SELECT MEDICAL HOLDINGS CORP [SEM] Filings

10-Q 1 sem-20240630.htm 10-Q sem-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the Quarterly Period Ended June 30, 2024


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

For the transition period from to

Commission file numbers: 001-34465

SELECT MEDICAL HOLDINGS CORPORATION

(Exact name of Registrant as specified in its Charter)


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

4714 Gettysburg Road, P.O. Box 2034

Mechanicsburg, PA 17055

(Address of Principal Executive Offices and Zip code)

(717) 972-1100

(Registrant’s telephone number, including area code)

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


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

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

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

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


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

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

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

As of July 31, 2024, Select Medical Holdings Corporation had outstanding 130,020,968 shares of common stock.

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

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TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION	3

ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Condensed consolidated balance sheets	3

	Condensed consolidated statements of operations	4

	Condensed consolidated statements of comprehensive income	5

	Condensed consolidated statements of changes in equity and income	6

	Condensed consolidated statements of cash flows	8

	Notes to condensed consolidated financial statements	9

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

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	42

ITEM 4.	CONTROLS AND PROCEDURES	42

PART II	OTHER INFORMATION	43

ITEM 1.	LEGAL PROCEEDINGS	43

ITEM 1A.	RISK FACTORS	43

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	43

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	43

ITEM 4.	MINE SAFETY DISCLOSURES	43

ITEM 5.	OTHER INFORMATION	43

ITEM 6.	EXHIBITS	44

SIGNATURES

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PART I: FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Select Medical Holdings Corporation

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share amounts)


	December 31, 2023		June 30, 2024
ASSETS
Current Assets:
Cash and cash equivalents	$	84,006	$	111,160
Accounts receivable	940,335		1,077,984
Prepaid income taxes	22,726		8,448
Current portion of interest rate cap contract	58,962		22,426
Other current assets	151,617		145,069
Total Current Assets	1,257,646		1,365,087
Operating lease right-of-use assets	1,188,616		1,252,839
Property and equipment, net	1,023,561		1,030,587
Goodwill	3,513,170		3,525,474
Identifiable intangible assets, net	329,916		316,930
Other assets	376,722		384,385
Total Assets	$	7,689,631	$	7,875,302
LIABILITIES AND EQUITY
Current Liabilities:
Overdrafts	$	30,274	$	23,625
Current operating lease liabilities	245,400		247,920
Current portion of long-term debt and notes payable	70,329		46,431
Accounts payable	174,312		160,129
Accrued and other liabilities	728,150		778,894








Total Current Liabilities	1,248,465		1,256,999
Non-current operating lease liabilities	1,025,867		1,091,784
Long-term debt, net of current portion	3,587,675		3,593,660
Non-current deferred tax liability	143,306		97,647
Other non-current liabilities	110,303		98,682
Total Liabilities	6,115,616		6,138,772
Commitments and contingencies (Note 14)
Redeemable non-controlling interests	26,297		29,565
Stockholders’ Equity:
Common stock, $0.001 par value, 700,000,000 shares authorized, 128,369,492 and 130,025,562 shares issued and outstanding at 2023 and 2024, respectively	128		130
Capital in excess of par	493,413		519,280
Retained earnings	751,856		891,397
Accumulated other comprehensive income	42,907		5,782
Total Stockholders’ Equity	1,288,304		1,416,589
Non-controlling interests	259,414		290,376
Total Equity	1,547,718		1,706,965
Total Liabilities and Equity	$	7,689,631	$	7,875,302

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

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Select Medical Holdings Corporation

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except per share amounts)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2024		2023		2024
Revenue	$	1,674,528	$	1,759,663	$	3,339,508	$	3,548,472
Costs and expenses:
Cost of services, exclusive of depreciation and amortization	1,423,603		1,498,044		2,842,422		2,992,654
General and administrative	42,508		49,878		84,787		98,325
Depreciation and amortization	49,939		53,939		102,364		108,008
Total costs and expenses	1,516,050		1,601,861		3,029,573		3,198,987
Other operating income (loss)	726		(2)		726		2,282
Income from operations	159,204		157,800		310,661		351,767
Other income and expense:

Equity in earnings of unconsolidated subsidiaries	10,501		6,315		19,057		16,736


Interest expense	(48,997)		(37,107)		(97,568)		(87,870)
Income before income taxes	120,708		127,008		232,150		280,633
Income tax expense	28,848		32,242		55,033		68,700
Net income	91,860		94,766		177,117		211,933
Less: Net income attributable to non-controlling interests	13,623		17,203		28,075		37,473
Net income attributable to Select Medical Holdings Corporation	$	78,237	$	77,563	$	149,042	$	174,460
Earnings per common share (Note 13):
Basic and diluted	$	0.61	$	0.60	$	1.17	$	1.35

