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, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file numbers: 001-34465 SELECT MEDICAL HOLDINGS CORPORATION (Exact name of Registrant as specified in its Charter) Delaware 20-1764048 (State or ...

Select Medical Holdings Corporation (NYSE:SEM) Q4 2022 Earnings Conference Call February 24, 2023 9:00 AM ET Company Participants Robert Ortenzio - Executive Chairman and Co-Founder Martin Jackson - EVP and CFO Conference Call Participants Justin Bowers - Deutsche Bank Ben Hendrix - RBC Capital Markets Bill Sutherland - Benchmark Company Miles Highsmith - Deutsche Bank Operator Good morning, and thank you for joining us today for Select Medical Holdings Corporation's Earnings Conference Call to discuss the ...

Use these links to rapidly review the document TABLE OF CONTENTS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K INDEX TO FINANCIAL STATEMENTS ☒ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Table of Contents 1 For fiscal year ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file numbers: 001-34465 SELECT MEDICAL HOLDINGS C ...

Select Medical Holdings Corporation (NYSE:SEM) Q3 2022 Earnings Conference Call November 4, 2022 9:00 AM ET Company Participants Robert Ortenzio - Executive Chairman & Co-Founder Martin Jackson - Executive Vice President & Chief Financial Officer Conference Call Participants Justin Bowers - Deutsche Bank Joanna Gajuk - Bank of America Ben Hendrix - RBC Capital Markets Bill Sutherland - The Benchmark Company Miles Highsmith - Deutsche Bank A.J. Rice - Credit Suisse Operator Good morning and thank you for joi ...

Financial Performance - For the nine months ended September 30, 2022, the company reported total revenue of $4,752.1 million, with approximately 35% from the critical illness recovery hospital segment, 14% from the rehabilitation hospital segment, 18% from the outpatient rehabilitation segment, and 28% from the Concentra segment [74]. - Adjusted EBITDA for the nine months ended September 30, 2022, was $497.954 million, a decrease from $808.939 million in the same period of 2021 [78]. - Net income for the three months ended September 30, 2022, was $38.126 million, down from $100.217 million in the same period of 2021 [78]. - Total revenue for the company reached $1.57 billion for the three months ended September 30, 2022, up 2.2% from $1.53 billion in the same period of 2021 [84]. - Net income for the nine months ended September 30, 2022, was $160.3 million, down from $433.6 million for the same period in 2021 [87]. - Adjusted EBITDA for the company was $153.1 million in Q3 2022, reflecting a decrease of 26.6% compared to $208.6 million in Q3 2021 [85]. - Total revenue for the three months ended September 30, 2022, increased by 2.2% to $1,567.8 million compared to $1,534.2 million for the same period in 2021 [124]. - Total revenue for the nine months ended September 30, 2022, was $4,752.1 million, a 2.3% increase from $4,644.7 million in the same period of 2021 [87]. Segment Performance - The company operated 105 critical illness recovery hospitals, 31 rehabilitation hospitals, and 1,933 outpatient rehabilitation clinics as of September 30, 2022 [73]. - The company’s rehabilitation hospital segment generated approximately 14% of total revenue, highlighting its role in the overall business [74]. - Revenue for Critical Illness Recovery Hospital was $524.6 million for the three months ended September 30, 2022, a decrease of 1.1% compared to $530.6 million in the same period of 2021 [84]. - Rehabilitation Hospital revenue increased by 8.0% to $229.4 million in Q3 2022 from $212.4 million in Q3 2021 [85]. - Outpatient Rehabilitation revenue rose by 3.8% to $285.0 million in Q3 2022 compared to $274.5 million in Q3 2021 [85]. - Revenue from the Critical Illness Recovery Hospital segment decreased by 1.1% to $524.6 million, with revenue per patient day declining to $1,878 from $1,931 [125]. - Revenue for the Rehabilitation Hospital Segment increased by 7.3% to $678.9 million for the nine months ended September 30, 2022, with patient days rising by 3.7% to 321,690 [147]. - Revenue for the Outpatient Rehabilitation Segment rose by 4.6% to $844.2 million for the nine months ended September 30, 2022, driven by a 4.6% increase in patient visits to 7,165,866 [148]. - Concentra Segment's revenue was $1,309.4 million for the nine months ended September 30, 2022, down from $1,321.4 million in 2021, primarily due to a decline in COVID-19 screening revenue [149]. Operational Challenges - The company faced challenges due to the COVID-19 pandemic, impacting future operating results and financial condition [79]. - The company is subject to various risks, including changes in government reimbursement policies and competition, which could affect revenue and profitability [69]. - The company experienced a significant decline in income from operations, with a 50.3% decrease overall, and a notable drop of 89.4% in the Critical Illness Recovery Hospital segment [88]. - The company is navigating regulatory changes due to the COVID-19 pandemic, which may impact future financial performance [90]. - The company is focused on adapting to ongoing healthcare regulatory changes that may affect reimbursement and operational strategies [90]. Cost and Expenses - Operating expenses increased to $4,305.6 million, or 90.6% of revenue, for the nine months ended September 30, 2022, compared to $3,991.6 million, or 85.9% of revenue, for the same period in 2021 [151]. - The cost of services as a percentage of revenue increased from 84.6% in Q3 2021 to 88.9% in Q3 2022 [116]. - Total operating expenses for the three months ended September 30, 2022, were $1,433.3 million, representing 91.4% of revenue, up from 87.1% in the prior year [130]. Cash Flow and Dividends - Cash flows from operating activities were $272.3 million for the nine months ended September 30, 2022, down from $461.9 million in the same period of 2021 [168]. - The company had cash and cash equivalents of $108.2 million as of September 30, 2022, with $213.5 million available under its revolving facility [177]. - Cash dividends declared were $0.125 per share, with total cash dividends paid amounting to $16.7 million, $16.1 million, and $15.9 million in March, June, and September 2022 respectively [82]. - The board of directors declared a cash dividend of $0.125 per share on November 2, 2022, payable on or about November 29, 2022 [179]. Share Repurchase and Debt - The company repurchased 7,883,195 shares at a cost of approximately $185.1 million during the nine months ended September 30, 2022, as part of a $1.0 billion stock repurchase program [175]. - As of September 30, 2022, Select had outstanding borrowings of $2,103.4 million under a term loan and $380.0 million under a revolving facility [184]. - The company entered into an interest rate cap transaction to limit the 1-month LIBOR rate to 1.0% on $2.0 billion of principal outstanding under its term loan, effective through September 30, 2024 [185]. - As of September 30, 2022, the 1-month LIBOR rate was 3.14%, with $103.4 million of term loan borrowings subject to variable interest rates [185]. - Each 0.25% increase in market interest rates will impact the interest expense on Select's variable rate debt by $1.2 million [186].

