

Income Taxes

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%. We recorded income tax expense of $65.7 million for the three months ended June 30, 2021, which represented an effective tax rate of 25.1%. For the three months ended June 30, 2022, the lower effective tax rate resulted primarily from an increase in income before income taxes generated from our consolidated subsidiaries which are taxable as partnerships. For these subsidiaries, we only incur income tax expense on our share of their earnings.

Net Income Attributable to Non-Controlling Interests

Net income attributable to non-controlling interests was $11.1 million for the three months ended June 30, 2022, compared to $31.3 million for the three months ended June 30, 2021. The reduction in net income attributable to non-controlling interests was principally due to a change in our ownership interest of Concentra Group Holdings Parent. Since June 30, 2021, we have acquired substantially all of the outstanding membership interests of Concentra Group Holdings Parent. The reduction in net income attributable to non-controlling interests was also due to a decline in the net income of our less than wholly owned subsidiaries. Many of these subsidiaries were impacted by increased labor costs during the three months ended June 30, 2022, as compared to the three months ended June 30, 2021.

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Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021

Please refer to “Effects of the COVID-19 Pandemic on our Results of Operations” above for further discussion.

Revenue

Our revenue increased ~~3.4%~~2.4% to ~~$1,599.5~~$3,184.3 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~$1,546.5~~$3,110.5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021.

Critical Illness Recovery Hospital Segment. Revenue increased ~~1.2%~~ to ~~$601.8~~$1,147.7 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~$594.9~~$1,138.9 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021. The increase in revenue was due to an increase in revenue per patient ~~day during the three months ended March 31, 2022, as compared to the three months ended March 31, 2021.~~day. Revenue per patient day increased ~~2.5%~~1.3% to ~~$2,075~~$2,032 for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~$2,024~~$2,006 for the ~~three~~six months ended ~~March 31,~~June 30, 2021. We experienced increases in both our non-Medicare and Medicare revenue per patient day during the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to the ~~three~~six months ended ~~March 31,~~June 30, 2021. Our patient days were ~~289,217~~562,350 for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~293,118~~566,099 days for the ~~three~~six months ended ~~March 31,~~June 30, 2021. ~~Our~~Occupancy in our critical illness recovery hospitals was 69%, 72%, and 70% for the six months ended June 30, 2022, 2021, and 2019, respectively. For the six months ended June 30, 2021, our patient days ~~for the three months ended March 31, 2021~~and occupancy percentage benefited from an increase in referrals from general acute care ~~hospitals,~~hospitals, which was due in part to an increase in volume in the intensive care units in those hospitals, as a result of the COVID-19 pandemic. As COVID-19 cases which require hospitalization ~~decline,~~have declined compared to the six months ended June 30, 2021, the patient volume experienced in intensive care units has also declined. This ~~adversely impacted~~reduced the ~~level~~volume of referrals we received during the ~~three~~six months ended ~~March 31,~~June 30, 2022. ~~Occupancy in our critical illness recovery hospitals was 71%, 75%, and 71% for the three months ended March 31, 2022, 2021, and 2019, respectively.~~

Rehabilitation Hospital Segment. Revenue increased ~~6.2%~~6.9% to ~~$220.6~~$449.5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~$207.8~~$420.5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021. The increase in revenue ~~resulted~~was principally due to an increase in revenue per patient ~~day during the three months ended March 31, 2022, compared to the three months ended March 31, 2021.~~day. Our revenue per patient day increased ~~4.9%~~4.5% to ~~$1,943~~$1,935 for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~$1,853~~$1,851 for the ~~three~~six months ended ~~March 31,~~June 30, 2021. We experienced increases in both our Medicare and non-Medicare revenue per patient day during the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to the ~~three~~six months ended ~~March 31,~~June 30, 2021. Our patient days increased ~~1.3%~~2.5% to ~~103,802~~212,614 days for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~102,439~~207,387 days for the ~~three~~six months ended ~~March 31,~~June 30, 2021. Occupancy in our rehabilitation hospitals was ~~84%~~85%, 84%, and 76% for the ~~three~~six months ended ~~March 31,~~June 30, 2022, 2021, and 2019, respectively.

