SEC Form 10-Q filed by Select Medical Holdings Corporation
$SEM
Hospital/Nursing Management
Health Care
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the Quarterly Period Ended March 31, 2026
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
(Exact name of Registrant as specified in its Charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) | |||||||
(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 | ||||||
| (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):
| ☒ | 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 March 31, 2026, Select Medical Holdings Corporation had outstanding 124,016,800 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. References to the “Company,” “we,” “us,” and “our” refer collectively to Holdings and Select.
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TABLE OF CONTENTS
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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, 2025 | March 31, 2026 | ||||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable | |||||||||||
| Prepaid income taxes | |||||||||||
| Other current assets | |||||||||||
| Total Current Assets | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Property and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Identifiable intangible assets, net | |||||||||||
| Other assets | |||||||||||
| Total Assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Overdrafts | $ | $ | |||||||||
| Current operating lease liabilities | |||||||||||
| Current portion of long-term debt and notes payable | |||||||||||
| Accounts payable | |||||||||||
| Accrued and other liabilities | |||||||||||
| Total Current Liabilities | |||||||||||
| Non-current operating lease liabilities | |||||||||||
| Long-term debt, net of current portion | |||||||||||
| Non-current deferred tax liability | |||||||||||
| Other non-current liabilities | |||||||||||
| Total Liabilities | |||||||||||
Commitments and contingencies (Note 12) | |||||||||||
| Redeemable non-controlling interests | |||||||||||
| Stockholders’ Equity: | |||||||||||
Common stock, $ | |||||||||||
| Capital in excess of par | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total Stockholders’ Equity | |||||||||||
| Non-controlling interests | |||||||||||
| Total Equity | |||||||||||
| Total Liabilities and Equity | $ | $ | |||||||||
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 March 31, | |||||||||||
| 2025 | 2026 | ||||||||||
| Revenue | $ | $ | |||||||||
| Costs and expenses: | |||||||||||
| Cost of services, exclusive of depreciation and amortization | |||||||||||
| General and administrative | |||||||||||
| Depreciation and amortization | |||||||||||
| Total costs and expenses | |||||||||||
| Income from operations | |||||||||||
| Other income and expense: | |||||||||||
| Equity in earnings of unconsolidated subsidiaries | |||||||||||
| Interest expense | ( | ( | |||||||||
| Income before income taxes | |||||||||||
| Income tax expense | |||||||||||
| Net income | |||||||||||
| Less: Net income attributable to non-controlling interests | |||||||||||
| Net income attributable to Select Medical Holdings Corporation | $ | $ | |||||||||
Earnings per common share (Note 11): | |||||||||||
| Basic and diluted | $ | $ | |||||||||
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 March 31, | |||||||||||
| 2025 | 2026 | ||||||||||
| Net income | $ | $ | |||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||
| Gain (loss) on interest rate cap contract | ( | ||||||||||
| Reclassification adjustment for losses included in net income | |||||||||||
Net change, net of tax (expense) benefit of $ | ( | ||||||||||
| Comprehensive income | |||||||||||
| Less: Comprehensive income attributable to non-controlling interests | |||||||||||
| Comprehensive income attributable to Select Medical Holdings Corporation | $ | $ | |||||||||
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 Three Months Ended March 31, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock Issued | Common Stock Par Value | Capital in Excess of Par | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2025 | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Net income attributable to Select Medical Holdings Corporation | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to non-controlling interests | |||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared for common stockholders ($ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | |||||||||||||||||||||||||||||||||||||||||||||||
| Forfeitures of unvested restricted stock | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of non-controlling interests | |||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to and purchases of non-controlling interests | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Redemption value adjustment on non-controlling interests | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2026 | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| For the Three Months Ended March 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock Issued | Common Stock Par Value | Capital in Excess of Par | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Net income attributable to Select Medical Holdings Corporation | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to non-controlling interests | |||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared for common stockholders ($ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | |||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock | |||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common shares | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Issuance of non-controlling interests | |||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to and purchases of non-controlling interests | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Redemption value adjustment on non-controlling interests | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2025 | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Select Medical Holdings Corporation
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
| For the Three Months Ended March 31, | |||||||||||
| 2025 | 2026 | ||||||||||
| Operating activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||
| Distributions from unconsolidated subsidiaries | |||||||||||
| Depreciation and amortization | |||||||||||
| Provision for expected credit losses | |||||||||||
| Equity in earnings of unconsolidated subsidiaries | ( | ( | |||||||||
| (Gain) loss on sale or disposal of assets | ( | ||||||||||
| Stock compensation expense | |||||||||||