Financial Data and Key Metrics Changes - The company experienced a revenue growth of 1.3% year-over-year, with total adjusted EBITDA of $181 million compared to $342 million in the prior year, resulting in an adjusted EBITDA margin of 11.4% versus 21.9% in the previous year [8][9] - CARES Act grant income recognized in Q2 was $15.1 million, down from $98 million in the prior year, leading to adjusted EBITDA of $165.9 million excluding grant income, compared to $244 million in the previous year [9][10] - Earnings per fully diluted share were $0.43 for Q2, down from $1.22 in the same quarter of the prior year [15] Business Line Data and Key Metrics Changes - **Critical Illness Recovery Hospitals**: Revenue and patient days slightly increased, but occupancy decreased to 67% from 69% year-over-year. Adjusted EBITDA margin fell to 4% from 13% due to increased labor costs [10][11] - **Inpatient Rehabilitation Hospitals**: Net revenues increased by 7.6% with patient volumes up 4%. Adjusted EBITDA margin decreased to 21.8% from 23.9% due to elevated agency costs [12][13] - **Concentra**: Revenue declined by $15 million compared to the prior year due to reduced demand for COVID-related testing. Adjusted EBITDA margin was 21%, down from 30% in the prior year [14] - **Outpatient Rehabilitation**: Net revenues increased by 2%, but adjusted EBITDA margin decreased to 11.7% from 16.3% due to rising labor costs [15] Market Data and Key Metrics Changes - The company expanded its footprint in Youngstown, Ohio, with a two-hospital acquisition and signed agreements for four new hospitals expected to open in 2023 [11][12] - The final CMS rules for fiscal 2023 included a 3.8% increase in the federal base rate for LTAC, which is higher than the proposed 2.8% [11][13] Company Strategy and Development Direction - The company is focused on recruiting and retaining clinical staff, particularly RNs, to reduce reliance on agency labor. There is an emphasis on training and retention programs to maintain quality care [5][27] - The company aims to return salary, wage, and benefit costs as a percentage of revenue to historical levels of 51%-52% from the current 64%-66% [19][41] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding improvements in labor costs and stability in clinical labor by the end of the year, despite ongoing challenges [5][9] - The company reaffirmed its revenue outlook for 2022, expecting revenue between $6.25 billion and $6.4 billion, with a compounded annual growth rate target of 4%-6% over the next three years [22] Other Important Information - The company repurchased 5,438,939 shares at an average price of $23.16, with a remaining capacity to repurchase an additional $407 million worth of shares [15][22] - Interest expense increased to $41.1 million from $33.9 million in the prior year, attributed to rising LIBOR rates and increased borrowings [21] Q&A Session Summary Question: What initiatives are being taken to improve hiring? - Management highlighted the importance of training and retention efforts, noting that new hires require significant training before engaging in patient care [27][28] Question: What are the dynamics in outpatient rehab? - Management indicated that while outpatient rehab is improving, challenges remain, particularly in specific geographical areas [28] Question: What is the current utilization rate for LTAC? - The utilization rate for June was reported at 26.9% [29] Question: What are the target margins for the LTAC business? - Management believes that 15%-16% margins are achievable in the critical illness recovery hospitals, with current costs being higher due to labor expenses [41] Question: What factors are influencing nurse retention? - Management emphasized that retention is influenced by various factors beyond economics, including job satisfaction and operational improvements [44][46]

[PART I: FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) [Condensed Consolidated Financial Statements](index=3&type=section&id=ITEM%201.%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) The unaudited statements show a significant year-over-year decline in net income and EPS for Q2 and H1 2022 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20consolidated%20balance%20sheets) Total assets grew to $7.55 billion while total equity slightly decreased to $1.30 billion as of June 30, 2022 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $1,221,048 | $1,139,439 | | **Total Assets** | $7,551,658 | $7,360,171 | | **Total Current Liabilities** | $1,241,739 | $1,273,077 | | **Total Liabilities** | $6,205,760 | $5,995,236 | | **Total Equity** | $1,303,701 | $1,325,902 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20consolidated%20statements%20of%20operations) Profitability declined significantly in Q2 and H1 2022, with Q2 net income falling to $66.3 million Statement of Operations Highlights (in thousands, except per share amounts) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | **Revenue** | $1,584,741 | $1,564,020 | $3,184,288 | $3,110,483 | | **Income from operations** | $120,967 | $283,968 | $224,952 | $485,980 | | **Net income** | $66,262 | $196,208 | $122,188 | $333,422 | | **Basic and diluted EPS** | $0.43 | $1.22 | $0.79 | $2.04 | [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20consolidated%20statements%20of%20comprehensive%20income) Comprehensive income fell sharply to $67.0 million in Q2 2022 from $163.5 million in Q2 2021 Comprehensive Income (in thousands) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | **Net income** | $66,262 | $196,208 | $122,188 | $333,422 | | **Comprehensive income attributable to Select Medical** | $67,034 | $163,497 | $156,004 | $282,194 | [Condensed Consolidated Statements of Changes in Equity and Income](index=6&type=section&id=Condensed%20consolidated%20statements%20of%20changes%20in%20equity%20and%20income) Total equity decreased to $1.30 billion, impacted by $178.6 million in share repurchases in H1 2022 - The company repurchased common shares totaling **$127.0 million in Q2 2022** and **$51.7 million in Q1 2022**[16](index=16&type=chunk) - Cash dividends of **$0.125 per share** were declared and paid in both Q1 and Q2 2022, totaling **$32.8 million** for the six-month period[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20consolidated%20statements%20of%20cash%20flows) Net cash from operations for H1 2022 was $178.0 million, a significant drop from $363.0 million in H1 2021 Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $178,018 | $363,026 | | **Net cash used in investing activities** | ($114,094) | ($88,245) | | **Net cash used in financing activities** | ($43,565) | ($48,349) | | **Net increase in cash and cash equivalents** | $20,359 | $226,432 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20condensed%20consolidated%20financial%20statements) The notes detail segment revenues, $3.77 billion in long-term debt, and ongoing DOJ investigations Revenue by Segment - Six Months Ended June 30, 2022 (in thousands) | Segment | Revenue | | :--- | :--- | | Critical illness recovery hospital | $1,147,663 | | Rehabilitation hospital | $449,521 | | Outpatient rehabilitation | $559,198 | | Concentra | $864,780 | - As of June 30, 2022, total long-term debt and notes payable stood at a carrying value of **$3.77 billion**[42](index=42&type=chunk) - The company is under investigation by the U.S. Department of Justice regarding potential violations of the **False Claims Act** related to its billing for physical therapy services[67](index=67&type=chunk) - On August 2, 2022, the board of directors declared a cash dividend of **$0.125 per share**[68](index=68&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) A 57.4% drop in Q2 operating income is attributed to severe labor cost pressures despite a slight revenue increase - As of June 30, 2022, the company operated **105 critical illness recovery hospitals**, **31 rehabilitation hospitals**, **1,920 outpatient rehabilitation clinics**, and **518 Concentra occupational health centers**[75](index=75&type=chunk) Adjusted EBITDA Reconciliation (in thousands) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | **Net