SELECT MEDICAL HOLDINGS CORP [SEM] Filings

10-Q 1 sem-20240930.htm 10-Q sem-20240930

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, 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 October 31, 2024, Select Medical Holdings Corporation had outstanding 129,466,933 shares of common stock.

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

Table of Contents

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION	3

ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Condensed consolidated balance sheets	3

	Condensed consolidated statements of operations	4

	Condensed consolidated statements of comprehensive income	5

	Condensed consolidated statements of changes in equity and income	6

	Condensed consolidated statements of cash flows	8

	Notes to condensed consolidated financial statements	9

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	24

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	47

ITEM 4.	CONTROLS AND PROCEDURES	47

PART II	OTHER INFORMATION	48

ITEM 1.	LEGAL PROCEEDINGS	48

ITEM 1A.	RISK FACTORS	48

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	48

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	48

ITEM 4.	MINE SAFETY DISCLOSURES	48

ITEM 5.	OTHER INFORMATION	48

ITEM 6.	EXHIBITS	49

SIGNATURES

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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		September 30, 2024
ASSETS
Current Assets:
Cash and cash equivalents	$	84,006	$	191,468
Accounts receivable	940,335		1,060,007
Prepaid income taxes	22,726		8,669
Current portion of interest rate cap contract	58,962		—
Other current assets	151,617		144,053
Total Current Assets	1,257,646		1,404,197
Operating lease right-of-use assets	1,188,616		1,321,045
Property and equipment, net	1,023,561		1,040,383
Goodwill	3,513,170		3,555,022
Identifiable intangible assets, net	329,916		312,565
Other assets	376,722		369,449
Total Assets	$	7,689,631	$	8,002,661
LIABILITIES AND EQUITY
Current Liabilities:
Overdrafts	$	30,274	$	14,173
Current operating lease liabilities	245,400		249,832
Current portion of long-term debt and notes payable	70,329		42,785
Accounts payable	174,312		170,711
Accrued and other liabilities	728,150		768,203








Total Current Liabilities	1,248,465		1,245,704
Non-current operating lease liabilities	1,025,867		1,163,406
Long-term debt, net of current portion	3,587,675		3,098,957
Non-current deferred tax liability	143,306		95,557
Other non-current liabilities	110,303		98,593
Total Liabilities	6,115,616		5,702,217
Commitments and contingencies (Note 14)
Redeemable non-controlling interests	26,297		30,455
Stockholders’ Equity:
Common stock, $0.001 par value, 700,000,000 shares authorized, 128,369,492 and 129,539,724 shares issued and outstanding at 2023 and 2024, respectively	128		130
Capital in excess of par	493,413		858,741
Retained earnings	751,856		1,056,320
Accumulated other comprehensive income	42,907		—
Total Stockholders’ Equity	1,288,304		1,915,191
Non-controlling interests	259,414		354,798
Total Equity	1,547,718		2,269,989
Total Liabilities and Equity	$	7,689,631	$	8,002,661

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 September 30,				For the Nine Months Ended September 30,
	2023		2024		2023		2024
Revenue	$	1,665,694	$	1,761,220	$	5,005,202	$	5,309,692
Costs and expenses:
Cost of services, exclusive of depreciation and amortization	1,442,509		1,523,899		4,284,931		4,516,553
General and administrative	41,316		47,347		126,103		145,672
Depreciation and amortization	52,394		50,143		154,758		158,151
Total costs and expenses	1,536,219		1,621,389		4,565,792		4,820,376
Other operating income	485		1,302		1,211		3,584
Income from operations	129,960		141,133		440,621		492,900
Other income and expense:
Loss on early retirement of debt	(14,692)		(10,939)		(14,692)		(10,939)
Equity in earnings of unconsolidated subsidiaries	11,561		33,069		30,618		49,805


Interest expense	(50,271)		(55,439)		(147,839)		(143,309)
Income before income taxes	76,558		107,824		308,708		388,457
Income tax expense	15,742		26,809		70,775		95,509
Net income	60,816		81,015		237,933		292,948
Less: Net income attributable to non-controlling interests	12,636		25,387		40,711		62,860
Net income attributable to Select Medical Holdings Corporation	$	48,180	$	55,628	$	197,222	$	230,088
Earnings per common share (Note 13):
Basic and diluted	$	0.38	$	0.43	$	1.55	$	1.78