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

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Select Medical Holdings Corporation

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

(in thousands)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2024		2023		2024
Net income	$	91,860	$	94,766	$	177,117	$	211,933
Other comprehensive income (loss), net of tax:
Gain on interest rate cap contract	17,527		1,323		14,831		5,693
Reclassification adjustment for gains included in net income	(15,134)		(26,471)		(28,386)		(42,818)
Net change, net of tax benefit (expense) of $(777), $7,942, $4,398, and $11,724	2,393		(25,148)		(13,555)		(37,125)
Comprehensive income	94,253		69,618		163,562		174,808
Less: Comprehensive income attributable to non-controlling interests	13,623		17,203		28,075		37,473
Comprehensive income attributable to Select Medical Holdings Corporation	$	80,630	$	52,415	$	135,487	$	137,335

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

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Select Medical Holdings Corporation

Condensed Consolidated Statements of Changes in Equity and Income

(unaudited)

(in thousands)


	For the Six Months Ended June 30, 2024

		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, 2023	128,369	$	128	$	493,413	$	751,856	$	42,907	$	1,288,304	$	259,414	$	1,547,718
Net income attributable to Select Medical Holdings Corporation						96,897				96,897				96,897
Net income attributable to non-controlling interests										—		17,845		17,845
Cash dividends declared for common stockholders ($0.125 per share)						(16,045)				(16,045)				(16,045)
Issuance of restricted stock	1	0		0						—				—
Forfeitures of unvested restricted stock	(12)	0		0		14				14				14
Vesting of restricted stock				11,596						11,596				11,596

Issuance of non-controlling interests										—		4,002		4,002

Distributions to and purchases of non-controlling interests				394						394		(10,900)		(10,506)
Redemption value adjustment on non-controlling interests						(1,901)				(1,901)				(1,901)
Other comprehensive loss								(11,977)		(11,977)				(11,977)

Balance at March 31, 2024	128,358	$	128	$	505,403	$	830,821	$	30,930	$	1,367,282	$	270,361	$	1,637,643
Net income attributable to Select Medical Holdings Corporation						77,563				77,563				77,563
Net income attributable to non-controlling interests										—		14,863		14,863
Cash dividends declared for common stockholders ($0.125 per share)						(16,254)				(16,254)				(16,254)
Issuance of restricted stock	1,725	2		(2)						—				—
Forfeitures of unvested restricted stock	(6)	0		0		6				6				6
Vesting of restricted stock				14,408						14,408				14,408
Repurchase of common shares	(51)			(529)		(871)				(1,400)				(1,400)
Issuance of non-controlling interests										—		9,750		9,750
Distributions to and purchases of non-controlling interests										—		(4,598)		(4,598)
Redemption value adjustment on non-controlling interests						132				132				132
Other comprehensive loss								(25,148)		(25,148)				(25,148)














Balance at June 30, 2024	130,026	$	130	$	519,280	$	891,397	$	5,782	$	1,416,589	$	290,376	$	1,706,965

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	For the Six Months Ended June 30, 2023

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

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

Issuance of non-controlling interests										—		2,731		2,731
Non-controlling interests acquired in business combination										—		3,877		3,877
Distributions to and purchases of non-controlling interests										—		(6,069)		(6,069)
Redemption value adjustment on non-controlling interests						(436)				(436)				(436)
Other comprehensive loss								(15,948)		(15,948)				(15,948)
Other				(1)		1				—				—
Balance at March 31, 2023	127,176	$	127	$	462,185	$	635,483	$	72,654	$	1,170,449	$	247,992	$	1,418,441
Net income attributable to Select Medical Holdings Corporation						78,237				78,237				78,237
Net income attributable to non-controlling interests										—		11,539		11,539
Cash dividends declared for common stockholders ($0.125 per share)						(15,924)				(15,924)				(15,924)
Issuance of restricted stock	261	0		0						—				—

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

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

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 Six Months Ended June 30,
	2023		2024
Operating activities
Net income	$	177,117	$	211,933
Adjustments to reconcile net income to net cash provided by operating activities:
Distributions from unconsolidated subsidiaries	8,841		14,130
Depreciation and amortization	102,364		108,008
Provision for expected credit losses	761		1,460
Equity in earnings of unconsolidated subsidiaries	(19,057)		(16,736)