income** | $66,262 | $196,208 | $122,188 | $333,422 | | **Adjusted EBITDA** | $180,994 | $342,021 | $344,841 | $600,362 | - The company's stock repurchase program has authorization to repurchase up to **$1.0 billion** in shares through December 31, 2023, with **$407.2 million** remaining available[199](index=199&type=chunk)[201](index=201&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) Q2 revenue grew 1.3% to $1.58 billion, but operating income fell 57.4% due to surging labor costs Segment Performance Changes - Q2 2022 vs Q2 2021 | Segment | Change in Revenue | Change in Adjusted EBITDA | | :--- | :--- | :--- | | Critical Illness Recovery Hospital | 0.3% | (72.5)% | | Rehabilitation Hospital | 7.6% | (1.8)% | | Outpatient Rehabilitation | 2.4% | (26.4)% | | Concentra | (3.3)% | (32.4)% | | **Total Company** | **1.3%** | **(47.1)%** | - The Critical Illness Recovery Hospital segment's Adjusted EBITDA was severely impacted by a **shortage of healthcare workers**, leading to increased contract labor, sign-on bonuses, and orientation costs[136](index=136&type=chunk) - Concentra's revenue decline was primarily due to a significant drop in COVID-19 screening and testing services, which generated only **$7.7 million in Q2 2022** compared to **$55.0 million in Q2 2021**[132](index=132&type=chunk) [Liquidity and Capital Resources](index=45&type=section&id=Liquidity%20and%20Capital%20Resources) H1 2022 operating cash flow fell to $178.0 million, with liquidity supported by cash and a revolving credit facility Cash Flow Summary - Six Months Ended June 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | **Cash flows provided by operating activities** | $178,018 | $363,026 | | **Cash flows used in investing activities** | ($114,094) | ($88,245) | | **Cash flows used in financing activities** | ($43,565) | ($48,349) | - As of June 30, 2022, the company had **$94.7 million in cash** and cash equivalents and **$243.1 million of availability** under its revolving facility[182](index=182&type=chunk) - During the six months ended June 30, 2022, the company repurchased **7,567,433 shares** of common stock at a cost of approximately **$177.6 million**[180](index=180&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Interest rate risk on variable-rate debt is mitigated by a cap on $2.0 billion of the company's term loan - The company has an interest rate cap transaction to limit its 1-month LIBOR rate exposure to **1.0% on $2.0 billion** of principal outstanding under the term loan[190](index=190&type=chunk) - As of June 30, 2022, each **0.25% increase** in market interest rates will impact the annual interest expense on the company's variable rate debt by **$1.1 million**[191](index=191&type=chunk) [Controls and Procedures](index=47&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Disclosure controls and procedures were deemed effective as of June 30, 2022, with no material changes reported - The principal executive officer and principal financial officer concluded that **disclosure controls and procedures were effective** as of June 30, 2022[192](index=192&type=chunk) - There were **no changes in internal control over financial reporting** during the second quarter ended June 30, 2022, that materially affected, or are reasonably likely to materially affect, internal controls[193](index=193&type=chunk) [PART II: OTHER INFORMATION](index=48&type=section&id=PART%20II%20OTHER%20INFORMATION) [Legal Proceedings](index=48&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is involved in ongoing DOJ investigations regarding billing practices with unpredictable outcomes - The company is cooperating with a U.S. Department of Justice investigation into potential violations of the **False Claims Act** related to its billing for physical therapy services[67](index=67&type=chunk)[196](index=196&type=chunk) - The company received a **Civil Investigative Demand** from the U.S. Attorney's Office for the Western District of Oklahoma regarding billing for services at its Oklahoma City facility[66](index=66&type=chunk)[196](index=196&type=chunk) [Risk Factors](index=48&type=section&id=ITEM%201A.%20RISK%20FACTORS) Rising inflation is identified as a key risk that could increase labor and other operating costs - The company identifies **rising inflation** in the U.S. economy as a key risk that could negatively impact business and results of operations by increasing the prices of labor and other costs[198](index=198&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) The company repurchased 5.4 million shares in Q2 2022, with $407.2 million remaining under its buyback program Share Repurchases - Q2 2022 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2022 | 1,137,963 | $23.04 | | May 2022 | 2,376,593 | $22.89 | | June 2022 | 1,968,012 | $23.54 | | **Total Q2** | **5,482,568** | **$23.15** | - As of June 30, 2022, the approximate dollar value of shares that may yet be purchased under the plan is **$407,160,219**[201](index=201&type=chunk) [Exhibits](index=49&type=section&id=ITEM%206.%20EXHIBITS) This section lists filed exhibits, including Sarbanes-Oxley certifications and Inline XBRL financial data - The filing includes CEO and CFO certifications pursuant to **Sections 302 and 906 of the Sarbanes-Oxley Act** of 2002[206](index=206&type=chunk) - The filing contains various **Inline XBRL documents**, including the instance, schema, calculation, definition, label, and presentation linkbase files[206](index=206&type=chunk)

Select Medical Holdings Corporation (NYSE:SEM) Q1 2022 Results Conference Call May 6, 2022 9:00 AM ET Company Participants Robert Ortenzio - Executive Chairman and Co-Founder Martin Jackson - EVP and CFO Conference Call Participants Justin Bowers - Deutsche Bank Michael Murray - RBC Capital Markets A.J. Rice - Credit Suisse Bill Sutherland, - The Benchmark Company Kevin Fischbeck - Bank of America Operator Good morning, and thank you for joining us today for Select Medical Holdings Corporation's earnings co ...

[PART I: FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) [ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) Presents Select Medical Holdings Corporation's unaudited condensed consolidated financial statements and detailed notes for Q1 2022 and FY 2021 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20consolidated%20balance%20sheets) Condensed Consolidated Balance Sheets (in thousands) | Item | December 31, 2021 | March 31, 2022 | | :-------------------------------- | :------------------ | :--------------- | | **ASSETS** | | | | Cash and cash equivalents | $74,310 | $130,881 | | Accounts receivable | 889,303 | 941,434 | | Total Current Assets | 1,139,439 | 1,250,851 | | Total Assets | $7,360,171 | $7,535,944 | | **LIABILITIES AND EQUITY** | | | | Total Current Liabilities | 1,273,077 | 1,189,151 | | Long-term debt, net of current portion | 3,556,385 | 3,738,299 | | Total Liabilities | 5,995,236 | 6,127,378 | | Total Equity | 1,325,902 | 1,366,896 | | Total Liabilities and Equity | $7,360,171 | $7,535,944 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20consolidated%20statements%20of%20operations) Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Item | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2022 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $1,546,463 | $1,599,547 | | Total costs and expenses | 1,378,472 | 1,495,562 | | Other operating income | 34,021 | — | | Income from operations | 202,012 | 103,985 | | Income before income taxes | 182,278 | 73,868 | | Net income | 137,214 | 55,926 | | Net income attributable to Select Medical Holdings Corporation | $110,546 | $49,117 | | Basic and diluted EPS | $0.82 | $0.37 | [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20consolidated%20statements%20of%20comprehensive%20income) Condensed Consolidated Statements of Comprehensive Income (in thousands) | Item | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2022 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net income | $137,214 | $55,926 | | Net change, net of tax benefit (expense) | 8,151 | 39,853 | | Comprehensive income | 145,365 | 95,779 | | Comprehensive