Outpatient Rehabilitation Segment. Revenue increased ~~7.9%~~5.0% to ~~$271.9~~$559.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~$252.0~~$532.4 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021. The increase in revenue was principally due to ~~an increase in~~patient visits, which increased ~~10.0%~~5.7% to ~~2,310,086~~4,760,998 visits for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~2,100,154 and 2,054,483~~4,505,015 visits for the ~~three~~six months ended ~~March 31, 2021 and~~June 30, 2021. Patient visits for the six months ended June 30, 2022, increased 11.8% compared to 4,257,988 visits for the six months ended June 30, 2019 ~~respectively.~~(the comparable pre-COVID-19 pandemic period). The increase in visits was attributable to outpatient rehabilitation clinics which ~~commenced operations~~we have acquired and developed since ~~March 31,~~June 30, 2021, as well as improvement in volume in our clinics which operated during both the ~~three~~six months ended ~~March 31,~~June 30, 2022 and ~~2021. Our patient visit volume was adversely impacted by the ongoing effects of the COVID-19 pandemic during the three months ended March 31,~~ 2021. Our revenue per visit was ~~$102~~$103 for both the ~~three~~six months ended ~~March 31,~~June 30, 2022 ~~compared to $104 for the three months ended March 31,~~and 2021. ~~The decrease in revenue per visit was primarily due to a decrease in the reimbursement rates received under the Medicare physician fee schedule, as described further under “Regulatory Changes.” Additionally, we experienced a greater proportion of Medicare visits during the three months ended March 31, 2022. These visits yield lower per visit rates.~~

Concentra Segment. Revenue ~~increased to $423.4~~was $864.8 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~$422.8~~$879.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021. The ~~increase in revenue was~~decrease is primarily attributable to ~~an increase in visits, which increased 11.5% to 3,116,898 for the three months ended March 31, 2022, compared to 2,795,574 and 2,911,607 visits for the three months ended March 31, 2021 and 2019, respectively. This increase was offset partially by~~ a decline in ~~the~~ revenue generated from ~~our~~ COVID-19 screening and testing services. These services contributed ~~$9.1~~$16.7 million of revenue during the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~$51.7~~$106.7 million during the ~~three~~six months ended ~~March 31,~~June 30, 2021. This was offset by an increase in our patient visits of 8.7% to 6,331,410 visits for the six months ended June 30, 2022, compared to 5,825,652 visits for the six months ended June 30, 2021. Patient visits for the six months ended June 30, 2022, increased 5.3% compared to 6,014,696 visits for the six months ended June 30, 2019 (the comparable pre-COVID-19 pandemic period). Our revenue per visit was $126 for the six months ended June 30, 2022, compared to $125 for ~~both~~ the ~~three~~six months ended ~~March 31, 2022 and~~June 30, 2021. ~~We experienced increases in the reimbursement rates for~~Additionally, our ~~employer services and workers’ compensation visits during the three months ended March 31, 2022. The increases in our reimbursement rates were offset, however,~~revenue was negatively affected by a greater percentage of employer services visits during the six months ended June 30, 2022, which yield lower per visit rates.

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Operating Expenses

Our operating expenses consist principally of cost of services and general and administrative expenses. Our operating expenses were ~~$1,444.5~~$2,872.3 million, or ~~90.3%~~90.2% of revenue, for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~$1,328.9~~$2,656.0 million, or ~~85.9%~~85.4% of revenue, for the ~~three~~six months ended ~~March 31,~~June 30, 2021. Our cost of services, a major component of which is labor expense, was ~~$1,407.0~~$2,797.6 million, or ~~88.0%~~87.9% of revenue, for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~$1,293.4~~$2,584.9 million, or ~~83.6%~~83.1% of revenue, for the ~~three~~six months ended ~~March 31,~~June 30, 2021. The increase in our operating expenses relative to our revenue was principally due to increased labor costs within our critical illness recovery hospital and rehabilitation hospital segments, as discussed further below under “Adjusted EBITDA.” General and administrative expenses were ~~$37.5~~$74.8 million, or 2.3% of revenue, for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~$35.4~~$71.1 million, or 2.3% of revenue, for the ~~three~~six months ended ~~March 31,~~June 30, 2021.

