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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended September 30, 2021
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)
Delaware20-1764048
(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)
(717972-1100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareSEMNew 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 filerAccelerated filer
Non-accelerated filerSmaller reporting company
 Emerging Growth Company
 If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No ☒
As of October 31, 2021, Select Medical Holdings Corporation had outstanding 134,144,993 shares of common stock.
Unless the context indicates otherwise, any reference in this report to “Holdings” refers to Select Medical Holdings Corporation and any reference to “Select” refers to Select Medical Corporation, the wholly owned operating subsidiary of Holdings, and any of Select’s subsidiaries. Any reference to “Concentra” refers to Concentra Group Holdings Parent, LLC (“Concentra Group Holdings Parent”) and its subsidiaries, including Concentra Inc. References to the “Company,” “we,” “us,” and “our” refer collectively to Holdings, Select, and Concentra.
1

TABLE OF CONTENTS
 
   
 
   
 
   
 
   
 
   
 
   
 
   
   
   
   
   
   
   
   
   
   
   
   
 
2

PART I: FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Select Medical Holdings Corporation
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except share and per share amounts)
December 31, 2020September 30, 2021
ASSETS  
Current Assets:  
Cash and cash equivalents$577,061 $747,983 
Accounts receivable896,763 898,823 
Prepaid income taxes5,686 15,460 
Other current assets114,490 117,075 
Total Current Assets1,594,000 1,779,341 
Operating lease right-of-use assets
1,032,217 1,069,953 
Property and equipment, net943,420 936,695 
Goodwill3,379,014 3,399,794 
Identifiable intangible assets, net387,541 378,433 
Other assets319,207 335,257 
Total Assets$7,655,399 $7,899,473 
LIABILITIES AND EQUITY  
Current Liabilities:  
Current operating lease liabilities$220,413 $226,419 
Current portion of long-term debt and notes payable12,621 18,059 
Accounts payable177,087 192,393 
Accrued payroll224,876 295,897 
Accrued vacation132,811 140,363 
Accrued interest29,240 9,894 
Accrued other228,948 250,176 
Government advances (Note 15)321,807 159,505 
Unearned government assistance (Note 15)82,607 2,414 
Income taxes payable7,956 31,253 
Total Current Liabilities1,438,366 1,326,373 
Non-current operating lease liabilities
875,367 909,950 
Long-term debt, net of current portion3,389,398 3,384,164 
Non-current deferred tax liability132,421 120,274 
Other non-current liabilities168,703 167,770 
Total Liabilities6,004,255 5,908,531 
Commitments and contingencies (Note 14)
Redeemable non-controlling interests398,171 627,330 
Stockholders’ Equity:  
Common stock, $0.001 par value, 700,000,000 shares authorized, 134,850,735 and 134,144,993 shares issued and outstanding at 2020 and 2021, respectively
135 134 
Capital in excess of par509,128 501,710 
Retained earnings553,244 639,451 
Accumulated other comprehensive income (loss)(2,027)4,203 
Total Stockholders’ Equity1,060,480 1,145,498 
Non-controlling interests192,493 218,114 
Total Equity1,252,973 1,363,612 
Total Liabilities and Equity$7,655,399 $7,899,473 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3


Select Medical Holdings Corporation
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share amounts)

 For the Three Months Ended September 30,For the Nine Months Ended September 30,
 2020202120202021
Revenue$1,423,869 $1,534,221 $4,071,219 $4,644,704 
Costs and expenses:  
Cost of services, exclusive of depreciation and amortization1,180,951 1,297,682 3,463,778 3,882,579 
General and administrative35,516 37,885 102,808 109,025 
Depreciation and amortization50,110 50,128 154,133 150,702 
Total costs and expenses1,266,577 1,385,695 3,720,719 4,142,306 
Other operating income(1,160)1,729 53,828 133,837 
Income from operations156,132 150,255 404,328 636,235 
Other income and expense:  
Equity in earnings of unconsolidated subsidiaries8,765 11,452 19,677 33,180 
Gain on sale of businesses5,143  12,690  
Interest income   4,749 
Interest expense(34,026)(33,825)(117,499)(102,115)
Income before income taxes136,014 127,882 319,196 572,049 
Income tax expense31,557 27,665 76,805 138,410 
Net income104,457 100,217 242,391 433,639 
Less: Net income attributable to non-controlling interests27,511 23,289 60,670 81,271 
Net income attributable to Select Medical Holdings Corporation$76,946 $76,928 $181,721 $352,368 
Earnings per common share (Note 13):  
Basic and diluted$0.57 $0.57 $1.35 $2.61 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