| Amortization of debt discount and issuance costs | |||||||||||
| Deferred income taxes | ( | ||||||||||
| Changes in operating assets and liabilities, net of effects of business combinations: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Other current assets | ( | ( | |||||||||
| Other assets | |||||||||||
| Accounts payable | |||||||||||
| Accrued expenses | ( | ( | |||||||||
| Net cash provided by (used in) operating activities | ( | ||||||||||
| Investing activities | |||||||||||
| Business combinations, net of cash acquired | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Proceeds from sales of assets and business | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Financing activities | |||||||||||
| Borrowings on revolving facilities | |||||||||||
| Payments on revolving facilities | ( | ( | |||||||||
| Payments on term loans | ( | ( | |||||||||
| Borrowings of other debt | |||||||||||
| Principal payments on other debt | ( | ( | |||||||||
| Dividends paid to common stockholders | ( | ( | |||||||||
| Repurchases of common stock | ( | ||||||||||
| Increase (decrease) in overdrafts | ( | ||||||||||
| Proceeds from issuance of non-controlling interests | |||||||||||
| Distributions to and purchases of non-controlling interests | ( | ( | |||||||||
| Net cash provided by financing activities | |||||||||||
| Net decrease in cash and cash equivalents | ( | ( | |||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
| Supplemental information | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash paid for taxes | |||||||||||
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. Organization and Basis of Presentation
The unaudited condensed consolidated financial statements of Select Medical Holdings Corporation (“Holdings”) include the accounts of its wholly owned subsidiary, Select Medical Corporation (“Select”). Holdings conducts substantially all of its business through Select and its subsidiaries. Holdings, Select, and Select’s subsidiaries are collectively referred to as the “Company.” The unaudited condensed consolidated financial statements of the Company as of March 31, 2026, and for the three month periods ended March 31, 2025 and 2026, 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 months ended March 31, 2026, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2026. 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, 2025, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 19, 2026.
On March 2, 2026, the Company entered into an agreement and plan of merger, by and among the Company, Stallion Intermediate Corporation, a Delaware corporation (“Parent”), and Stallion MergerSub Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”) (as may be amended from time to time, the “Merger Agreement”), pursuant to which and subject to the terms and conditions therein, at the effective time of the Merger (the “Effective Time”), Merger Sub will merge with and into the Company, with the Company surviving as a wholly-owned subsidiary of Parent (the “Merger”). Parent is a wholly-owned subsidiary of WCAS XIV, L.P., an investment fund affiliated with Welsh, Carson, Anderson & Stowe and a member of a consortium led by Robert A. Ortenzio, our Executive Chairman, Co-Founder and Director and Martin F. Jackson, our Senior Executive Vice President of Strategic Finance and Operations.
Upon completion of the Merger, each issued and outstanding share of Company common stock, par value $0.001 per share (subject to certain exceptions, including Rollover Shares, shares held by Parent or the Company as treasury stock or otherwise, and shares for which appraisal rights have been properly demanded), will be converted into the right to receive $16.50 per share in cash, without interest (the “Merger Consideration”). Immediately prior to the Effective Time, each share of common stock that is subject to forfeiture conditions (other than any such shares that are Rollover Shares (as defined in the Merger Agreement)) will vest in full and be treated the same as all other shares of common stock, entitling the holder thereof to receive the Merger Consideration.
Concurrently with the execution of the Merger Agreement, WCAS XIV, L.P. (in such capacity, the “Equity Investor”) committed to provide equity financing of up to $880.0 million to fund a portion of the Merger Consideration and related fees and expenses, on the terms and subject to the conditions set forth in an equity commitment letter. In addition, Parent has obtained committed debt financing pursuant to a debt commitment letter to fund the remaining portion of the amounts required to consummate the Merger. The Equity Investor (in such capacity, the “Guarantor”) also entered into a limited guaranty in favor of the Company, guaranteeing certain payment obligations of Parent and Merger Sub under the Merger Agreement, including payment of the termination fee that may be owed by Parent.
The completion of the Merger is subject to the receipt of required regulatory approvals, including certain healthcare regulatory approvals, the approval of the Company’s stockholders (including a separate majority vote of shares not beneficially owned by Parent, Merger Sub, the Rollover Holders (as defined in the Merger Agreement) or their respective affiliates), and other customary closing conditions. The applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired on April 27, 2026. The Merger Agreement does not contain any financing condition. The Company currently expects to complete the Merger in the middle of 2026, although there can be no assurance that the Merger will occur in accordance with the expected plans or anticipated timeline, or at all.
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The Merger Agreement contains certain customary termination rights for the Company and Parent, including, without limitation, a right for either party to terminate if the Merger is not completed on or before December 1, 2026, subject to an automatic extension until March 1, 2027, under certain circumstances specified in the Merger Agreement. Termination under specified circumstances will require the Company to pay Parent a termination fee of $66.5 million (the “Company Termination Fee”) or Parent to pay the Company a termination fee of $133.0 million. The Merger Agreement also provides that, in certain circumstances, each party may seek to compel the other parties to specifically perform their obligations under the Merger Agreement. If the Merger is consummated, the shares of common stock will be delisted from the New York Stock Exchange and deregistered under the Exchange Act.