Other Operating Income

For the ~~three~~six months ended ~~March 31, 2021,~~June 30, 2022, we had other operating income of ~~$34.0 million. Of this amount, $16.1~~$15.1 million, compared to $132.1 million for the six months ended June 30, 2021.

For the six months ended June 30, 2022, the other operating income is related to the recognition of payments received under the ~~Public Health~~Provider Relief Fund for health care related expenses and ~~Social Services Emergency Fund, also referred~~lost revenues attributable to asCOVID-19, and is included within the operating results of our other activities.

For the six months ended June 30, 2021, $114.1 million of other operating income is related to the recognition of payments received under the Provider Relief Fund for health care related expenses and lost revenues attributable to COVID-19. ~~This~~$81.9 million and $32.3 million of other operating income is included within the operating results of our other ~~activities.~~activities and Concentra segment, respectively. The remaining $17.9 million of other operating income is related to the outcome of litigation with ~~CMS. This income~~CMS and is included ~~within~~in the operating results of our critical illness recovery hospital segment.

Adjusted EBITDA

Critical Illness Recovery Hospital Segment. Adjusted EBITDA was ~~$36.0~~$56.0 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~$113.3~~$186.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021. Our Adjusted EBITDA margin for the critical illness recovery hospital segment was ~~6.0%~~4.9% for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~19.0%~~16.3% for the ~~three~~six months ended ~~March 31,~~June 30, 2021. Our Adjusted EBITDA and Adjusted EBITDA margin for the six months ended June 30, 2022 were adversely affected by a shortage of healthcare workers, which has led to the incurrence of additional labor costs, comprised of contract labor, sign-on and retention bonuses, and orientation costs, compared to the six months ended June 30, 2021. Our increased contract labor costs are due to higher utilization and increased rates. During the sixmonths ended June 30, 2022, we have hired more full-time nursing staff in an effort to reduce our agency costs, which has led to an increase in administrative nursing hours during the onboarding process. Our use of contract registered nurses increased by approximately 14.7% during the six months ended June 30, 2022, as compared to the six months ended June 30, 2021. For the six months ended June 30, 2022, our contracted registered nurses represented approximately 35.3% of our total registered nursing hours, compared to approximately 30.2% for the six months ended June 30, 2021. Contract registered nursing hours as a percentage of our total registered nursing hours were 37.5%, 37.5%, and 32.9% for the three months ended December 31, 2021,March 31, 2022, and June 30, 2022, respectively. Additionally, the cost of contract registered nurses has risen significantly due to the demand for healthcare professionals. These costs were approximately 14.0% higher during the six months ended June 30, 2022, as compared to the six months ended June 30, 2021. During the six months ended June 30, 2021, our Adjusted EBITDA and Adjusted EBITDA margin also benefited from the recognition of $17.9 million in other operating income related to the outcome of litigation with CMS.

Rehabilitation Hospital Segment. Adjusted EBITDA was $92.2 million for the six months ended June 30, 2022, compared to $101.3 million for the six months ended June 30, 2021. Our Adjusted EBITDA margin for the rehabilitation hospital segment was 20.5% for the six months ended June 30, 2022, compared to 24.1% for the six months ended June 30, 2021. Our Adjusted EBITDA and Adjusted EBITDA margin for the six months ended June 30, 2022, were adversely affected by the incurrence of additional labor costs. Constrained staffing due to a shortage of healthcare workers ~~which~~ has ledled to increases in incentive and ~~bonus~~retention pay for our employees and greater dependence on higher cost contract clinical workers have contributed to the increased labor costs. Our use of contract clinical workers has increased by approximately 26.0% during the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. For the three months ended March 31, 2022, our contracted clinical labor represented approximately 27.0% of our workforce, compared to approximately 21.0% for the three months ended March 31, 2021.workers. Additionally, the cost of contract clinical labor for the six months ended June 30, 2022, has risen ~~significantly~~ due to the demand for healthcare ~~professionals. These costs were approximately 23.0% higher during the three months ended March 31, 2022, as~~professionals, compared to the ~~three~~six months ended ~~March 31,~~June 30, 2021. During the three months ended March 31, 2021, our Adjusted EBITDA and Adjusted EBITDA margin also benefited from the recognition of $17.9 million of other operating income, as described further above under “~~Other Operating Income.~~”