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 September 30,				For the Nine Months Ended September 30,
	2023		2024		2023		2024
Net income	$	60,816	$	81,015	$	237,933	$	292,948
Other comprehensive income (loss), net of tax:
Gain on interest rate cap contract	3,895		30		18,726		5,723
Reclassification adjustment for gains included in net income	(16,215)		(5,812)		(44,601)		(48,630)
Net change, net of tax benefit of $3,998, $1,826, $8,397, and $13,550	(12,320)		(5,782)		(25,875)		(42,907)
Comprehensive income	48,496		75,233		212,058		250,041
Less: Comprehensive income attributable to non-controlling interests	12,636		25,387		40,711		62,860
Comprehensive income attributable to Select Medical Holdings Corporation	$	35,860	$	49,846	$	171,347	$	187,181

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 Nine Months Ended September 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
Net income attributable to Select Medical Holdings Corporation						55,628				55,628				55,628
Net income attributable to non-controlling interests										—		22,886		22,886
Cash dividends declared for common stockholders ($0.125 per share)						(16,194)				(16,194)				(16,194)
Issuance of restricted stock	1	0		0						—				—
Forfeitures of unvested restricted stock	(21)	0		0		21				21				21
Vesting of restricted stock				13,354						13,354				13,354
Repurchase of common shares	(466)			(8,745)		(7,779)				(16,524)				(16,524)
Issuance of non-controlling interests										—		3,662		3,662
Non-controlling interests acquired in business combination										—		10,465		10,465
Distributions to and purchases of non-controlling interests										—		(15,819)		(15,819)

Concentra IPO				334,852		133,118				467,970		43,228		511,198
Other comprehensive loss								(5,782)		(5,782)				(5,782)
Other						129				129				129
Balance at September 30, 2024	129,540	$	130	$	858,741	$	1,056,320	$	—	$	1,915,191	$	354,798	$	2,269,989

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	For the Nine Months Ended September 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
Net income attributable to Select Medical Holdings Corporation						48,180				48,180				48,180
Net income attributable to non-controlling interests										—		10,316		10,316
Cash dividends declared for common stockholders ($0.125 per share)						(16,035)				(16,035)				(16,035)
Issuance of restricted stock	1,217	1		(1)						—				—

Vesting of restricted stock				11,483						11,483				11,483
Repurchase of common shares	(318)	0		(3,866)		(5,678)				(9,544)				(9,544)
Issuance of non-controlling interests										—		5,651		5,651
Non-controlling interests acquired in business combination										—		5,130		5,130
Distributions to and purchases of non-controlling interests				732		(2,672)				(1,940)		(21,059)		(22,999)
Redemption value adjustment on non-controlling interests						1,912				1,912				1,912
Other comprehensive loss								(12,320)		(12,320)				(12,320)
Other						36				36		—		36
Balance at September 30, 2023	128,287	$	128	$	482,290	$	722,665	$	62,727	$	1,267,810	$	255,579	$	1,523,389

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 Nine Months Ended September 30,
	2023		2024
Operating activities
Net income	$	237,933	$	292,948
Adjustments to reconcile net income to net cash provided by operating activities:
Distributions from unconsolidated subsidiaries	9,896		30,436
Depreciation and amortization	154,758		158,151
Provision for expected credit losses	1,101		1,659
Equity in earnings of unconsolidated subsidiaries	(30,618)		(49,805)
Loss on extinguishment of debt	175		10,939
Gain on sale or disposal of assets	(7)		(1,111)
Stock compensation expense	31,991		39,399
Amortization of debt discount, premium, and issuance costs	1,899		2,279
Deferred income taxes	(17,049)		(34,941)
Changes in operating assets and liabilities, net of effects of business combinations:
Accounts receivable	(3,014)		(116,761)
Other current assets	(17,276)		7,856
Other assets	7,028		13,942
Accounts payable	4,788		(2,056)
Accrued expenses	21,011		39,497




Net cash provided by operating activities	402,616		392,432
Investing activities
Business combinations, net of cash acquired	(20,482)		(2,311)
Purchases of property, equipment, and other assets	(168,597)		(158,748)
Investment in businesses	(9,874)		—
Proceeds from sale of assets and businesses	60		4,241
Net cash used in investing activities	(198,893)		(156,818)
Financing activities
Borrowings on revolving facilities	635,000		950,000
Payments on revolving facilities	(740,000)		(1,220,000)
Proceeds from term loans, net of issuance costs	2,092,232		836,697
Payments on term loans	(2,108,694)		(1,719,503)
Proceeds from 6.875% senior notes, net of issuance costs	—		637,337