Select Medical Holdings Corporation
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands)

For the Three Months Ended September 30,For the Nine Months Ended September 30,
2020202120202021
Net income$104,457 $100,217 $242,391 $433,639 
Other comprehensive income (loss), net of tax:
Gain (loss) on interest rate cap cash flow hedge (536) 6,212 
Reclassification adjustment for (gains) losses included in net income 12  18 
Net change, net of tax benefit (expense) of $, $182, $, and $(2,166)
 (524) 6,230 
Comprehensive income104,457 99,693 242,391 439,869 
Less: Comprehensive income attributable to non-controlling interests27,511 23,289 60,670 81,271 
Comprehensive income attributable to Select Medical Holdings Corporation$76,946 $76,404 $181,721 $358,598 

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


5

Select Medical Holdings Corporation
Condensed Consolidated Statements of Changes in Equity and Income
(unaudited)
(in thousands)

For the Nine Months Ended September 30, 2021
 Total Stockholders’ Equity  
 Common
Stock
Issued
Common
Stock
Par Value
Capital in
Excess
of Par
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Total Stockholders’ EquityNon-controlling
Interests
Total
Equity
Balance at December 31, 2020134,850 $135 $509,128 $553,244 $(2,027)$1,060,480 $192,493 $1,252,973 
Net income attributable to Select Medical Holdings Corporation110,546 110,546 110,546 
Net income attributable to non-controlling interests— 17,042 17,042 
Issuance of restricted stock2 0 0 —  
Forfeitures of unvested restricted stock(14)0 0 —  
Vesting of restricted stock6,173 6,173 6,173 
Non-controlling interests acquired in business combination— 8,193 8,193 
Distributions to and purchases of non-controlling interests(787)(787)(13,458)(14,245)
Redemption value adjustment on non-controlling interests(38,405)(38,405)(38,405)
Other comprehensive income8,151 8,151 8,151 
Other(178)(4)(182)371 189 
Balance at March 31, 2021134,838 $135 $514,336 $625,381 $6,124 $1,145,976 $204,641 $1,350,617 
Net income attributable to Select Medical Holdings Corporation   164,894 164,894 164,894 
Net income attributable to non-controlling interests    — 13,241 13,241 
Dividends declared for common stockholders ($0.125 per share)
(16,876)(16,876)(16,876)
Issuance of restricted stock211 0 0  —  
Forfeitures of unvested restricted stock(2)0 0 —  
Vesting of restricted stock6,564 6,564 6,564 
Repurchase of common shares(42)0 (707)(903)(1,610)(1,610)
Issuance of non-controlling interests(1,051)(1,051)6,739 5,688 
Distributions to and purchases of non-controlling interests  (2,970)(2,970)(9,324)(12,294)
Redemption value adjustment on non-controlling interests   (59,370)(59,370)(59,370)
Other comprehensive loss(1,397)(1,397)(1,397)
Other  65 65 370 435 
Balance at June 30, 2021135,005 $135 $516,172 $713,191 $4,727 $1,234,225 $215,667 $1,449,892 
Net income attributable to Select Medical Holdings Corporation76,928 76,928 76,928 
Net income attributable to non-controlling interests— 10,709 10,709 
Dividends declared for common stockholders ($0.125 per share)
(16,940)(16,940)(16,940)
Issuance of restricted stock954 1 (1)—  
Forfeitures of unvested restricted stock(2)0 0 —  
Vesting of restricted stock7,659 7,659 7,659 
Repurchase of common shares(1,813)(2)(26,712)(37,726)(64,440)(64,440)
Issuance of non-controlling interests4,592 4,592 9,646 14,238 
Distributions to and purchases of non-controlling interests (18,278)(18,278)
Redemption value adjustment on non-controlling interests(96,000)(96,000)(96,000)
Other comprehensive loss(524)(524)(524)
Other(2)(2)370 368 
Balance at September 30, 2021134,144 $134 $501,710 $639,451 $4,203 $1,145,498 $218,114 $1,363,612 