~~Rehabilitation Hospital Segment.~~ Adjusted EBITDA was $42.4 million for the three months ended March 31, 2022, compared to $50.5 million for the three months ended March 31, 2021. Our Adjusted EBITDA margin for the rehabilitation hospital segment was 19.2% for the three months ended March 31, 2022, compared to 24.3% for the three months ended March 31, 2021. Our Adjusted EBITDA and Adjusted EBITDA margin for the three months ended March 31, 2022 were adversely affected by the incurrence of additional labor costs. Constrained staffing due to a shortage of healthcare workers, which has led to increases in incentive and bonus pay for our employees, and greater dependence on contract clinical workers have contributed to the increased labor costs. Additionally, the cost of contract clinical labor has risen significantly due to the demand for healthcare professionals. The increase in contracted clinical labor ~~usage and labor rates~~costs occurred predominantly within our hospitals operating in California and New Jersey.

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Outpatient Rehabilitation Segment. Adjusted EBITDA ~~increased 1.0% to $26.6~~was $60.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~$26.3~~$72.0 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021. Our Adjusted EBITDA margin for the outpatient rehabilitation segment was ~~9.8%~~10.8% for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~10.4%~~13.5% for the ~~three~~six months ended ~~March 31,~~June 30, 2021. ~~The increase in Adjusted EBITDA was principally driven by an increase in patient visit volume during the three months ended March 31, 2022. Our~~Our Adjusted EBITDA and Adjusted EBITDA margin for the ~~three~~six months ended ~~March 31,~~June 30, 2022, were ~~adversely~~ affected by ~~disruptions~~increases in ~~our workforce which were caused by~~both labor costs and other operating expenses compared to the ~~COVID-19 Omicron variant.~~six months ended June 30, 2021.

Concentra Segment. Adjusted EBITDA ~~increased 9.1% to $89.5~~was $182.1 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~$82.0~~$219.1 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021. Our Adjusted EBITDA margin for the Concentra segment was 21.1% for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~19.4%~~24.9% for the ~~three~~six months ended ~~March 31,~~June 30, 2021. ~~The increases in~~Our Adjusted EBITDA and Adjusted EBITDA margin for the six months ended June 30, 2022 were ~~primarily attributable to an increase~~affected by the decline in ~~patient visits~~revenue generated from COVID-19 screening and testing services, as discussed in ~~our centers~~the “Revenue” section above. Our Concentra segment also recognized $32.3 million of Provider Relief Funds during the ~~three~~six months ended ~~March 31, 2022.~~June 30, 2021, as described further above under “

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.”

Depreciation and Amortization

Depreciation and amortization expense was ~~$51.0~~$102.1 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~$49.6~~$100.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021.

Income from Operations

For the ~~three~~six months ended ~~March 31,~~June 30, 2022, we had income from operations of ~~$104.0~~$225.0 million, compared to ~~$202.0~~$486.0 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021. The increase in labor costs experienced within our critical illness recovery hospital and rehabilitation hospital segments was the primary cause of the decrease in income from operations, as discussed above under “Adjusted EBITDA.” Additionally, we recognized other operating income of ~~$34.0~~$15.1 million during the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to $132.1 million during the six months ended June 30, 2021, as described further under “Other Operating Income.”