2. Accounting Policies
Recent Accounting Guidance Not Yet Adopted
Expense Disaggregation
In November 2024, FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), which is intended to improve the disclosures of expenses by providing more detailed information about the types of expenses in commonly presented expense captions. The ASU requires entities to disclose the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization included in each relevant expense caption; as well as a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. The amendment also requires disclosure of the total amount of selling expense and, in annual reporting periods, an entity’s definition of selling expenses.
The ASU is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027; however early adoption is permitted. The ASU can be applied either prospectively or retrospectively. The Company is currently reviewing the impact that ASU 2024-03 will have on the disclosures in our consolidated financial statements.
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.
4. Leases
The Company’s total lease cost is as follows:
| Three Months Ended March 31, 2025 | Three Months Ended March 31, 2026 | ||||||||||||||||||||||||||||||||||
| Unrelated Parties | Related Parties | Total | Unrelated Parties | Related Parties | Total | ||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
Operating lease cost | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Finance lease cost: | |||||||||||||||||||||||||||||||||||
Amortization of right-of-use assets | |||||||||||||||||||||||||||||||||||
Interest on lease liabilities | |||||||||||||||||||||||||||||||||||
| Variable lease cost | |||||||||||||||||||||||||||||||||||
| Sublease income | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Total lease cost | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
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5. Accrued and Other Liabilities
The following table sets forth the components of accrued and other liabilities on the Condensed Consolidated Balance Sheets:
| December 31, 2025 | March 31, 2026 | ||||||||||
| Accrued payroll | $ | $ | |||||||||
| Accrued vacation | |||||||||||
| Accrued interest | |||||||||||
| Accrued other | |||||||||||
| Income taxes payable | |||||||||||
| Accrued and other liabilities | $ | $ | |||||||||
6. 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 that is indexed to one-month Term Secured Overnight Financing Rate (“SOFR”). The Company’s objective in using an interest rate derivative is to mitigate its exposure to increases in interest rates. During the three months ended March 31, 2025, the Company entered into an interest rate cap with a scheduled maturity of March 31, 2028. The interest rate cap limits the Company’s exposure to increases in the variable rate index to 4.5 % on $1.0 billion of principal outstanding under the term loan, as the interest rate cap provides for payments from the counterparty when interest rates rise above 4.5 %. The interest rate cap has a deferred premium that the Company will pay monthly over the term of the agreement. The annual premium is equal to 0.3300 % of the notional amount, or approximately $3.3 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 4.5 %. 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 loss and into interest expense when the hedged interest obligations affect earnings.
The following table outlines the changes in accumulated other comprehensive loss, net of tax, during the periods presented:
| Three Months Ended March 31, | ||||||||||||||
| 2025 | 2026 | |||||||||||||
| (in thousands) | ||||||||||||||
| Balance as of January 1 | $ | $ | ( | |||||||||||
Gain (loss) on interest rate cap cash flow hedge | ( | |||||||||||||
Amounts reclassified from accumulated other comprehensive loss | ||||||||||||||
| Balance as of March 31 | $ | ( | $ | ( | ||||||||||
The effects on net income of amounts reclassified from accumulated other comprehensive loss are as follows:
| Three Months Ended March 31, | ||||||||||||||
| Statement of Operations | 2025 | 2026 | ||||||||||||
| (in thousands) | ||||||||||||||
| Losses included in interest expense | $ | $ | ( | |||||||||||
| Income tax benefit | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | $ | $ | ( | |||||||||||
The Company expects that approximately $3.3 million of estimated pre-tax losses will be reclassified from accumulated other comprehensive loss into interest expense within the next twelve months.
Refer to Note 7 – 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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7. 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, 2025 | March 31, 2026 | ||||||||||||||||||||||
| Liability: | (in thousands) | |||||||||||||||||||||||||
| Interest rate cap contract, current portion | Accrued other | Level 2 | $ | $ | ||||||||||||||||||||||
| Interest rate cap contract, non-current portion | Other non-current liabilities | Level 2 | ||||||||||||||||||||||||
The Company does not measure its indebtedness at fair value in its condensed consolidated balance sheets. The fair value of the credit facilities are based on quoted market prices for this debt in the syndicated loan market. The fair values of the senior notes are based on quoted market prices. The carrying value of the Company’s other debt, as disclosed in Note 8 – Long-Term Debt and Notes Payable, approximates fair value.