income attributable to Select Medical Holdings Corporation | $118,697 | $88,970 | [Condensed Consolidated Statements of Changes in Equity and Income](index=6&type=section&id=Condensed%20consolidated%20statements%20of%20changes%20in%20equity%20and%20income) - Total Equity increased from **$1,325,902 thousand** at December 31, 2021, to **$1,366,896 thousand** at March 31, 2022, driven by net income attributable to Select Medical Holdings Corporation and other comprehensive income, partially offset by cash dividends and share repurchases[16](index=16&type=chunk) Key Changes in Equity (in thousands) for Three Months Ended March 31, 2022 | Item | Amount | | :------------------------------------------------ | :------- | | Balance at December 31, 2021 | $1,325,902 | | Net income attributable to Select Medical Holdings Corporation | 49,117 | | Cash dividends declared for common stockholders | (16,691) | | Repurchase of common shares | (51,676) | | Other comprehensive income | 39,853 | | Balance at March 31, 2022 | $1,366,896 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20consolidated%20statements%20of%20cash%20flows) Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Operating activities | $239,888 | $6,337 | | Investing activities | (52,585) | (55,331) | | Financing activities | (14,090) | 105,565 | | Net increase in cash and cash equivalents | 173,213 | 56,571 | | Cash and cash equivalents at end of period | $750,274 | $130,881 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20condensed%20consolidated%20financial%20statements) [Note 1. Basis of Presentation](index=8&type=section&id=1.%20Basis%20of%20Presentation) - The unaudited condensed consolidated financial statements include Select Medical Holdings Corporation, its wholly-owned subsidiary Select Medical Corporation, and Select's subsidiaries (collectively, the "Company"). They are prepared in accordance with SEC rules for interim reporting and GAAP, with certain information condensed or omitted[21](index=21&type=chunk) - Results for the three months ended March 31, 2022, are not indicative of the full fiscal year, and should be read with the 2021 Annual Report on Form 10-K[22](index=22&type=chunk) [Note 2. Accounting Policies](index=8&type=section&id=2.%20Accounting%20Policies) - The preparation of financial statements requires management to make estimates and assumptions, and actual results may differ from these estimates[23](index=23&type=chunk) [Note 3. Credit Risk Concentrations](index=8&type=section&id=3.%20Credit%20Risk%20Concentrations) - The Company's primary credit risk concentrations are cash balances and accounts receivable, with Medicare representing approximately **15%** of accounts receivable at both December 31, 2021, and March 31, 2022[24](index=24&type=chunk)[25](index=25&type=chunk) [Note 4. Redeemable Non-Controlling Interests](index=8&type=section&id=4.%20Redeemable%20Non-Controlling%20Interests) - Redeemable non-controlling interests, representing ownership by outside parties with redemption rights, are classified and reported at their approximate redemption values[26](index=26&type=chunk) Changes in Redeemable Non-Controlling Interests (in thousands) | Item | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2022 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Balance as of January 1 | $398,171 | $39,033 | | Net income attributable to redeemable non-controlling interests | 9,626 | 1,918 | | Distributions to and purchases of redeemable non-controlling interests | (614) | (1,198) | | Redemption value adjustment on redeemable non-controlling interests | 38,405 | 1,381 | | Balance as of March 31 | $445,931 | $41,670 | [Note 5. Variable Interest Entities](index=9&type=section&id=5.%20Variable%20Interest%20Entities) - The Company is the primary beneficiary of variable interest entities (medical practices owned by licensed physicians) due to long-term management agreements in states prohibiting the 'corporate practice of medicine'[29](index=29&type=chunk) Variable Interest Entities Financials (in millions) | Item | December 31, 2021 | March 31, 2022 | | :-------------------------------- | :------------------ | :--------------- | | Total assets | $225.1 | $242.0 | | Total liabilities | $74.8 | $79.1 | | Obligations payable to Company | $150.3 | $163.4 | [Note 6. Leases](index=9&type=section&id=6.%20Leases) Total Lease Cost (in thousands) | Type of Cost | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2022 | | :----------------------- | :-------------------------------- | :-------------------------------- | | Operating lease cost | $71,913 | $75,771 | | Finance lease cost | 286 | 687 | | Variable lease cost | 13,012 | 13,694 | | Sublease income | (2,234) | (1,966) | | Total lease cost | $82,977 | $88,221 | Supplemental Cash Flow Information Related to Leases (in thousands) | Item | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2022 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Operating cash flows for operating leases | $72,437 | $77,689 | | Operating cash flows for finance leases | 251 | 340 | | Financing cash flows for finance leases | 58 | 344 | | Right-of-use assets obtained (Operating leases) | $79,987 | $88,636 | Weighted Average Lease Terms and Discount Rates | Item | December 31, 2021 | March 31, 2022 | | :-------------------------------- | :------------------ | :--------------- | | Weighted average remaining lease term (Operating leases) | **7.8 years** | **7.6 years** | | Weighted average remaining lease term (Finance leases) | **24.7 years** | **24.8 years** | | Weighted average discount rate (Operating leases) | **5.6%** | **5.6%** | | Weighted average discount rate (Finance leases) | **7.4%** | **7.4%** | [Note 7. Intangible Assets](index=11&type=section&id=7.%20Intangible%20Assets) Changes in Goodwill by Reporting Unit (in thousands) for Three Months Ended March 31, 2022 | Reporting Unit | Balance as of December 31, 2021 | Acquisition of businesses | Measurement period adjustment | Balance as of March 31, 2022 | | :-------------------------------- | :-------------------------------- | :------------------------ | :---------------------------- | :--------------------------- | | Critical Illness Recovery Hospital | $1,131,440 | — | $13,251 | $1,144,691 | | Outpatient Rehabilitation | 654,125 | 409 | — | 654,534 | | Concentra | 1,221,192 | 2,884 | — | 1,224,076 | | Total | $3,448,912 | $3,293 | $13,251 | $3,465,456 | Identifiable Intangible Assets, Net (in thousands) | Asset Type | December 31, 2021 | March 31, 2022 | | :------------------------ | :------------------ | :--------------- | | Indefinite-lived assets | $190,050 | $190,197 | | Finite-lived assets | 184,829 | 178,653 | | Total identifiable intangible assets | $374,879 | $368,850 | | Amortization expense (Q1 2022) | | $7,600 | | Amortization expense (Q1 2021) | | $7,100 | [Note 8. Long-Term Debt and Notes Payable](index=12&type=section&id=8.%20Long-Term%20Debt%20and%20Notes%20Payable) Long-Term Debt and Notes Payable (in thousands) as of March 31, 2022 | Debt Type | Principal Outstanding | Carrying Value | Fair Value | | :------------------------ | :-------------------- | :------------- | :--------- | | 6.250% senior notes | $1,225,000 | $1,237,919 | $1,262,118 | | Revolving facility | 340,000 | 340,000 | 338,725 | | Term loan | 2,103,437 | 2,091,126 | 2,079,773 | | Other debt | 93,961 | 93,767 | 93,767 | | Total debt | $3,762,398 | $3,762,812 | $3,774,383 | Principal Maturities of Long-Term Debt (in thousands) | Year | Amount | | :--- | :------- | | 2022 | $22,143 | | 2023 | 35,821 | | 2024 | 377,231 | | 2025 | 2,089,354 | | 2026 | 1,226,286 | | Thereafter | 11,563 | | Total | $3,762,398 | [Note 9. Interest Rate Cap](index=12&type=section&id=9.