Equity in Earnings of Unconsolidated Subsidiaries

For the ~~three~~six months ended ~~March 31,~~June 30, 2022, we had equity in earnings of unconsolidated subsidiaries of ~~$5.4~~$11.6 million, compared to ~~$9.9~~$21.7 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021. The decrease in equity in earnings is due in part to an increase in labor costs incurred by the rehabilitation businesses in which we are a minority owner. Additionally, certain of these rehabilitation businesses recognized income during the ~~three~~six months ended ~~March 31,~~June 30, 2021 for the payments they received under the Provider Relief Fund for health care related expenses and lost revenues attributable to COVID-19.

Interest

Interest expense was ~~$35.5~~$76.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~$34.4~~$68.3 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021. The increase in interest expense was ~~caused by the~~primarily attributable to borrowings we made under our revolving facility during the ~~three~~six months ended ~~March 31,~~June 30, 2022. The increase in interest expense was also attributable to increases in the LIBOR rate during the six months ended June 30, 2022, compared to the six months ended June 30, 2021.

For the ~~three~~six months ended ~~March 31,~~June 30, 2021, we recognized interest income of $4.7 million. The interest income iswas related to the outcome of litigation with CMS.

Income Taxes

We recorded income tax expense of ~~$17.9~~$37.8 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, which represented an effective tax rate of ~~24.3%~~23.6%. We recorded income tax expense of ~~$45.1~~$110.7 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021, which represented an effective tax rate of ~~24.7%~~24.9%. For the six months ended June 30, 2022, the lower effective tax rate resulted primarily from an increase in income before income taxes generated from our consolidated subsidiaries which are taxable as partnerships. For these subsidiaries, we only incur income tax expense on our share of their earnings.

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Net Income Attributable to Non-Controlling Interests

Net income attributable to non-controlling interests was ~~$6.8~~$17.9 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~$26.7~~$58.0 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021. The ~~decrease~~reduction in net income attributable to non-controlling interests was principally due to a decrease in the net income of our less than wholly owned critical illness recovery hospitals and rehabilitation hospitals. Many of these hospitals were impacted by increases in labor costs during the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. The decline in net income attributable to non-controlling interests was also due to a change in our ownership interest of Concentra Group Holdings Parent. Since ~~March 31,~~June 30, 2021, we have acquired ~~additional~~substantially all of the outstanding membership interests of Concentra Group Holdings Parent. The reduction in net income attributable to non-controlling interests was also due to a decline in the net income of our less than wholly owned subsidiaries. Many of these subsidiaries were impacted by increases in labor costs during the six months ended June 30, 2022, as compared to the six months ended June 30, 2021.

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Liquidity and Capital Resources

Cash Flows for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2022 and ~~Three~~Six Months Ended ~~March 31,~~June 30, 2021

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


		Three Months Ended March 31,					Six Months Ended June 30,
		2021		2022			2021		2022
		(in thousands)					(in thousands)
Cash flows provided by operating activities	Cash flows provided by operating activities	$	239,888	$	6,337	Cash flows provided by operating activities	$	363,026	$	178,018
Cash flows used in investing activities	Cash flows used in investing activities	(52,585)		(55,331)		Cash flows used in investing activities	(88,245)		(114,094)
Cash flows provided by (used in) financing activities		(14,090)		105,565
Cash flows used in financing activities						Cash flows used in financing activities	(48,349)		(43,565)
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	173,213		56,571		Net increase in cash and cash equivalents	226,432		20,359
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	577,061		74,310		Cash and cash equivalents at beginning of period	577,061		74,310
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	750,274	$	130,881	Cash and cash equivalents at end of period	$	803,493	$	94,669

Operating activities provided ~~$6.3~~$178.0 million of cash flows for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~$239.9~~$363.0 million of cash flows for the ~~three~~six months ended ~~March 31,~~June 30, 2021. The decrease in cash flows from operating activities was primarily due to a reduction in our financial performance during the three months ended March 31, 2022. We also repaid $62.9 million of Medicare advance payments received under the Accelerated and Advance Payment Program during the three months ended March 31, 2022. CMS began recouping these payments in April 2021.operating income.