| December 31, 2025 | March 31, 2026 | |||||||||||||||||||||||||||||||
| Financial Instrument | Level | Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||
| Level 2 | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Credit facilities: | ||||||||||||||||||||||||||||||||
| Revolving facility | Level 2 | |||||||||||||||||||||||||||||||
| Term loan | Level 2 | |||||||||||||||||||||||||||||||
8. Long-Term Debt and Notes Payable
As of March 31, 2026, the Company’s long-term debt and notes payable are as follows:
| Principal Outstanding | Unamortized Discount | Unamortized Issuance Costs | Carrying Value | Fair Value | ||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||
| $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
| Credit facilities: | ||||||||||||||||||||||||||||||||
| Revolving facility | ||||||||||||||||||||||||||||||||
| Term loan | ( | ( | ||||||||||||||||||||||||||||||
| Other debt, including finance leases | ( | |||||||||||||||||||||||||||||||
| Total debt | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||
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Principal maturities of the Company’s long-term debt and notes payable are approximately as follows:
| 2026 | 2027 | 2028 | 2029 | 2030 | Thereafter | Total | |||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Credit facilities: | |||||||||||||||||||||||||||||||||||||||||
| Revolving facility | |||||||||||||||||||||||||||||||||||||||||
| Term loan | |||||||||||||||||||||||||||||||||||||||||
| Other debt, including finance leases | |||||||||||||||||||||||||||||||||||||||||
| Total debt | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
As of December 31, 2025, the Company’s long-term debt and notes payable are as follows:
| Principal Outstanding | Unamortized Discount | Unamortized Issuance Costs | Carrying Value | Fair Value | ||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||
| $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
| Credit facilities: | ||||||||||||||||||||||||||||||||
| Revolving facility | ||||||||||||||||||||||||||||||||
| Term loan | ( | ( | ||||||||||||||||||||||||||||||
| Other debt, including finance leases | ( | |||||||||||||||||||||||||||||||
| Total debt | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||
9. Segment Information
The Company identifies its segments according to how the chief operating decision maker evaluates financial performance and allocates resources. The Company’s reportable segments consist of the critical illness recovery hospital segment, rehabilitation hospital segment, and outpatient rehabilitation segment. Other activities include the Company’s corporate shared services, certain investments, and employee leasing services with non-consolidating subsidiaries.
The Company’s chief operating decision maker is its Executive Chairman. The chief operating decision maker uses Adjusted EBITDA in the annual budgeting and forecasting process. The chief operating decision maker considers budget-to-actual variances when making decisions about the allocation of operating and capital resources to each segment. The chief operating decision maker also uses segment Adjusted EBITDA to assess the performance of each segment by comparing the results of each segment to one another and to each segment’s budget. Adjusted EBITDA is defined as earnings excluding interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, take private transaction costs, gain (loss) on sale of businesses, and equity in earnings (losses) of unconsolidated subsidiaries. The Company has provided additional information regarding its reportable segments, such as total assets, which contributes to the understanding of the Company and provides useful information to the users of the consolidated financial statements.
The following tables summarize selected financial data for the Company’s reportable segments.
| Three Months Ended March 31, 2025 | |||||||||||||||||||||||||||||
| Critical Illness Recovery Hospital | Rehabilitation Hospital | Outpatient Rehabilitation | Other | Total | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Personnel expense | |||||||||||||||||||||||||||||
Other segment items (1) | |||||||||||||||||||||||||||||
| Adjusted EBITDA | |||||||||||||||||||||||||||||
| Total assets | |||||||||||||||||||||||||||||
| Capital expenditures | |||||||||||||||||||||||||||||
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| Three Months Ended March 31, 2026 | |||||||||||||||||||||||||||||
| Critical Illness Recovery Hospital | Rehabilitation Hospital | Outpatient Rehabilitation | Other | Total | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Personnel expense | |||||||||||||||||||||||||||||
Other segment items (1) | |||||||||||||||||||||||||||||
| Adjusted EBITDA | |||||||||||||||||||||||||||||
| Total assets | |||||||||||||||||||||||||||||
| Capital expenditures | |||||||||||||||||||||||||||||
_______________________________________________________________________________
(1) Other segment items consist of facilities expense, other operating expenses, and other operating income.
A reconciliation of Adjusted EBITDA to income before income taxes is as follows:
| Three Months Ended March 31, | ||||||||||||||
| 2025 | 2026 | |||||||||||||
| (in thousands) | ||||||||||||||
| Adjusted EBITDA - Critical Illness Recovery Hospital Segment | $ | $ | ||||||||||||
| Adjusted EBITDA - Rehabilitation Hospital Segment | ||||||||||||||
| Adjusted EBITDA - Outpatient Rehabilitation Segment | ||||||||||||||
| Other revenue | ||||||||||||||
Other cost of services (1) | ( | ( | ||||||||||||
Other general and administrative expenses (1) | ( | ( | ||||||||||||
| Depreciation and amortization | ( | ( | ||||||||||||
| Stock compensation expense | ( | ( | ||||||||||||
| Take private transaction costs | ( | |||||||||||||
| Equity in earnings of unconsolidated subsidiaries | ||||||||||||||
| Interest expense | ( | ( | ||||||||||||
| Income before income taxes | $ | $ | ||||||||||||
_______________________________________________________________________________
(1) Exclusive of depreciation, amortization and stock compensation expense.