Gain on sale or disposal of assets	(23)		(1,022)
Stock compensation expense	20,508		26,023
Amortization of debt discount, premium, and issuance costs	1,174		1,492
Deferred income taxes	(10,876)		(34,339)
Changes in operating assets and liabilities, net of effects of business combinations:
Accounts receivable	(23,135)		(139,109)
Other current assets	(5,997)		6,557
Other assets	5,472		(12,847)
Accounts payable	7,096		(7,614)
Accrued expenses	22,033		53,527




Net cash provided by operating activities	286,278		211,463
Investing activities
Business combinations, net of cash acquired	(7,732)		(5,993)
Purchases of property, equipment, and other assets	(118,399)		(108,065)
Investment in businesses	(9,800)		—
Proceeds from sale of assets and businesses	56		2,333
Net cash used in investing activities	(135,875)		(111,725)
Financing activities
Borrowings on revolving facilities	435,000		715,000
Payments on revolving facilities	(535,000)		(650,000)

Payments on term loans	—		(79,085)



Borrowings of other debt	22,298		17,728
Principal payments on other debt	(26,373)		(23,261)
Dividends paid to common stockholders	(31,821)		(32,299)
Repurchase of common stock	(1,506)		(1,400)

Decrease in overdrafts	(467)		(6,648)
Proceeds from issuance of non-controlling interests	14,812		5,751
Distributions to and purchases of non-controlling interests	(24,085)		(18,370)

Net cash used in financing activities	(147,142)		(72,584)
Net increase in cash and cash equivalents	3,261		27,154
Cash and cash equivalents at beginning of period	97,906		84,006
Cash and cash equivalents at end of period	$	101,167	$	111,160
Supplemental information
Cash paid for interest, excluding amounts received of $38,284 and $44,954 under the interest rate cap contract	$	133,581	$	141,878
Cash paid for taxes	42,755		60,826

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 June 30, 2024, and for the three and six month periods ended June 30, 2023 and 2024, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim reporting and the accounting principles generally accepted in the United States of America (“GAAP”). Accordingly, certain information and disclosures required by GAAP, which are normally included in the notes to the consolidated financial statements, have been condensed or omitted pursuant to those rules and regulations, although the Company believes the disclosure is adequate to make the information presented not misleading. In the opinion of management, such information contains all adjustments, which are normal and recurring in nature, necessary for a fair statement of the financial position, results of operations and cash flow for such periods. All significant intercompany transactions and balances have been eliminated.

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

2. Accounting Policies

Recent Accounting Guidance Not Yet Adopted

Segment Reporting

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

The ASU is effective for annual reporting periods beginning on or after December 15, 2023, and interim periods with fiscal years beginning after December 15, 2024; however, early adoption is permitted. The ASU is required to be applied retrospectively to all periods presented in the financial statements. The Company is currently reviewing ASU 2023-07, but does not expect it to have a significant impact on the disclosures in our consolidated financial statements.

Income Taxes

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

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

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Recently Adopted Accounting Guidance

Leases

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

The Company adopted this ASU using the prospective method of transition on January 1, 2024. There was not a material impact on the Company’s consolidated financial statements upon adoption.

Use of Estimates

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

3. Credit Risk Concentrations

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

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

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 redemption values, after the attribution of net income or loss.

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


	Six Months Ended June 30,
	2023		2024
	(in thousands)
Balance as of January 1	$	34,043	$	26,297
Net income attributable to redeemable non-controlling interests	1,641		2,425

Distributions to redeemable non-controlling interests	(1,900)		(2,333)

Redemption value adjustment on redeemable non-controlling interests	436		1,901
Other	179		—
Balance as of March 31	$	34,399	$	28,290
Net income attributable to redeemable non-controlling interests	2,084		2,340

Distributions to and purchases of redeemable non-controlling interests	(2,110)		(933)
Redemption value adjustment on redeemable non-controlling interests	2		(132)

Balance as of June 30	$	34,375	$	29,565

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5. Variable Interest Entities

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

As of December 31, 2023, and June 30, 2024, the total assets of the Company’s variable interest entities were $246.4 million and $264.5 million, respectively, and are principally comprised of accounts receivable. As of December 31, 2023, and June 30, 2024, the total liabilities of the Company’s variable interest entities were $84.3 million and $84.4 million, respectively, and are principally comprised of accounts payable and accrued expenses. These variable interest entities have obligations payable for services received under their management agreements with the Company of $161.8 million and $183.3 million as of December 31, 2023, and June 30, 2024, respectively. These intercompany balances are eliminated in consolidation.