The accompanying notes are an integral part of these condensed consolidated financial statements.
6

For the Nine Months Ended September 30, 2020
 Total Stockholders’ Equity  
 Common
Stock
Issued
Common
Stock
Par Value
Capital in
Excess
of Par
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Total Stockholders’ EquityNon-controlling
Interests
Total
Equity
Balance at December 31, 2019134,328 $134 $491,038 $279,800 $ $770,972 $158,063 $929,035 
Net income attributable to Select Medical Holdings Corporation53,125 53,125 53,125 
Net income attributable to non-controlling interests— 10,067 10,067 
Issuance of restricted stock2 0 0 —  
Forfeitures of unvested restricted stock(15)0 0 —  
Vesting of restricted stock6,136 6,136 6,136 
Repurchase of common shares(492)0 (5,350)(3,341)(8,691)(8,691)
Issuance of non-controlling interests— 1,679 1,679 
Distributions to and purchases of non-controlling interests(2,726)(2,726)(4,048)(6,774)
Redemption value adjustment on non-controlling interests(10,123)(10,123)(10,123)
Other(55)(55)420 365 
Balance at March 31, 2020133,823 $134 $491,824 $316,680 $ $808,638 $166,181 $974,819 
Net income attributable to Select Medical Holdings Corporation51,650 51,650 51,650 
Net income attributable to non-controlling interests— 12,572 12,572 
Issuance of restricted stock200 0 0 —  
Forfeitures of unvested restricted stock(7)0 0 —  
Vesting of restricted stock6,262 6,262 6,262 
Repurchase of common shares(46)0 (441)(283)(724)(724)
Issuance of non-controlling interests 7 7 
Distributions to and purchases of non-controlling interests(65)(65)(418)(483)
Redemption value adjustment on non-controlling interests127,916 127,916 127,916 
Other(795)1 (794)1,205 411 
Balance at June 30, 2020133,970 $134 $496,785 $495,964 $ $992,883 $179,547 $1,172,430 
Net income attributable to Select Medical Holdings Corporation   76,946 76,946 76,946 
Net income attributable to non-controlling interests    — 10,183 10,183 
Issuance of restricted stock1,049 1 (1) —  
Forfeitures of unvested restricted stock(2)0 0 —  
Vesting of restricted stock6,456 6,456 6,456 
Repurchase of common shares(254)0 (2,366)(2,461)(4,827)(4,827)
Distributions to and purchases of non-controlling interests  98 (416)(318)(10,020)(10,338)
Redemption value adjustment on non-controlling interests   (32,555)(32,555)(32,555)
Other   1 1 349 350 
Balance at September 30, 2020134,763 $135 $500,972 $537,479 $ $1,038,586 $180,059 $1,218,645 
The accompanying notes are an integral part of these condensed consolidated financial statements.
7