10. Revenue from Contracts with Customers
The following tables disaggregate the Company’s revenue for the three months ended March 31, 2025 and 2026:
| Three Months Ended March 31, 2025 | |||||||||||||||||||||||||||||
| Critical Illness Recovery Hospital | Rehabilitation Hospital | Outpatient Rehabilitation | Other | Total | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Patient service revenue: | |||||||||||||||||||||||||||||
| Medicare | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Non-Medicare | |||||||||||||||||||||||||||||
| Total patient services revenues | |||||||||||||||||||||||||||||
| Other revenue | |||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Three Months Ended March 31, 2026 | |||||||||||||||||||||||||||||
| Critical Illness Recovery Hospital | Rehabilitation Hospital | Outpatient Rehabilitation | Other | Total | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Patient service revenue: | |||||||||||||||||||||||||||||
| Medicare | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Non-Medicare | |||||||||||||||||||||||||||||
| Total patient services revenues | |||||||||||||||||||||||||||||
| Other revenue | |||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
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11. Earnings per Share
The Company’s capital structure includes common stock and unvested restricted stock awards. To compute earnings per share (“EPS”), the Company applies the two-class method because the Company’s unvested restricted stock awards are participating securities which are entitled to participate equally with the Company’s common stock in undistributed earnings. Application of the Company’s two-class method is as follows:
(i)Net income attributable to the Company is reduced by the amount of dividends declared and by the contractual amount of dividends that must be paid for the current period for each class of stock. There were no
(ii)The remaining undistributed net income of the Company is then equally allocated to its common stock and unvested restricted stock awards, as if all of the earnings for the period had been distributed. The total net income allocated to each security is determined by adding both distributed and undistributed net income for the period.
(iii)The net income allocated to each security is then divided by the weighted average number of outstanding shares for the period to determine the EPS for each security considered in the two-class method.
The following table sets forth the net income attributable to the Company, its common shares outstanding, and its participating securities outstanding.
| Basic and Diluted EPS | ||||||||||||||
| Three Months Ended March 31, | ||||||||||||||
| 2025 | 2026 | |||||||||||||
| (in thousands) | ||||||||||||||
| Net income | $ | $ | ||||||||||||
| Less: net income attributable to non-controlling interests | ||||||||||||||
| Net income attributable to Select Medical Holdings Corporation’s common stockholders | ||||||||||||||
| Less: distributed and undistributed net income attributable to participating securities | ||||||||||||||
| Distributed and undistributed income attributable to common shares | $ | $ | ||||||||||||
The following tables set forth the computation of EPS under the two-class method:
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||
| 2025 | 2026 | ||||||||||||||||||||||||||||||||||||||||
| Net Income Allocation | Shares(1) | Basic and Diluted EPS | Net Income Allocation | Shares(1) | Basic and Diluted EPS | ||||||||||||||||||||||||||||||||||||
| (in thousands, except for per share amounts) | |||||||||||||||||||||||||||||||||||||||||
| Common shares | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Participating securities | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Total Company | $ | $ | |||||||||||||||||||||||||||||||||||||||
_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
(1) Represents the weighted average share count outstanding during the period.
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12. Commitments and Contingencies
Litigation
The Company is a party to various legal actions, proceedings, and claims (some of which are not insured), and regulatory and other governmental audits and investigations in the ordinary course of its business. The Company cannot predict the ultimate outcome of pending litigation, proceedings, and regulatory and other governmental audits and investigations. These matters could potentially subject the Company to sanctions, damages, recoupments, fines, and other penalties. The Department of Justice, Centers for Medicare & Medicaid Services (“CMS”), or other federal and state enforcement and regulatory agencies may conduct additional investigations related to the Company’s businesses in the future that may, either individually or in the aggregate, have a material adverse effect on the Company’s business, financial position, results of operations, and liquidity.