%20Interest%20Rate%20Cap) - The Company uses an interest rate cap to mitigate exposure to rising interest rates on its variable-rate term loan, limiting the one-month LIBOR rate to **1.0%** on **$2.0 billion** of principal outstanding through September 30, 2024[41](index=41&type=chunk) - The interest rate cap is designated as a highly effective cash flow hedge, with changes in fair value recognized in other comprehensive income and reclassified to interest expense when hedged obligations affect earnings[42](index=42&type=chunk) Changes in Accumulated Other Comprehensive Income, Net of Tax (in thousands) | Item | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2022 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Balance as of January 1 | $(2,027) | $12,282 | | Gain on interest rate cap cash flow hedge | 8,151 | 39,814 | | Balance as of March 31 | $6,124 | $52,135 | [Note 10. Fair Value of Financial Instruments](index=13&type=section&id=10.%20Fair%20Value%20of%20Financial%20Instruments) - The Company classifies financial instruments measured at fair value into a hierarchy (Level 1, 2, or 3) based on the observability of inputs. The interest rate cap contract is a **Level 2** asset, valued using observable market inputs[45](index=45&type=chunk) Fair Value of Financial Instruments (in thousands) | Financial Instrument | Level | December 31, 2021 (Fair Value) | March 31, 2022 (Fair Value) | | :-------------------------------- | :---- | :------------------------------- | :---------------------------- | | Interest rate cap contract (current) | Level 2 | $— | $15,745 | | Interest rate cap contract (non-current) | Level 2 | 18,055 | 55,523 | | 6.250% senior notes | Level 2 | $1,297,104 | $1,262,118 | | Revolving facility | Level 2 | 159,400 | 338,725 | | Term loan | Level 2 | 2,087,661 | 2,079,773 | [Note 11. Segment Information](index=14&type=section&id=11.%20Segment%20Information) - The Company's reportable segments are Critical Illness Recovery Hospital, Rehabilitation Hospital, Outpatient Rehabilitation, and Concentra, with performance evaluated based on Adjusted EBITDA[48](index=48&type=chunk)[49](index=49&type=chunk) Segment Revenue (in thousands) | Segment | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Critical illness recovery hospital | $594,872 | $601,755 | | Rehabilitation hospital | 207,804 | 220,634 | | Outpatient rehabilitation | 251,961 | 271,940 | | Concentra | 422,840 | 423,423 | | Other | 68,986 | 81,795 | | Total Company | $1,546,463 | $1,599,547 | Segment Adjusted EBITDA (in thousands) | Segment | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Critical illness recovery hospital | $113,272 | $35,967 | | Rehabilitation hospital | 50,534 | 42,379 | | Outpatient rehabilitation | 26,329 | 26,596 | | Concentra | 82,015 | 89,469 | | Other | (13,809) | (30,564) | | Total Company | $258,341 | $163,847 | [Note 12. Revenue from Contracts with Customers](index=15&type=section&id=12.%20Revenue%20from%20Contracts%20with%20Customers) Disaggregated Revenue by Segment and Payor (in thousands) | Segment | Payor Type | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2022 | | :-------------------------------- | :----------- | :-------------------------------- | :-------------------------------- | | Critical Illness Recovery Hospital | Medicare | $232,140 | $218,987 | | | Non-Medicare | 361,152 | 380,986 | | Rehabilitation Hospital | Medicare | 102,375 | 103,021 | | | Non-Medicare | 95,342 | 107,142 | | Outpatient Rehabilitation | Medicare | 36,291 | 41,904 | | | Non-Medicare | 200,819 | 214,113 | | Concentra | Medicare | 230 | 177 | | | Non-Medicare | 420,654 | 422,046 | | Total Patient Services Revenues | | $1,449,003 | $1,488,376 | | Other Revenue | | $97,460 | $111,171 | | Total Revenue | | $1,546,463 | $1,599,547 | [Note 13. Earnings per Share](index=16&type=section&id=13.%20Earnings%20per%20Share) - The Company applies the two-class method for EPS calculation due to unvested restricted stock awards being participating securities[55](index=55&type=chunk) Earnings per Common Share (Basic and Diluted) | Item | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2022 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net income attributable to Select Medical Holdings Corporation | $110,546 | $49,117 | | Distributed and undistributed income attributable to common shares | $106,848 | $47,474 | | Basic and Diluted EPS | $0.82 | $0.37 | [Note 14. Commitments and Contingencies](index=17&type=section&id=14.%20Commitments%20and%20Contingencies) - The Company is involved in various legal actions, proceedings, and governmental audits in the ordinary course of business, including a Civil Investigative Demand from the U.S. Attorney's Office in Oklahoma City, a qui tam complaint in New Jersey, and a DOJ investigation into physical therapy billing[57](index=57&type=chunk)[60](index=60&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk) - The Company maintains professional malpractice and general liability insurance, but significant legal actions or lack of insurance could lead to substantial uninsured liabilities. Management believes the outcome of current actions will not materially adversely affect financial position, results of operations, or cash flows[58](index=58&type=chunk) [Note 15. Subsequent Event](index=18&type=section&id=15.%20Subsequent%20Event) - On May 5, 2022, the board of directors declared a cash dividend of **$0.125 per share**, payable on or about June 1, 2022[64](index=64&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=19&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management analyzes the Company's financial condition and operational results for Q1 2022, covering business, non-GAAP measures, and external impacts [Forward-Looking Statements](index=19&type=section&id=Forward-Looking%20Statements) - The report contains forward-looking statements based on management's beliefs and assumptions, which are subject to known and unknown risks and uncertainties that could cause actual results to differ materially[66](index=66&type=chunk)[67](index=67&type=chunk) - Key risk factors include developments related to the COVID-19 pandemic, changes in government reimbursement, failure to maintain Medicare certifications, government investigations, acquisition difficulties, competition, and shortages of qualified healthcare professionals[68](index=68&type=chunk) [Overview](index=20&type=section&id=Overview) - Select Medical is one of the largest operators of critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers in the U.S., operating in **46 states** and D.C. as of March 31, 2022[71](index=71&type=chunk) Revenue Breakdown by Segment (Three Months Ended March 31, 2022) | Segment | Revenue (in millions) | % of Total Revenue | | :-------------------------------- | :-------------------- | :----------------- | | Critical illness recovery hospital | $601.8 | 38% | | Rehabilitation hospital | $220.6 | 14% | | Outpatient rehabilitation | $271.9 | 17% | | Concentra | $423.4 | 26% | | Total Revenue | $1,599.5 | 100% | [Non-GAAP Measure](index=21&type=section&id=Non-GAAP%20Measure) - Adjusted EBITDA is a non-GAAP measure used by management and investors to evaluate financial performance and allocate resources, 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[74](index=74&type=chunk)[75](index=75&type=chunk) Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Item | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $137,214 | $55,926 | | Income from operations | 202,012 | 103,985 | | Stock compensation expense | 6,709 | 8,823 | | Depreciation and amortization | 49,620 | 51,039 | | Adjusted EBITDA | $258,341 | $163,847 | [Effects of the COVID-19 Pandemic on our Results of Operations](index=22&type=section&id=Effects%20of%20the%20COVID-19%20Pandemic%20on%20our%20Results%20of%20Operations) - The COVID-19 pandemic continues to create uncertainties about future operating results and financial condition, with its effects on operations and liquidity depending on future developments[77](index=77&type=chunk) Key Operating Statistics Comparison (Q1 2019 vs. Q1 2021 vs. Q1 2022) | Segment | Metric | Q1 2019 | Q1 2021 | Q1 2022 | | :-------------------------------- | :-------------------- | :------ | :------ | :------ | | Critical Illness Recovery Hospital | Revenue (in thousands) | $457,534 | $594,872 | $601,755 | | | Patient Days | **258,129** | **293,118** | **289,217** | | | Occupancy Rate | **71%** | **75%** | **71%** | | Rehabilitation Hospital | Revenue (in thousands) | $154,558 | $207,804 | $220,634 | | | Patient Days | **82,816** | **102,439** | **103,802** | | | Occupancy Rate | **76%** | **84%** | **84%** | | Outpatient Rehabilitation | Revenue (in thousands) | $246,905 | $251,961 | $271,940 | | | Visits | **2,054,483** | **2,100,154** | **2,310,086** | | Concentra | Revenue (in thousands) | $396,321 | $422,840 | $423,423 | | | Visits | **2,911,607** | **2,795,574** | **3,116,898** | [Summary Financial Results](index=23&type=section&id=Summary%20Financial%20Results) Consolidated Financial Results (in thousands) for Three Months Ended March 31, 2022 vs. 2021 | Item | 2021 | 2022 | Change % | | :-------------------------------- | :------- | :------- | :------- | | Revenue | $1,546,463 | $1,599,547 | **3.4%** | | Income from operations | $202,012 | $103,985 | (**48.5%**) | | Adjusted EBITDA | $258,341 | $163,847 | (**36.6%**) | | Net income | $137,214 | $55,926 | (**59.2%**) | Segment Performance Changes (Q1 2022 vs. Q1 2021) | Segment | Change in Revenue | Change in Income from Operations | Change in Adjusted EBITDA | | :-------------------------------- | :---------------- | :------------------------------- | :------------------------ | | Critical Illness Recovery Hospital | **1.2%** | (**78.7%**) | (**68.2%**) | | Rehabilitation Hospital | **6.2%** | (**18.2%**) | (**16.1%**) | | Outpatient Rehabilitation | **7.9%** | (**3.0%**) | **1.0%** | | Concentra | **0.1%** | **13.9%** | **9.1%** | [Regulatory Changes](index=24&type=section&id=Regulatory%20Changes) [Medicare Reimbursement](index=24&type=section&id=Medicare%20Reimbursement) - Medicare program reimbursements represented approximately **23%** of the Company's revenue for both the three months ended March 31, 2022, and the year ended December 31, 2021[86](index=86&type=chunk) [Federal Health Care Program Changes in Response to the COVID-19 Pandemic](index=24&type=section&id=Federal%20Health%20Care%20Program%20Changes%20in%20Response%20to%20the%20COVID-19%20Pandemic) - HHS declared a public health emergency for COVID-19, leading to CMS issuing blanket waivers for various Medicare requirements, including telehealth expansion, IRF/LTCH rule exemptions, and waivers under the Stark law and anti-kickback statute[87](index=87&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk) - The CARES Act provided additional support, including appropriations for the Public Health and Social Services Emergency Fund, expansion of the Accelerated and Advance Payment Program, and temporary suspension of the **2%** Medicare sequestration cut through March 31, 2022, with a reduced **1%** cut until June 30, 2022[90](index=90&type=chunk) [Medicare Reimbursement of LTCH Services](index=26&type=section&id=Medicare%20Reimbursement%20of%20LTCH%20Services) LTCH-PPS Standard Federal Rate Updates | Fiscal Year | Standard Federal Rate | Increase from Prior Year | | :---------- | :-------------------- | :----------------------- | | 2021 | $43,755 | **2.5%** | | 2022 | $44,714 | **2.2%** | | 2023 (Proposed) | $45,953 | **2.8%** | - Due to the CARES Act, all LTCH cases are paid at the standard federal rate during the public health emergency; if the emergency ends, CMS will revert to site-neutral payment rates for cases not meeting LTCH patient criteria[93](index=93&type=chunk)[94](index=94&type=chunk) [Medicare Reimbursement of IRF Services](index=26&type=section&id=Medicare%20Reimbursement%20of%20IRF%20Services) IRF-PPS Standard Payment Conversion Factor Updates | Fiscal Year | Standard Payment Conversion Factor | Increase from Prior Year | | :---------- | :--------------------------------- | :----------------------- | | 2021 | $16,856 | **2.2%** | | 2022 | $17,240 | **2.3%** | | 2023 (Proposed) | $17,698 | **2.7%** | IRF Outlier Threshold Amount Updates | Fiscal Year | Outlier Threshold Amount | | :---------- | :----------------------- | | 2021 | $7,906 | | 2022 | $9,491 | | 2023 (Proposed) | $13,038 | [Medicare Reimbursement of Outpatient Rehabilitation Clinic Services](index=27&type=section&id=Medicare%20Reimbursement%20of%20Outpatient%20Rehabilitation%20Clinic%20Services) - Outpatient rehabilitation providers are reimbursed based on the Medicare physician fee schedule, with a **0.0%** update from 2020-2025, subject to adjustments under MIPS and APMs[99](index=99&type=chunk) - In 2021, therapy services experienced an estimated **3.6%** decrease in Medicare payment due to budget neutrality adjustments for E/M code revaluation, partially offset by a one-time **3.75%** increase from the Consolidated Appropriations Act[102](index=102&type=chunk) - For 2022, Medicare payments for therapy are expected to decrease by **1%**, but a one-time **3%** increase from the Protecting Medicare and American Farmers from Sequester Cuts Act will offset most of the cut[103](index=103&type=chunk) [Modifiers to Identify Services of Physical Therapy Assistants or Occupational Therapy Assistants](index=28&type=section&id=Modifiers%20to%20Identify%20Services%20of%20Physical%20Therapy%20Assistants%20or%20Occupational%20Therapy%20Assistants) - CMS implemented new modifiers (CQ and CO) for services furnished by physical therapy assistants (PTAs) or occupational therapy assistants (OTAs) starting January 1, 2020[104](index=104&type=chunk) - Effective January 1, 2022, Medicare will pay for physical therapy and occupational therapy services provided by PTAs and OTAs at **85%** of the otherwise applicable Part B payment amount[104](index=104&type=chunk) [Operating Statistics](index=29&type=section&id=Operating%20Statistics) Critical Illness Recovery Hospital Operating Data | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2022 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Number of consolidated hospitals—end of period | **99** | **105** | | Available licensed beds | **4,380** | **4,524** | | Admissions | **9,859** | **9,457** | | Patient days | **293,118** | **289,217** | | Average length of stay (days) | **30** | **30** | | Revenue per patient day | $2,024 | $2,075 | | Occupancy rate | **75%** | **71%** | | Percent patient days—Medicare | **40%** | **37%** | Rehabilitation Hospital Operating Data | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2022 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Number of consolidated hospitals—end of period | **20** | **20** | | Total number of hospitals (all)—end of period | **30** | **30** | | Available licensed beds | **1,361** | **1,391** | | Admissions | **7,131** | **7,182** | | Patient days | **102,439** | **103,802** | | Average length of stay (days) | **15** | **15** | | Revenue per patient day | $1,853 | $1,943 | | Occupancy rate | **84%** | **84%** | | Percent patient days—Medicare | **49%** | **47%** | Outpatient Rehabilitation & Concentra Operating Data | Segment | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2022 | | :------------------------ | :-------------------- | :-------------------------------- | :-------------------------------- | | Outpatient Rehabilitation | Number of consolidated clinics—end of period | **1,517** | **1,584** | | | Total number of clinics (all)—end of period | **1,809** | **1,901** | | | Number of visits | **2,100,154** | **2,310,086** | | | Revenue per visit | $104 | $102 | | Concentra | Number of consolidated centers—end of period | **519** | **518** | | | Number of onsite clinics operated—end of period | **133** | **140** | | | Number of visits | **2,795,574** | **3,116,898** | | | Revenue per visit | $125 | $125 | [Results of Operations](index=31&type=section&id=Results%20of%20Operations) [Overall Financial Performance](index=31&type=section&id=Overall%20Financial%20Performance) Selected Operating Data as a Percentage of Revenue | Item | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2022 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenue | **100.0%** | **100.0%** | | Cost of services, exclusive of depreciation and amortization | **83.6%** | **88.0%** | | General and administrative | **2.3%** | **2.3%** | | Depreciation and amortization | **3.2%** | **3.2%** | | Total costs and expenses | **89.1%** | **93.5%** | | Other operating income | **2.2%** | — | | Income from operations | **13.1%** | **6.5%** | | Net income attributable to Select Medical