Select Medical Holdings Corporation
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 For the Nine Months Ended September 30,
 20202021
Operating activities  
Net income$242,391 $433,639 
Adjustments to reconcile net income to net cash provided by operating activities:  
Distributions from unconsolidated subsidiaries21,720 27,772 
Depreciation and amortization154,133 150,702 
Provision for expected credit losses281 172 
Equity in earnings of unconsolidated subsidiaries(19,677)(33,180)
Gain on sale or disposal of assets and businesses(24,723)(87)
Stock compensation expense20,828 22,002 
Amortization of debt discount, premium and issuance costs1,635 1,655 
Deferred income taxes(14,556)(11,965)
Changes in operating assets and liabilities, net of effects of business combinations:  
Accounts receivable(91,413)645 
Other current assets(22,815)(1,822)
Other assets16,335 (3,124)
Accounts payable24,246 22,914 
Accrued expenses117,781 84,796 
Government advances318,116 (165,470)
Unearned government assistance66,938 (80,193)
Income taxes9,415 13,524 
Net cash provided by operating activities820,635 461,980 
Investing activities  
Business combinations, net of cash acquired(14,076)(26,830)
Purchases of property and equipment(105,572)(125,386)
Investment in businesses(25,857)(16,367)
Proceeds from sale of assets and businesses83,320 11,257 
Net cash used in investing activities(62,185)(157,326)
Financing activities  
Borrowings on revolving facilities470,000  
Payments on revolving facilities(470,000) 
Payments on term loans(39,843) 
Borrowings of other debt35,086 19,515 
Principal payments on other debt(42,820)(22,910)
Dividends paid to common stockholders (33,816)
Repurchase of common stock(14,242)(66,050)
Proceeds from issuance of non-controlling interests1,686 19,926 
Distributions to and purchases of non-controlling interests(28,196)(50,397)
Purchase of membership interests of Concentra Group Holdings Parent(366,203) 
Net cash used in financing activities(454,532)(133,732)
Net increase in cash and cash equivalents303,918 170,922 
Cash and cash equivalents at beginning of period335,882 577,061 
Cash and cash equivalents at end of period$639,800 $747,983 
Supplemental Information  
Cash paid for interest$140,174 $118,570 
Cash paid for taxes81,945 136,857 

The accompanying notes are an integral part of these condensed consolidated financial statements.
8

SELECT MEDICAL HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.                  Basis of Presentation
The unaudited condensed consolidated financial statements of Select Medical Holdings Corporation (“Holdings”) include the accounts of its wholly owned subsidiary, Select Medical Corporation (“Select”). Holdings conducts substantially all of its business through Select and its subsidiaries. Holdings and Select and its subsidiaries are collectively referred to as the “Company.” The unaudited condensed consolidated financial statements of the Company as of September 30, 2021, and for the three and nine month periods ended September 30, 2020 and 2021, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim reporting and the accounting principles generally accepted in the United States of America (“GAAP”). Accordingly, certain information and disclosures required by GAAP, which are normally included in the notes to the consolidated financial statements, have been condensed or omitted pursuant to those rules and regulations, although the Company believes the disclosure is adequate to make the information presented not misleading. In the opinion of management, such information contains all adjustments, which are normal and recurring in nature, necessary for a fair statement of the financial position, results of operations and cash flow for such periods. All significant intercompany transactions and balances have been eliminated.
The results of operations for the three and nine months ended September 30, 2021, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2021. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2020, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 25, 2021.
2.    Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from those estimates.
Recent Accounting Pronouncements
Convertible Instruments and Contracts on an Entity’s Own Equity
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. As part of this update, convertible instruments are to be included in diluted earnings per share using the if-converted method, rather than the treasury stock method. Further, contracts which can be settled in cash or shares, excluding liability-classified share-based payment awards, are to be included in diluted earnings per share on an if-converted basis if the effect is dilutive, regardless of whether the entity or the counterparty can choose between cash and share settlement. The share-settlement presumption may not be rebutted based on past experience or a stated policy. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021. The Company plans to adopt this pronouncement as of January 1, 2022. The use of either the modified retrospective or fully retrospective method of transition is permitted.
Under the terms of the Amended and Restated Limited Liability Company Agreement of Concentra Group Holdings Parent, certain members of Concentra Group Holdings Parent have put rights that obligate the Company to purchase certain of such members’ equity interests in Concentra Group Holdings Parent when exercised. The Company can elect to pay the purchase price for those equity interests in cash or in shares of Holdings’ common stock. Under ASU 2020-06, the Company is no longer able to rebut the share-settlement presumption based on its past experience. Accordingly, if any of the put rights provided for under the Amended and Restated Limited Liability Company Agreement of Concentra Group Holdings Parent are outstanding upon adoption of ASU 2020-06, the shares which are potentially issuable will be included in diluted earnings per share, on an if-converted basis. At this time, the Company cannot reasonably estimate the impact that the adoption of ASU 2020-06 will have on its financial statements.
9