To address claims arising out of the Company’s operations, the Company maintains professional malpractice liability insurance and general liability insurance coverages through a number of different programs that are dependent upon such factors as the state where the Company is operating and whether the operations are wholly owned or are operated through a joint venture. For the Company’s wholly owned hospital and outpatient clinic operations, the Company currently maintains insurance coverages under a combination of policies with a total annual aggregate limit of up to $42.0 million for professional malpractice liability insurance and $45.0 million for general liability insurance. The Company’s insurance for the professional liability coverage is written on a “claims-made” basis, and its commercial general liability coverage is maintained on an “occurrence” basis. These coverages apply after a self-insured retention limit is exceeded. For the Company’s joint venture operations, the Company has designed a separate insurance program that responds to the risks of specific joint ventures. Most of the Company’s joint ventures are insured under a master program with an annual aggregate limit of up to $80.0 million, subject to a sublimit aggregate ranging from $23.0 million to $33.0 million for most joint ventures. The policies are generally written on a “claims-made” basis. Each of these programs has either a deductible or self-insured retention limit. The Company also maintains additional types of liability insurance covering claims which, due to their nature or amount, are not covered by or not fully covered by the applicable professional malpractice and general liability insurance policies, including workers compensation, property and casualty, directors and officers, cyber liability insurance, and employment practices liability insurance coverages. Our insurance policies generally are silent with respect to punitive damages so coverage is available to the extent insurable under the law of any applicable jurisdiction, and are subject to various deductibles and policy limits. The Company reviews its insurance program annually and may make adjustments to the amount of insurance coverage and self-insured retentions in future years. Significant legal actions, as well as the cost and possible lack of available insurance, could subject the Company to substantial uninsured liabilities. In the Company’s opinion, the outcome of these actions, individually or in the aggregate, will not have a material adverse effect on its financial position, results of operations, or cash flows.
Healthcare providers are subject to lawsuits under the qui tam provisions of the federal False Claims Act. Qui tam lawsuits typically remain under seal (hence, usually unknown to the defendant) for some time while the government decides whether or not to intervene on behalf of a private qui tam plaintiff (known as a relator) and take the lead in the litigation. These lawsuits can involve significant monetary damages and penalties and award bounties to private plaintiffs who successfully bring the suits. The Company is and has been a defendant in these cases in the past, and may be named as a defendant in similar cases from time to time in the future.
Oklahoma City Investigation. On August 24, 2020, the Company and Select Specialty Hospital – Oklahoma City, Inc. (“SSH–Oklahoma City”) received civil investigative demands (“CIDs”) from the U.S. Attorney’s Office for the Western District of Oklahoma seeking responses to interrogatories and the production of various documents principally relating to the documentation, billing and reviews of medical services furnished to patients at SSH-Oklahoma City. The Company understands that the investigation arose from a qui tam lawsuit alleging billing fraud related to charges for respiratory therapy services at SSH–Oklahoma City and Select Specialty Hospital – Wichita, Inc. The Company has produced documents in response to the CIDs and is fully cooperating with this investigation. At this time, the Company is unable to predict the timing and outcome of this matter.
Physical Therapy Billing. On October 7, 2021, the Company received a letter from a Trial Attorney at the U.S. Department of Justice, Civil Division, Commercial Litigation Branch, Fraud Section (“DOJ”) stating that the DOJ, in conjunction with the U.S. Department of Health and Human Services (“HHS”), is investigating the Company in connection with potential violations of the False Claims Act, 31 U.S.C. § 3729, et seq. The letter specified that the investigation relates to the Company’s billing for physical therapy services, and indicated that the DOJ would be requesting certain records from the Company. In October and December 2021, the DOJ requested, and the Company furnished, records relating to six of the Company’s outpatient therapy clinics in Florida. In 2022 and 2023, the DOJ requested certain data relating to all of the Company’s outpatient therapy clinics nationwide, and sought information about the Company’s ability to produce additional data relating to the physical therapy services furnished by the Company’s outpatient therapy clinics and Concentra Group Holdings Parent, Inc. The Company has produced data and other documents requested by the DOJ and is fully cooperating on
15
this investigation. In May 2024, by order of the U.S. District Court for the Middle District of Florida, a qui tam lawsuit that is related to the DOJ’s investigation was unsealed after the U.S. filed a notice declining to intervene in the case, but stating that its investigation is continuing and reserving its right to intervene at a later date. The lawsuit, filed in May 2021 and amended by a first amended complaint in October 2021 and by a second amended complaint in July 2024, was brought by Kathleen Kane, a physical therapist formerly employed in the Company’s outpatient division, against Select Medical Corporation, Select Physical Therapy Holdings, Inc., and Select Employment Services, Inc. The second amended complaint alleged that the defendants billed federally funded health programs for one-on-one therapy services when group therapy was performed or overbilled for one-on-one therapy services, and billed for unreimbursable unskilled physical therapy services. In June 2025, the U.S. District Court granted the Company’s motion to dismiss the second amended complaint, and allowed Ms. Kane a final opportunity to amend her lawsuit. In July 2025, Ms. Kane filed her third amended complaint, which contains substantially the same allegations as the second amended complaint, and in August 2025, the Company filed a motion to dismiss the third amended complaint on multiple grounds. In March 2026, the U.S. District Court dismissed with prejudice Ms. Kane’s unskilled therapy billing allegations, and dismissed without prejudice but without leave to amend in this case all Ms. Kane’s claims related to the Company’s clinics outside the metro Tampa, Florida area, but denied the Company’s motion to dismiss Ms. Kane’s allegations related to billing for one-on-one therapy services at the Company’s clinics in the metro Tampa, Florida area. At this time, the Company is unable to predict the timing and outcome of this matter.