Our days sales outstanding was 53 days at ~~March 31,~~June 30, 2022, compared to 52 days at December 31, 2021. Our days sales outstanding was 54 days at June 30, 2021, compared to 56 days at ~~both March 31, 2021 and~~ December 31, 2020. Our days sales outstanding will fluctuate based upon variability in our collection cycles and patient volumes.

Investing activities used ~~$55.3~~$114.1 million of cash flows for the ~~three~~six months ended ~~March 31,~~June 30, 2022. The principal uses of cash were ~~$46.8~~$93.2 million for purchases of property and equipment and ~~$8.5~~$26.2 million for investments in and acquisitions of businesses. The cash outflows were offset in part by proceeds received from the sale of assets of $5.3 million. Investing activities used ~~$52.6~~$88.2 million of cash flows for the ~~three~~six months ended ~~March 31,~~June 30, 2021. The principal uses of cash were ~~$39.7~~$76.4 million for purchases of property and equipment and ~~$12.9~~$21.3 million for investments in and acquisitions of businesses. The cash outflows were offset in part by proceeds received from the sale of assets of $9.5 million.

Financing activities ~~provided $105.6~~used $43.6 million of cash flows for the ~~three~~six months ended ~~March 31,~~June 30, 2022. ~~The principal source of cash was net borrowings under our revolving facility of $180.0 million.~~ The principal uses of cash were ~~$51.7~~$178.6 million ~~of cash~~ for repurchases of common stock, ~~$16.7~~$32.8 million of dividend payments to common stockholders, and ~~$10.3~~$18.7 million for distributions to and purchases of non-controlling interests. The cash outflows were offset in part by net borrowings under our revolving facility of $190.0 million. Financing activities used ~~$14.1~~$48.3 million of cash flows for the ~~three~~six months ended ~~March 31,~~June 30, 2021. The principal ~~use~~uses of cash ~~was $13.7~~were $29.2 million for distributions to and purchases of non-controlling ~~interests.~~interests and $16.9 million of dividend payments to common stockholders.

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Capital Resources

Working capital. We had a net working capital deficit of ~~$61.7~~$20.7 million at ~~March 31,~~June 30, 2022, compared to a net working capital deficit of $133.6 million at December 31, 2021. The ~~increase in~~reduction of the working capital deficit was primarily due to increases in our cash and cash equivalents and accounts receivable, as well as a reduction in our liability related to the payments we received under the Accelerated and Advance Payment Program.

Credit facilities. At ~~March 31,~~June 30, 2022, Select had outstanding borrowings under its credit facilities consisting of a $2,103.4 million term loan (excluding unamortized original issue discounts and debt issuance costs of ~~$12.3~~$11.3 million) and borrowings of ~~$340.0~~$350.0 million under ~~our~~its revolving facility. At ~~March 31,~~June 30, 2022, Select had ~~$252.8~~$243.1 million of availability under its revolving facility after giving effect to ~~$57.2~~$56.9 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, 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. During the ~~three~~six months ended ~~March 31,~~June 30, 2022, Holdings repurchased ~~2,128,494~~7,567,433 shares at a cost of approximately ~~$51.7~~$177.6 million, or ~~$24.28~~$23.47 per share, which includes transaction costs. Since the inception of the program through ~~March 31,~~June 30, 2022, Holdings has repurchased ~~42,480,122~~47,919,061 shares at a cost of approximately ~~$466.9~~$592.8 million, or ~~$10.99~~$12.37 per share, which includes transaction costs.

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

The duration and extent of the impact from the COVID-19 pandemic on our operations and liquidity depends on future developments that cannot be accurately predicted at this time; however, 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 ~~March 31,~~June 30, 2022, we had cash and cash equivalents of ~~$130.9~~$94.7 million and ~~$252.8~~$243.1 million of availability under the revolving facility after giving effect to ~~$340.0~~$350.0 million of outstanding borrowings and ~~$57.2~~$56.9 million of 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 ~~May 5,~~August 2, 2022, our board of directors declared a cash dividend of $0.125 per share. The dividend will be payable on or about ~~June 1,~~September 2, 2022 to stockholders of record as of the close of business on ~~May 19,~~August 16, 2022.