3.     Credit Risk Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash balances and accounts receivable. The Company’s excess cash is held with large financial institutions. The Company grants unsecured credit to its patients, most of whom reside in the service area of the Company’s facilities and are insured under third-party payor agreements.
Because of the diversity in the Company’s non-governmental third-party payor base, as well as their geographic dispersion, accounts receivable due from the Medicare program represent the Company’s only significant concentration of credit risk. Approximately 18% and 12% of the Company’s accounts receivable is due from Medicare at December 31, 2020, and September 30, 2021, respectively.
4.     Redeemable Non-Controlling Interests
The ownership interests held by outside parties in subsidiaries, which include limited liability companies and limited partnerships, controlled by the Company are classified as non-controlling interests. Some of the Company’s non-controlling ownership interests consist of outside parties that have certain redemption rights that, if exercised, require the Company to purchase the parties’ ownership interests. These interests are classified and reported as redeemable non-controlling interests and have been adjusted to their approximate redemption values, after the attribution of net income or loss.
The Company’s redeemable non-controlling interests are comprised primarily of the voting membership interests owned by outside members of Concentra Group Holdings Parent, each of which have put rights with respect to their interests in Concentra Group Holdings Parent.
The changes in redeemable non-controlling interests were as follows:
Nine Months Ended September 30,
20202021
(in thousands)
Balance as of January 1$974,541 $398,171 
Net income attributable to redeemable non-controlling interests7,256 9,626 
Distributions to and purchases of redeemable non-controlling interests(5,687)(614)
Purchase of membership interests of Concentra Group Holdings Parent(366,203) 
Redemption value adjustment on redeemable non-controlling interests10,123 38,405 
Other347 343 
Balance as of March 31$620,377 $445,931 
Net income attributable to redeemable non-controlling interests3,264 18,073 
Distributions to and purchases of redeemable non-controlling interests(30)(1,987)
Redemption value adjustment on redeemable non-controlling interests(127,916)59,370 
Other292 165 
Balance as of June 30$495,987 $521,552 
Net income attributable to redeemable non-controlling interests17,328 12,580 
Distributions to and purchases of redeemable non-controlling interests(4,171)(2,967)
Redemption value adjustment on redeemable non-controlling interests32,555 96,000 
Other157 165 
Balance as of September 30$541,856 $627,330 
5.     Variable Interest Entities
Certain states prohibit the “corporate practice of medicine,” which restricts the Company from owning medical practices which directly employ physicians and from exercising control over medical decisions by physicians. In these states, the Company enters into long-term management agreements with medical practices that are owned by licensed physicians, which, in turn, employ or contract with physicians who provide professional medical services. The management agreements provide for the Company to direct the transfer of ownership of the medical practices to new licensed physicians at any time. Based on the provisions of the management agreements, the medical practices are variable interest entities for which the Company is the primary beneficiary.

10

As of December 31, 2020 and September 30, 2021, the total assets of the Company’s variable interest entities were $208.4 million and $257.8 million, respectively, and are principally comprised of accounts receivable. As of December 31, 2020 and September 30, 2021, the total liabilities of these variable interest entities were $55.1 million and $84.4 million, respectively, and are principally comprised of accounts payable and accrued expenses. The Company’s variable interest entities have obligations payable for services received under the aforementioned management agreements of $151.8 million and $172.9 million as of December 31, 2020 and September 30, 2021, respectively; these intercompany balances are eliminated in consolidation.
6.     Leases
The Company has operating and finance leases for its facilities. The Company leases its corporate office space from related parties.
The Company’s total lease cost was as follows:
Three Months Ended September 30, 2020Three Months Ended September 30, 2021
Unrelated PartiesRelated PartiesTotalUnrelated PartiesRelated PartiesTotal
(in thousands)
Operating lease cost
$69,308 $1,799 $71,107 $71,647 $1,791 $73,438 
Finance lease cost:
Amortization of right-of-use assets
147  147 156  156 
Interest on lease liabilities
255