13. Subsequent Events
On April 29, 2026, the Company’s Board of Directors declared a cash dividend of $0.0625 per share. The dividend will be payable on or about May 28, 2026, to stockholders of record as of the close of business on May 14, 2026.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this discussion together with our unaudited condensed consolidated financial statements and accompanying notes.
Forward-Looking Statements
This report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “target,” “estimate,” “project,” “intend,” and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, including our business strategy and means to implement our strategy, our objectives, the amount and timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs, and sources of liquidity.
Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding our services, the expansion of our services, competitive conditions, and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following:
•changes in government reimbursement for our services and/or new payment policies may result in a reduction in revenue, an increase in costs, and a reduction in profitability;
•adverse economic conditions including an inflationary environment, and changes to United States tariff and import/export regulations, could cause us to continue to experience increases in the prices of labor and other costs of doing business resulting in a negative impact on our business, operating results, cash flows, and financial condition;
•shortages in qualified nurses, therapists, physicians, or other licensed providers, and/or the inability to attract or retain qualified healthcare professionals could limit our ability to staff our facilities;
•shortages in qualified health professionals could cause us to increase our dependence on contract labor, increase our efforts to recruit and train new employees, and expand upon our initiatives to retain existing staff, which could increase our operating costs significantly;
•the negative impact of public threats such as a global pandemic or widespread outbreak of an infectious disease similar to the COVID-19 pandemic;
•political instability, conflicts (such as the ongoing war between Russia and Ukraine, conflicts in the Middle East, tensions between China and Taiwan, and recent U.S. military action in Venezuela), and government shutdowns, civil disturbances, and international events;
•the failure of our Medicare-certified long term care hospitals or inpatient rehabilitation facilities to maintain their Medicare certifications may cause our revenue and profitability to decline;
•the failure of our Medicare-certified long term care hospitals and inpatient rehabilitation facilities operated as “hospitals within hospitals” to qualify as hospitals separate from their host hospitals may cause our revenue and profitability to decline;
•a government investigation or assertion that we have violated applicable regulations may result in sanctions or reputational harm and increased costs;
•acquisitions or joint ventures may prove difficult or unsuccessful, use significant resources, or expose us to unforeseen liabilities;
•our plans and expectations related to our acquisitions and our ability to realize anticipated synergies;
•private third-party payors for our services may adopt payment policies that could limit our future revenue and profitability;
17
•the failure to maintain established relationships with the physicians in the areas we serve could reduce our revenue and profitability;
•the proposed Merger, including the ability of the parties to consummate the proposed Merger, if at all, on the anticipated terms and timing, including obtaining the stockholder and regulatory approvals, and the satisfaction of other conditions to the completion of the proposed Merger;
•potential payment of the termination fees under specified circumstances if the Merger Agreement is terminated;
•the outcome of any current or potential litigation against us, and members of our Board of Directors relating to the proposed Merger;
•competition may limit our ability to grow and result in a decrease in our revenue and profitability;
•the loss of key members of our management team could significantly disrupt our operations;
•the effect of claims asserted against us could subject us to substantial uninsured liabilities;
•a security breach of our or our third-party vendors’ information technology systems may subject us to potential legal and reputational harm and may result in a violation of the Health Insurance Portability and Accountability Act of 1996 or the Health Information Technology for Economic and Clinical Health Act; and
•other factors discussed from time to time in our filings with the SEC, including factors discussed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025, and in our Quarterly Report on Form 10-Q.
Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the SEC, we are under no obligation to publicly update or revise any forward-looking statements, whether as a result of any new information, future events, or otherwise. You should not place undue reliance on our forward-looking statements. Although we believe that the expectations reflected in forward-looking statements are reasonable, we cannot guarantee future results or performance.
Investors should also be aware that while we do, from time to time, communicate with securities analysts, it is against our policy to disclose to securities analysts any material non-public information or other confidential commercial information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any securities analyst irrespective of the content of the statement or report. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of the Company.
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Overview
We began operations in 1997 and, based on number of facilities, are one of the largest operators of critical illness recovery hospitals, rehabilitation hospitals, and outpatient rehabilitation clinics in the United States. As of March 31, 2026, we had operations in 38 states and the District of Columbia. We operated 103 critical illness recovery hospitals in 28 states, 41 rehabilitation hospitals in 15 states, and 1,912 outpatient rehabilitation clinics in 37 states and the District of Columbia.
Our reportable segments include the critical illness recovery hospital segment, the rehabilitation hospital segment, and the outpatient rehabilitation segment. We had revenue of $1,421.5 million for the three months ended March 31, 2026. Of this total, we earned approximately 45% of our revenue from our critical illness recovery hospital segment, approximately 25% from our rehabilitation hospital segment, and approximately 23% from our outpatient rehabilitation segment. Our critical illness recovery hospital segment consists of hospitals designed to serve the needs of patients recovering from critical illnesses, often with complex medical needs, and our rehabilitation hospital segment consists of hospitals designed to serve patients that require intensive physical rehabilitation care. Patients are typically admitted to our critical illness recovery hospitals and rehabilitation hospitals from general acute care hospitals. Our outpatient rehabilitation segment consists of clinics that provide physical, occupational, and speech rehabilitation services.