Borrowings of other debt	30,849		20,806
Principal payments on other debt	(38,298)		(35,782)
Dividends paid to common stockholders	(47,856)		(48,493)
Repurchase of common stock	(11,050)		(17,924)

Decrease in overdrafts	(1,967)		(16,101)
Proceeds from issuance of non-controlling interests	20,463		9,413
Distributions to and purchases of non-controlling interests	(54,868)		(35,800)
Proceeds from Concentra initial public offering (Note 15)	—		511,198
Net cash used in financing activities	(224,189)		(128,152)
Net increase (decrease) in cash and cash equivalents	(20,466)		107,462
Cash and cash equivalents at beginning of period	97,906		84,006
Cash and cash equivalents at end of period	$	77,440	$	191,468
Supplemental information
Cash paid for interest, excluding amounts received of $60,353 and $68,069 under the interest rate cap contract	$	221,697	$	216,757
Cash paid for taxes	78,502		102,696

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 September 30, 2024, and for the three and nine month periods ended September 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 nine months ended September 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.

For details regarding the Concentra separation see Note 15, Concentra Separation.

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 Company will adopt ASU 2023-07 beginning with our annual reporting period ending December 31, 2024. The ASU is required to be applied retrospectively to all periods presented in the financial statements. ASU 2023-07 will not 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 Company will adopt ASU 2023-09 beginning with our annual reporting period ending December 31, 2025. The ASU can be applied either prospectively or retrospectively. The Company is currently reviewing ASU 2023-09, but does not expect it to have a significant impact on 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% and 16% of the Company’s accounts receivable is due from Medicare at December 31, 2023, and September 30, 2024, 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 redemption values, after the attribution of net income or loss.

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


	Nine Months Ended September 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
Net income attributable to redeemable non-controlling interests	2,320		2,501
Distributions to and purchases of redeemable non-controlling interests	(7,784)		(1,611)
Redemption value adjustment on redeemable non-controlling interests	(1,912)		—

Balance as of September 30	$	26,999	$	30,455

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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 September 30, 2024, the total assets of the Company’s variable interest entities were $246.4 million and $266.4 million, respectively, and are principally comprised of accounts receivable. As of December 31, 2023, and September 30, 2024, the total liabilities of the Company’s variable interest entities were $84.3 million and $79.2 million, respectively, and are principally comprised of accounts payable and accrued expenses. These variable interest entities have obligations payable for services received under their management agreements with the Company of $161.8 million and $191.2 million as of December 31, 2023, and September 30, 2024, respectively. These intercompany balances are eliminated in consolidation.

6. Leases

The Company’s total lease cost is as follows:


	Three Months Ended September 30, 2023						Three Months Ended September 30, 2024
	Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total
	(in thousands)
Operating lease cost	$	78,147	$	1,834	$	79,981	$	83,601	$	1,834	$	85,435
Finance lease cost:
Amortization of right-of-use assets	387		—		387		233		—		233
Interest on lease liabilities	352		—		352		302		—		302

Variable lease cost	16,562		—		16,562		17,250		—		17,250
Sublease income	(1,633)		—		(1,633)		(1,718)		—		(1,718)
Total lease cost	$	93,815	$	1,834	$	95,649	$	99,668	$	1,834	$	101,502


	Nine Months Ended September 30, 2023						Nine Months Ended September 30, 2024
	Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total
	(in thousands)
Operating lease cost	$	231,671	$	5,501	$	237,172	$	243,888	$	5,501	$	249,389
Finance lease cost:
Amortization of right-of-use assets	1,185		—		1,185		839		—		839
Interest on lease liabilities	1,059		—		1,059		927		—		927

Variable lease cost	48,854		84		48,938		51,501		16		51,517
Sublease income	(5,027)		—		(5,027)		(5,159)		—		(5,159)
Total lease cost	$	277,742	$	5,585	$	283,327	$	291,996	$	5,517	$	297,513

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7. Long-Term Debt and Notes Payable

As of September 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)
Select:
6.250% senior notes	$	1,225,000	$	11,051	$	(5,672)	$	1,230,379	$	1,228,197
Select credit facilities:
Revolving facility	10,000		—		—		10,000		9,850
Term loan	372,982		(1,705)		(457)		370,820		374,381
Other debt, including finance leases	48,721		—		(525)		48,196		48,196
Total Select debt	1,656,703		9,346		(6,654)		1,659,395		1,660,624
Concentra:
6.875% senior notes	650,000		—		(12,316)		637,684		681,493
Concentra credit facilities:

Term loan	850,000		(1,034)		(11,918)		837,048		847,875
Other debt, including finance leases	7,615		—		—		7,615		7,615
Total Concentra debt	1,507,615		(1,034)		(24,234)		1,482,347		1,536,983
Total debt	$	3,164,318	$	8,312	$	(30,888)	$	3,141,742	$	3,197,607

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)
Select:
6.250% senior notes	$	—	$	—	$	1,225,000	$	—	$	—	$	—	$	1,225,000
Select credit facilities:
Revolving facility	—		—		—		10,000		—		—		10,000
Term loan	—		—		—		372,982		—		—		372,982
Other debt, including finance leases	31,105		2,219		2,186		1,637		1,266		10,308		48,721
Total Select debt	31,105		2,219		1,227,186		384,619		1,266		10,308		1,656,703
Concentra:
6.875% senior notes	—		—		—		—		—		650,000		650,000
Concentra credit facilities:

Term loan	2,125		8,500		8,500		8,500		8,500		813,875		850,000
Other debt, including finance leases	1,874		1,570		672		718		768		2,013		7,615
Total Concentra debt	3,999		10,070		9,172		9,218		9,268		1,465,888		1,507,615
Total debt	$	35,104	$	12,289	$	1,236,358	$	393,837	$	10,534	$	1,476,196	$	3,164,318

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

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Select Credit Facilities

On July 26, 2024, the Company entered into Amendment No. 10 to the Select credit agreement. Amendment No. 10 reduced the revolving credit facility commitments available under the credit agreement from $770.0 million to $550.0 million. Select also made a voluntary prepayment of $1,640.4 million on its term loan and a $300.0 million repayment on its revolving credit facility using the proceeds derived from the Concentra IPO and debt transactions, as described in Note 15, Concentra Separation. During the three months ended September 30, 2024, the Company recognized a $10.9 million loss on early retirement of debt as a result of the prepayment on its term loan and Amendment No. 10 to the Select credit agreement.

Concentra Credit Facilities

On July 26, 2024, Concentra Health Services, Inc. (“CHSI”), a then wholly-owned subsidiary of Concentra, entered into a senior secured credit agreement (the “Concentra credit agreement”) that provides for an $850.0 million term loan (the “Concentra term loan”), and a $400.0 million revolving credit facility, including a $75.0 million sublimit for the issuance of standby letters of credit (the “Concentra revolving credit facility” and, together with the Concentra term loan, the “Concentra credit facilities”).

Borrowings under the Concentra credit facilities are guaranteed by Concentra and substantially all of Concentra's current domestic subsidiaries and will be guaranteed by CHSI’s future domestic subsidiaries and secured by substantially all of Concentra’s existing and future property and assets and by a pledge of Concentra’s capital stock, the capital stock of CHSI’s domestic subsidiaries and up to 65% of the capital stock of CHSI’s foreign subsidiaries held directly by CHSI or a domestic subsidiary.

Borrowings under the Concentra credit agreement bear interest at a rate equal to: (i) in the case of the Concentra term loan, Term SOFR plus a percentage ranging from 2.00% to 2.25%, or Alternate Base Rate plus a percentage ranging from 1.00% to 1.25%, in each case based on CHSI’s leverage ratio; and (ii) in the case of the Concentra revolving credit facility, Term SOFR plus a percentage ranging from 2.25% to 2.75%, or Alternate Base Rate plus a percentage ranging from 1.25% to 1.75%, in each case on CHSI’s leverage ratio, as defined in the Concentra credit agreement.

The Concentra term loan amortizes in equal quarterly installments in amounts equal to 0.25% of the aggregate original principal amount of the Concentra term loan commencing on December 31, 2024. The balance of the Concentra term loan will be payable on July 26, 2031. Similarly, the Concentra revolving credit facility will be payable on July 26, 2029.

The Concentra credit facilities require CHSI to maintain a leverage ratio (as defined in the Concentra credit agreement), which is tested quarterly and currently must not be greater than 6.50 to 1.00. Failure to comply with this covenant would result in an event of default under the Concentra revolving credit facility and, absent a waiver or an amendment from the revolving lenders, preclude CHSI from making further borrowings under the Concentra revolving credit facility and permit the revolving lenders to accelerate all outstanding borrowings under the Concentra revolving credit facility. Upon termination of the commitments for the Concentra revolving credit facility and acceleration of all outstanding borrowings thereunder, failure to comply with the covenant also would constitute an event of default with respect to the Concentra term loan.