6. Leases

The Company’s total lease cost is as follows:


	Three Months Ended June 30, 2023						Three Months Ended June 30, 2024
	Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total
	(in thousands)
Operating lease cost	$	76,892	$	1,833	$	78,725	$	81,232	$	1,833	$	83,065
Finance lease cost:
Amortization of right-of-use assets	404		—		404		252		—		252
Interest on lease liabilities	387		—		387		321		—		321

Variable lease cost	16,532		—		16,532		17,175		16		17,191
Sublease income	(1,716)		—		(1,716)		(1,681)		—		(1,681)
Total lease cost	$	92,499	$	1,833	$	94,332	$	97,299	$	1,849	$	99,148


	Six Months Ended June 30, 2023						Six Months Ended June 30, 2024
	Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total
	(in thousands)
Operating lease cost	$	153,524	$	3,667	$	157,191	$	160,287	$	3,667	$	163,954
Finance lease cost:
Amortization of right-of-use assets	798		—		798		606		—		606
Interest on lease liabilities	707		—		707		625		—		625

Variable lease cost	32,293		84		32,377		34,251		16		34,267
Sublease income	(3,394)		—		(3,394)		(3,441)		—		(3,441)
Total lease cost	$	183,928	$	3,751	$	187,679	$	192,328	$	3,683	$	196,011

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7. Long-Term Debt and Notes Payable

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


	Principal Outstanding		Unamortized Premium (Discount)		Unamortized Issuance Costs		Carrying Value		Fair Value
	(in thousands)
6.250% senior notes	$	1,225,000	$	12,552	$	(6,433)	$	1,231,119	$	1,226,531
Credit facilities:
Revolving facility	345,000		—		—		345,000		343,275
Term loan	2,013,400		(10,145)		(2,720)		2,000,535		2,013,400
Other debt, including finance leases	63,468		—		(31)		63,437		63,437
Total debt	$	3,646,868	$	2,407	$	(9,184)	$	3,640,091	$	3,646,643

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


	2024		2025		2026		2027		2028		Thereafter		Total
	(in thousands)
6.250% senior notes	$	—	$	—	$	1,225,000	$	—	$	—	$	—	$	1,225,000
Credit facilities:
Revolving facility	—		—		—		345,000		—		—		345,000
Term loan	—		—		—		2,013,400		—		—		2,013,400
Other debt, including finance leases	43,972		3,151		2,445		1,941		1,620		10,339		63,468
Total debt	$	43,972	$	3,151	$	1,227,445	$	2,360,341	$	1,620	$	10,339	$	3,646,868

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


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

8. Accrued and other liabilities

The following table sets forth the components of accrued and other liabilities on the Condensed Consolidated Balance Sheets:


	December 31, 2023		June 30, 2024

Accrued payroll	$	238,768	$	202,851
Accrued vacation	157,748		167,677
Accrued interest	32,472		32,298
Accrued other	297,663		346,631
Income taxes payable	1,499		29,437
Accrued and other liabilities	$	728,150	$	778,894

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

The interest rate cap has been designated as a cash flow hedge and is highly effective at offsetting the changes in cash outflows when the variable rate index exceeds 1.0%. Changes in the fair value of the interest rate cap, net of tax, are recognized in other comprehensive income and are reclassified out of accumulated other comprehensive income and into interest expense when the hedged interest obligations affect earnings. At June 30, 2024, we determined that a portion of the underlying cash flows related to our hedging relationship are probable not to occur due to the term loan prepayment as described in Note 15, Subsequent Events. Accordingly, we reclassified changes in the fair value of the interest rate cap, net of tax, related to these cash flows out of accumulated other comprehensive income and into interest expense during the quarter ended June 30, 2024.

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


	Six Months Ended June 30,
	2023		2024
	(in thousands)
Balance as of January 1	$	88,602	$	42,907
Gain (loss) on interest rate cap cash flow hedge	(2,696)		4,370
Amounts reclassified from accumulated other comprehensive income	(13,252)		(16,347)
Balance as of March 31	$	72,654	$	30,930
Gain on interest rate cap cash flow hedge	17,527		1,323
Amounts reclassified from accumulated other comprehensive income	(15,134)		(16,071)
Amounts reclassified from accumulated other comprehensive income - forecasted transactions probable not to occur	—		(10,400)
Balance as of June 30	$	75,047	$	5,782

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


	Three Months Ended June 30,				Six Months Ended June 30,
Statement of Operations	2023		2024		2023		2024
	(in thousands)
Gains included in interest expense	$	20,045	$	34,830	$	37,597	$	56,340
Income tax expense	(4,911)		(8,359)		(9,211)		(13,522)
Amounts reclassified from accumulated other comprehensive income	$	15,134	$	26,471	$	28,386	$	42,818

The Company expects that approximately $7.6 million of estimated pre-tax gains will be reclassified from accumulated other comprehensive income into interest expense during the three months ended September 30, 2024.