Holdings Corporation | **7.1%** | **3.1%** | Segment Adjusted EBITDA Margins | Segment | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Critical illness recovery hospital | **19.0%** | **6.0%** | | Rehabilitation hospital | **24.3%** | **19.2%** | | Outpatient rehabilitation | **10.4%** | **9.8%** | | Concentra | **19.4%** | **21.1%** | | Total Company | **16.7%** | **10.2%** | [Revenue Analysis](index=33&type=section&id=Revenue%20Analysis) - Total revenue increased **3.4%** to **$1,599.5 million** for Q1 2022, compared to **$1,546.5 million** for Q1 2021[117](index=117&type=chunk) - Critical Illness Recovery Hospital revenue increased **1.2%** due to a **2.5%** increase in revenue per patient day, despite a decline in patient days (**289,217** in Q1 2022 vs. **293,118** in Q1 2021) attributed to decreased COVID-19 intensive care unit volumes and referrals[118](index=118&type=chunk) - Outpatient Rehabilitation revenue increased **7.9%** due to a **10.0%** increase in visits (**2,310,086 visits** in Q1 2022), driven by new clinics and improved volume, though revenue per visit decreased from **$104** to **$102** due to lower Medicare reimbursement rates and a higher proportion of Medicare visits[120](index=120&type=chunk) - Concentra revenue increased slightly, driven by an **11.5%** increase in visits (**3,116,898 visits** in Q1 2022), partially offset by a significant decline in COVID-19 screening and testing revenue from **$51.7 million** in Q1 2021 to **$9.1 million** in Q1 2022[121](index=121&type=chunk) [Operating Expenses](index=34&type=section&id=Operating%20Expenses) - Operating expenses increased to **$1,444.5 million** (**90.3%** of revenue) in Q1 2022 from **$1,328.9 million** (**85.9%** of revenue) in Q1 2021, primarily due to increased labor costs in critical illness recovery and rehabilitation hospital segments[122](index=122&type=chunk) [Other Operating Income](index=34&type=section&id=Other%20Operating%20Income) - In Q1 2021, the Company recognized **$34.0 million** in other operating income, including **$16.1 million** from the Provider Relief Fund for COVID-19 related expenses and lost revenues, and **$17.9 million** from litigation with CMS[123](index=123&type=chunk) [Adjusted EBITDA Analysis](index=34&type=section&id=Adjusted%20EBITDA%20Analysis) - Critical Illness Recovery Hospital Adjusted EBITDA decreased significantly to **$36.0 million** (**6.0% margin**) in Q1 2022 from **$113.3 million** (**19.0% margin**) in Q1 2021, primarily due to increased labor costs from staffing shortages, higher incentive/bonus pay, and greater dependence on more expensive contract clinical workers (**27.0%** of workforce in Q1 2022 vs. **21.0%** in Q1 2021)[124](index=124&type=chunk) - Rehabilitation Hospital Adjusted EBITDA decreased to **$42.4 million** (**19.2% margin**) in Q1 2022 from **$50.5 million** (**24.3% margin**) in Q1 2021, also due to increased labor costs from staffing shortages and higher contract clinical labor rates, particularly in California and New Jersey[124](index=124&type=chunk) - Concentra Adjusted EBITDA increased **9.1%** to **$89.5 million** (**21.1% margin**) in Q1 2022 from **$82.0 million** (**19.4% margin**) in Q1 2021, driven by an increase in patient visits[126](index=126&type=chunk) [Depreciation and Amortization](index=35&type=section&id=Depreciation%20and%20Amortization) - Depreciation and amortization expense increased slightly to **$51.0 million** in Q1 2022 from **$49.6 million** in Q1 2021[127](index=127&type=chunk) [Income from Operations](index=35&type=section&id=Income%20from%20Operations) - Income from operations decreased to **$104.0 million** in Q1 2022 from **$202.0 million** in Q1 2021, primarily due to increased labor costs and the absence of **$34.0 million** in other operating income recognized in Q1 2021[128](index=128&type=chunk) [Equity in Earnings of Unconsolidated Subsidiaries](index=35&type=section&id=Equity%20in%20Earnings%20of%20Unconsolidated%20Subsidiaries) - Equity in earnings of unconsolidated subsidiaries decreased to **$5.4 million** in Q1 2022 from **$9.9 million** in Q1 2021, mainly due to increased labor costs in minority-owned rehabilitation businesses and the absence of Provider Relief Fund income recognized in Q1 2021[129](index=129&type=chunk) [Interest](index=35&type=section&id=Interest) - Interest expense increased to **$35.5 million** in Q1 2022 from **$34.4 million** in Q1 2021, driven by borrowings under the revolving facility. Q1 2021 included **$4.7 million** in interest income related to CMS litigation[130](index=130&type=chunk) [Income Taxes](index=35&type=section&id=Income%20Taxes) - Income tax expense was **$17.9 million** in Q1 2022 (effective tax rate of **24.3%**) compared to **$45.1 million** in Q1 2021 (effective tax rate of **24.7%**)[131](index=131&type=chunk) [Net Income Attributable to Non-Controlling Interests](index=35&type=section&id=Net%20Income%20Attributable%20to%20Non-Controlling%20Interests) - Net income attributable to non-controlling interests decreased to **$6.8 million** in Q1 2022 from **$26.7 million** in Q1 2021, primarily due to lower net income in less than wholly-owned hospitals (impacted by labor costs) and an increase in the Company's ownership interest in Concentra Group Holdings Parent[132](index=132&type=chunk) [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) [Cash Flows](index=36&type=section&id=Cash%20Flows) - Operating activities provided **$6.3 million** of cash flows in Q1 2022, a significant decrease from **$239.9 million** in Q1 2021, mainly due to financial performance and the repayment of **$62.9 million** in Medicare advance payments[135](index=135&type=chunk) - Investing activities used **$55.3 million** in Q1 2022, primarily for purchases of property and equipment (**$46.8 million**) and investments/acquisitions (**$8.5 million**)[137](index=137&type=chunk) - Financing activities provided **$105.6 million** in cash flows in Q1 2022, driven by net borrowings of **$180.0 million** under the revolving facility, partially offset by **$51.7 million** for common stock repurchases and **$16.7 million** in dividend payments[138](index=138&type=chunk) [Capital Resources](index=37&type=section&id=Capital%20Resources) - Net working capital increased to **$61.7 million** at March 31, 2022, from a deficit of **$133.6 million** at December 31, 2021, due to increases in cash and accounts receivable and a reduction in Medicare advance payment liability[140](index=140&type=chunk) - As of March 31, 2022, the Company had **$2,103.4 million** outstanding on its term loan and **$340.0 million** borrowed under its revolving facility, with **$252.8 million** of availability remaining on the revolving facility[141](index=141&type=chunk) - Under its common stock repurchase program (authorized up to **$1.0 billion** until Dec 31, 2023), Holdings repurchased **2,128,494 shares** for **$51.7 million** in Q1 2022[142](index=142&type=chunk) [Liquidity](index=37&type=section&id=Liquidity) - The Company believes its internally generated cash flows and revolving facility borrowing capacity (**$130.9 million** cash and **$252.8 million** availability as of March 31, 2022) will be sufficient to finance operations in the short and long term[144](index=144&type=chunk) [Dividend](index=37&type=section&id=Dividend) - A cash dividend of **$0.125 per share** was declared on May 5, 2022, payable June 1, 2022, but future dividends are at the discretion of the board[146](index=146&type=chunk)[147](index=147&type=chunk) [Recent Accounting Pronouncements](index=37&type=section&id=Recent%20Accounting%20Pronouncements) - No new accounting standards issued since December 31, 2021, are expected to have a material effect on the financial statements upon adoption[148](index=148&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=38&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Details the Company's market risk exposure, primarily from interest rate fluctuations on variable-rate debt, and mitigation strategies - The Company is exposed to interest rate risk on its variable-rate long-term debt, specifically the **$2,103.4 million** term