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.

Effects of Inflation

The healthcare industry is labor intensive and the Company’s 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 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

There were no new accounting standards issued ~~since~~between December 31, 2021, and June 30, 2022, which will have a material effect on the financial statements upon adoption.

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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 generally bear interest rates that are indexed against LIBOR.

At ~~March 31,~~June 30, 2022, Select had outstanding borrowings under its credit facilities consisting of a $2,103.4 million term loan (excluding unamortized original issue discounts and debt issuance costs of ~~$12.3~~$11.3 million) and ~~$340.0~~$350.0 million of borrowings under its revolving facility.

In order to mitigate our exposure to rising interest rates, we entered into an interest rate cap transaction to limit our 1-month LIBOR 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 ~~March 31,~~June 30, 2022, the 1-month LIBOR rate was ~~0.45%~~1.79%. AAs of June 30, 2022, $103.4 million of our term loan borrowings are subject to variable interest rates.

As of June 30, 2022, each 0.25% ~~change~~increase in market interest rates ~~would~~will impact the interest expense on our variable rate debt by $6.1 million until 1-month LIBOR exceeds 1.0%, at which time the impact of increases in 1-month LIBOR on the interest expense incurred on our term loan borrowings will be mitigated in part by the interest rate cap, as described further in Note 9 – Interest Rate Cap of the notes to our condensed consolidated financial statements included herein.$1.1 million.

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 ~~March 31,~~June 30, 2022, 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 ~~first~~second quarter ended ~~March 31,~~June 30, 2022, 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 14 – Commitments and Contingencies of the notes to our condensed consolidated financial statements included herein.

ITEM 1A. RISK FACTORS

The risk factor set forth in this report updates, and should be read together with, the risk factors discussed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.

Inflation in the economy could negatively impact our business and results of operations.

Recently, inflation has increased throughout the U.S. economy. In an inflationary environment, we may experience increases in the prices of labor and other costs of doing business. Additionally, cost increases may outpace our expectations, causing us to use our cash and other liquid assets faster than forecasted. If we are unable to successfully manage the effects of inflation, our business, operating results, cash flows and financial condition may be adversely affected.

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, 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 the three months ended ~~March 31,~~June 30, 2022.

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
January 1 - January 31, 2022 — $ — — $ 584,796,612
February 1 - February 28, 2022 — — — 584,796,612
March 1 - March 31, 2022 2,128,494 24.28 2,128,494 533,120,670
Total 2,128,494 $ 24.28 2,128,494 $ 533,120,670


	Total Number of Shares Purchased(1)	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, 2022	1,137,963	$	23.04	1,137,963	$	506,903,203
May 1 - May 31, 2022	2,376,593	22.89		2,332,964	453,480,845
June 1 - June 30, 2022	1,968,012	23.54		1,968,012	407,160,219
Total	5,482,568	$	23.15	5,438,939	$	407,160,219

(1) Includes share repurchases under our common stock repurchase program and common stock surrendered to us to satisfy tax withholding obligations associated with the vesting of restricted shares issued to employees, pursuant to the provisions of our equity incentive plans.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS


Number						Description
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 F. Jackson
						Martin F. Jackson
						Executive Vice President and Chief Financial Officer
						(Duly Authorized Officer)

			By:			/s/ Scott A. Romberger
						Scott A. Romberger
						Senior Vice President, Chief Accounting Officer
						(Principal Accounting Officer)

Dated: ~~May 5,~~August 4, 2022

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	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
January 1 - January 31, 2022	—	$	—	—	$	584,796,612
February 1 - February 28, 2022	—	—		—	584,796,612
March 1 - March 31, 2022	2,128,494	24.28		2,128,494	533,120,670
Total	2,128,494	$	24.28	2,128,494	$	533,120,670