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, 2023

June 30, 2024

Asset:

(in thousands)

Interest rate cap contract, current portion

Current portion of interest rate cap contract

Level 2

58,962

22,426

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


		December 31, 2023				June 30, 2024
Financial Instrument	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
		(in thousands)
6.250% senior notes	Level 2	$	1,232,596	$	1,228,063	$	1,231,119	$	1,226,531
Credit facilities:
Revolving facility	Level 2	280,000		278,600		345,000		343,275
Term loan	Level 2	2,077,216		2,092,485		2,000,535		2,013,400

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, transaction costs associated with the Concentra separation, gain (loss) on sale of businesses, and equity in earnings (losses) of unconsolidated subsidiaries. The Company has provided additional information regarding its reportable segments, such as total assets, which contributes to the understanding of the Company and provides useful information to the users of the consolidated financial statements.

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2024		2023		2024
	(in thousands)
Revenue:
Critical illness recovery hospital	$	575,091	$	604,921	$	1,169,017	$	1,260,801
Rehabilitation hospital	240,856		267,831		472,318		533,531
Outpatient rehabilitation	302,972		315,496		598,875		618,654
Concentra	467,079		477,915		923,377		945,513
Other	88,530		93,500		175,921		189,973
Total Company	$	1,674,528	$	1,759,663	$	3,339,508	$	3,548,472
Adjusted EBITDA:
Critical illness recovery hospital	$	65,496	$	71,833	$	142,269	$	187,773
Rehabilitation hospital	54,689		61,954		101,905		123,354
Outpatient rehabilitation	32,850		28,769		63,049		53,697
Concentra	100,391		101,600		194,139		197,742
Other	(33,957)		(37,827)		(67,830)		(74,320)
Total Company	$	219,469	$	226,329	$	433,532	$	488,246
Total assets:
Critical illness recovery hospital	$	2,492,370	$	2,659,137	$	2,492,370	$	2,659,137
Rehabilitation hospital	1,209,737		1,241,445		1,209,737		1,241,445
Outpatient rehabilitation	1,399,782		1,415,573		1,399,782		1,415,573
Concentra	2,314,328		2,358,978		2,314,328		2,358,978
Other	285,652		200,169		285,652		200,169
Total Company	$	7,701,869	$	7,875,302	$	7,701,869	$	7,875,302
Purchases of property, equipment, and other assets:
Critical illness recovery hospital	$	31,363	$	17,616	$	55,021	$	33,557
Rehabilitation hospital	1,903		14,818		10,485		21,919
Outpatient rehabilitation	10,476		8,162		20,408		17,662
Concentra	15,846		15,263		30,246		32,494
Other	(74)		(311)		2,239		2,433
Total Company	$	59,514	$	55,548	$	118,399	$	108,065

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


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

Equity in earnings of unconsolidated subsidiaries											10,501


Interest expense											(48,997)
Income before income taxes											$	120,708


	Three Months Ended June 30, 2024
	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
	(in thousands)
Adjusted EBITDA	$	71,833	$	61,954	$	28,769	$	101,600	$	(37,827)
Depreciation and amortization	(17,590)		(7,221)		(9,139)		(17,870)		(2,119)
Stock compensation expense	—		—		—		(166)		(14,247)
Concentra separation transaction costs(1)	—		—		—		380		(557)
Income (loss) from operations	$	54,243	$	54,733	$	19,630	$	83,944	$	(54,750)	$	157,800

Equity in earnings of unconsolidated subsidiaries											6,315


Interest expense											(37,107)
Income before income taxes											$	127,008

_______________________________________________________________________________

(1) Concentra separation transaction costs represent incremental consulting, legal, and audit-related fees incurred in connection with the Company’s planned separation of the Concentra segment into a new, publicly traded company and are included within general and administrative expenses on the Condensed Consolidated Statements of Operations. During the three months ended June 30, 2024, an adjustment was made to capitalize Concentra separation transaction costs recognized during the first quarter of 2024.


	Six Months Ended June 30, 2023
	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
	(in thousands)
Adjusted EBITDA	$	142,269	$	101,905	$	63,049	$	194,139	$	(67,830)
Depreciation and amortization	(30,523)		(13,775)		(17,236)		(36,593)		(4,237)