loan and **$340.0 million** revolving facility outstanding as of March 31, 2022[149](index=149&type=chunk)[150](index=150&type=chunk) - An interest rate cap limits the one-month LIBOR rate to **1.0%** on **$2.0 billion** of the term loan principal through September 30, 2024, mitigating the impact of rising interest rates[151](index=151&type=chunk) - A **0.25%** change in market interest rates would impact interest expense on variable-rate debt by **$6.1 million** until one-month LIBOR exceeds **1.0%**[151](index=151&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=38&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Assesses the effectiveness of the Company's disclosure controls and internal control over financial reporting as of March 31, 2022 - As of March 31, 2022, the principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective to provide reasonable assurance that material information is recorded, processed, summarized, and reported timely[152](index=152&type=chunk) - There were no changes in internal control over financial reporting during the first quarter ended March 31, 2022, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[153](index=153&type=chunk) - Any system of controls, however well designed and operated, can provide only reasonable, not absolute, assurance that objectives will be met, and is based on assumptions about future events[154](index=154&type=chunk) [PART II: OTHER INFORMATION](index=39&type=section&id=PART%20II%20OTHER%20INFORMATION) [ITEM 1. LEGAL PROCEEDINGS](index=39&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) Refers to Note 14 of the condensed consolidated financial statements for detailed information on legal proceedings and contingencies - For information on legal proceedings, refer to the 'Litigation' section within Note 14 – Commitments and Contingencies of the notes to the condensed consolidated financial statements[156](index=156&type=chunk) [ITEM 1A. RISK FACTORS](index=39&type=section&id=ITEM%201A.%20RISK%20FACTORS) Directs readers to the Annual Report on Form 10-K for comprehensive risk factor discussions, noting updates herein - The risk factors in this report update and should be read in conjunction with the risk factors discussed in Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2021[157](index=157&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=39&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) Details the Company's common stock repurchase program, including authorization, duration, and shares repurchased in Q1 2022 - Holdings' board of directors authorized a common stock repurchase program to repurchase up to **$1.0 billion** worth of shares, effective until December 31, 2023[158](index=158&type=chunk) Common Stock Repurchases (Three Months Ended March 31, 2022) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value of Shares that May Yet Be Purchased | | :-------------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------- | | March 1 - March 31, 2022 | **2,128,494** | $24.28 | $533,120,670 | | Total | **2,128,494** | $24.28 | $533,120,670 | [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=39&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) Confirms no applicable defaults upon senior securities for the current reporting period - Not applicable[161](index=161&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=39&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) Confirms no applicable mine safety disclosures for the current reporting period - Not applicable[162](index=162&type=chunk) [ITEM 5. OTHER INFORMATION](index=39&type=section&id=ITEM%205.%20OTHER%20INFORMATION) Indicates no other information to report for the current period - None[163](index=163&type=chunk) [ITEM 6. EXHIBITS](index=40&type=section&id=ITEM%206.%20EXHIBITS) Lists the exhibits filed with the Form 10-Q, including certifications and XBRL-related documents - Exhibits include certifications of the Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32.1) and various XBRL-related documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[166](index=166&type=chunk) [SIGNATURES](index=42&type=section&id=SIGNATURES) Contains signatures of authorized officers, Martin F. Jackson and Scott A. Romberger, certifying the report - The report is signed by Martin F. Jackson, Executive Vice President and Chief Financial Officer, and Scott A. Romberger, Senior Vice President, Chief Accounting Officer, on May 5, 2022[168](index=168&type=chunk)[169](index=169&type=chunk)

Financial Data and Key Metrics Changes - Total company revenue for Q4 2021 was $1.56 billion, a 6.8% increase compared to the same quarter in the prior year. For the full year, total revenue increased 12.2% to $6.2 billion compared to $5.5 billion in the prior year [11] - Adjusted EBITDA for Q4 was $138.4 million, down from $221.3 million in the same quarter prior year, with an adjusted EBITDA margin of 8.9% compared to 15.2% [20][36] - Earnings per fully diluted share were $0.37 in Q4, down from $0.57 in the same quarter prior year, while for the full year, earnings per share were $2.98 compared to $1.93 in the prior year [28][41] Business Segment Data and Key Metrics Changes - Revenue in the Critical Illness Recovery Hospitals segment for Q4 increased 7.3% to $577 million, with patient days up 3.2% and net revenue per patient day increasing 3.5% to $1,946 [11][12] - Revenue in the Rehabilitation Hospital segment for Q4 increased 10.5% to $216 million, with patient days up 8.1% and net revenue per patient day increasing 2.7% to $1,888 [14] - Revenue in the Outpatient Rehab segment for Q4 increased 7.8% to $277 million, with patient visits up 9.2% [16] - Revenue in the Concentra segment for Q4 increased 3% to $411 million, with patient visits up 8.3% [18] Market Data and Key Metrics Changes - The company experienced substantial wage pressure in Q4, particularly in critical illness recovery hospitals, with agency nursing rates nearly doubling [6][30] - Patient days in the Critical Illness Recovery Hospitals segment were up 1.9% for the full year, while revenue per patient day increased 6.1% [13] Company Strategy and Development Direction - The company aims to continue admitting critically complex patients despite increased labor costs, leveraging strong referral relationships developed during the pandemic [31] - The company plans to maintain a capital expenditure range of $180 million to $200 million for 2022, primarily focused on maintenance [49][59] Management Comments on Operating Environment and Future Outlook - Management expressed concerns about macroeconomic labor market issues affecting guidance, particularly in the critical illness recovery hospitals segment [53] - The company expects revenue for 2022 to be in the range of $6.25 billion to $6.4 billion, reaffirming a 3-year compound annual growth rate target for revenue of 4% to 6% from 2021 to 2023 [49] Other Important Information - The company recorded $8 million in other operating income in Q4 related to Provider Relief Fund grant payments, compared to $36 million in the same quarter of the prior year [8] - The company ended the year with $3.6 billion of debt outstanding and $74 million of cash on the balance sheet [42] Q&A Session Summary Question: Can you talk about the philosophy behind the withdrawal of guidance? - Management indicated that the guidance was based on strong revenue visibility but was cautious due to macroeconomic labor market issues affecting costs [52][54] Question: Are labor issues isolated to critical illness recovery hospitals? - Labor cost issues are predominantly in critical illness recovery hospitals, with some impact noted in rehabilitation and outpatient rehab segments due to COVID-related staffing challenges [57][58] Question: What are the capital expenditure plans for 2022? - The majority of capital expenditures will be maintenance-related, with a range of $180 million to $200 million anticipated [59] Question: How do you view the testing and screening outlook for 2022? - Management anticipates a decrease in revenue from screening and testing as COVID wanes, but expects overall revenue growth for Concentra [100]