The Concentra credit facilities also contain a number of other affirmative and restrictive covenants, including limitations on mergers, consolidations and dissolutions; sales of assets; investments and acquisitions; indebtedness; liens; affiliate transactions; and dividends and restricted payments. The Concentra credit facilities contain events of default for non-payment of principal and interest when due, cross-default and cross-acceleration provisions and an event of default that would be triggered by a change of control.

Prepayment of borrowings

CHSI will be required to prepay borrowings under the Concentra credit facilities with (i) 100% of the net cash proceeds received from non-ordinary course asset sales or other dispositions, or as a result of a casualty or condemnation, subject to reinvestment provisions and other customary carveouts and, to the extent required, the payment of certain indebtedness secured by liens subject to a first lien intercreditor agreement if CHSI’s total net leverage ratio is greater than 4.50 to 1.00 and 50% of such net cash proceeds if our total net leverage ratio is less than or equal to 4.50 to 1.00 and greater than 4.00 to 1.00, (ii) 100% of the net cash proceeds received from the issuance of debt obligations other than certain permitted debt obligations, and (iii) 50% of excess cash flow (as defined in the Credit Agreement) if CHSI’s leverage ratio is greater than 4.50 to 1.00 and 25% of excess cash flow if CHSI’s leverage ratio is less than or equal to 4.50 to 1.00 and greater than 4.00 to 1.00, in each case, reduced by the aggregate amount of term loans, revolving loans and certain other debt optionally prepaid (and, in the case of revolving loans, accompanied by a reduction in the related commitment) during the applicable fiscal year. CHSI will not be required to prepay borrowings with excess cash flow or the net cash proceeds of asset sales if CHSI’s leverage ratio is less than or equal to 4.00 to 1.00.

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Concentra 6.875% Senior Notes

On July 11, 2024, the Company completed a private offering by its then wholly-owned subsidiary, Concentra Escrow Issuer Corporation (the “Escrow Issuer”), of $650.0 million aggregate principal amount of 6.875% senior notes due July 15, 2032 (the “Concentra senior notes”). On July 26, 2024, Escrow Issuer merged with and into CHSI, with CHSI continuing as the surviving entity, and CHSI assumed all of the Escrow Issuer’s obligations under the senior notes. The Concentra senior notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Concentra and certain of its wholly-owned subsidiaries. Interest on the Concentra senior notes accrues at a rate of 6.875% per annum and is payable semi-annually in cash in arrears on January 15 and July 15 of each year, commencing on January 15, 2025.

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		September 30, 2024

Accrued payroll	$	238,768	$	214,380
Accrued vacation	157,748		161,921
Accrued interest	32,472		21,541
Accrued other	297,663		355,164
Income taxes payable	1,499		15,197
Accrued and other liabilities	$	728,150	$	768,203

9. Interest Rate Cap

The Company is subject to market risk exposure arising from changes in interest rates on the Select 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 was to mitigate its exposure to increases in interest rates. The interest rate cap limited 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 provided for payments from the counterparty when interest rates rose above 1.0%. The interest rate cap, which expired on September 30, 2024, had a $2.0 billion notional amount. The Company paid a monthly premium for the interest rate cap over the term of the agreement. The annual premium was equal to 0.0916% of the notional amount, or approximately $1.8 million.

The interest rate cap was designated as a cash flow hedge and was highly effective at offsetting the changes in cash outflows when the variable rate index exceeded 1.0%. Changes in the fair value of the interest rate cap, net of tax, were recognized in other comprehensive income and reclassified out of accumulated other comprehensive income and into interest expense when the hedged interest obligations affected earnings. At June 30, 2024, we determined that a portion of the underlying cash flows related to our hedging relationship was probable not to occur. 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 three months ended June 30, 2024. Subsequent changes in the fair value of the interest rate cap related to these cash flows were recorded to interest expense during the three months ended September 30, 2024.

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


	Nine Months Ended September 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
Gain on interest rate cap cash flow hedge	3,895		30
Amounts reclassified from accumulated other comprehensive income	(16,215)		(5,812)
Balance as of September 30	$	62,727	$	—