On March 2, 2026, the Company entered into an agreement and plan of merger, by and among the Company, Stallion Intermediate Corporation, a Delaware corporation (“Parent”), and Stallion MergerSub Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”) (as may be amended from time to time, the “Merger Agreement”), pursuant to which and subject to the terms and conditions therein, at the effective time of the Merger (the “Effective Time”), Merger Sub will merge with and into the Company, with the Company surviving as a wholly-owned subsidiary of Parent (the “Merger”). Parent is a wholly-owned subsidiary of WCAS XIV, L.P., an investment fund affiliated with Welsh, Carson, Anderson & Stowe and a member of a consortium led by Robert A. Ortenzio, our Executive Chairman, Co-Founder and Director and Martin F. Jackson, our Senior Executive Vice President of Strategic Finance and Operations.
Upon completion of the Merger, each issued and outstanding share of Company common stock, par value $0.001 per share (subject to certain exceptions, including Rollover Shares, shares held by Parent or the Company as treasury stock or otherwise, and shares for which appraisal rights have been properly demanded), will be converted into the right to receive $16.50 per share in cash, without interest (the “Merger Consideration”). Immediately prior to the Effective Time, each share of common stock that is subject to forfeiture conditions (other than any such shares that are Rollover Shares (as defined in the Merger Agreement)) will vest in full and be treated the same as all other shares of common stock, entitling the holder thereof to receive the Merger Consideration.
Concurrently with the execution of the Merger Agreement, WCAS XIV, L.P. (in such capacity, the “Equity Investor”) committed to provide equity financing of up to $880.0 million to fund a portion of the Merger Consideration and related fees and expenses, on the terms and subject to the conditions set forth in an equity commitment letter. In addition, Parent has obtained committed debt financing pursuant to a debt commitment letter to fund the remaining portion of the amounts required to consummate the Merger. The Equity Investor (in such capacity, the “Guarantor”) also entered into a limited guaranty in favor of the Company, guaranteeing certain payment obligations of Parent and Merger Sub under the Merger Agreement, including payment of the termination fee that may be owed by Parent.
The completion of the Merger is subject to the receipt of required regulatory approvals, including certain healthcare regulatory approvals, the approval of the Company’s stockholders (including a separate majority vote of shares not beneficially owned by Parent, Merger Sub, the Rollover Holders (as defined in the Merger Agreement) or their respective affiliates), and other customary closing conditions. The applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired on April 27, 2026. The Merger Agreement does not contain any financing condition. The Company currently expects to complete the Merger in the middle of 2026, although there can be no assurance that the Merger will occur in accordance with the expected plans or anticipated timeline, or at all.
The Merger Agreement contains certain customary termination rights for the Company and Parent, including, without limitation, a right for either party to terminate if the Merger is not completed on or before December 1, 2026, subject to an automatic extension until March 1, 2027, under certain circumstances specified in the Merger Agreement. Termination under specified circumstances will require the Company to pay Parent a termination fee of $66.5 million (the “Company Termination Fee”) or Parent to pay the Company a termination fee of $133.0 million. The Merger Agreement also provides that, in certain circumstances, each party may seek to compel the other parties to specifically perform their obligations under the Merger Agreement. If the Merger is consummated, the shares of common stock will be delisted from the New York Stock Exchange and deregistered under the Exchange Act.
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Non-GAAP Measure
We believe that the presentation of Adjusted EBITDA, as defined below, is important to investors because Adjusted EBITDA is commonly used as an analytical indicator of performance by investors within the healthcare industry. Adjusted EBITDA is used by management to evaluate financial performance and determine resource allocation for each of our segments. Adjusted EBITDA is not a measure of financial performance under GAAP. Items excluded from Adjusted EBITDA are significant components in understanding and assessing financial performance. Adjusted EBITDA should not be considered in isolation, or as an alternative to, or substitute for, net income, income from operations before other income and expense, cash flows generated by operations, investing or financing activities, or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Because Adjusted EBITDA is not a measurement determined in accordance with GAAP and is thus susceptible to varying definitions, Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies.
We define Adjusted EBITDA as earnings excluding interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, take private transaction costs, gain (loss) on sale of businesses, and equity in earnings (losses) of unconsolidated subsidiaries. We will refer to Adjusted EBITDA throughout the remainder of Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following table reconciles net income and income from operations to Adjusted EBITDA and should be referenced when we discuss Adjusted EBITDA:
| Three Months Ended March 31, | ||||||||||||||
| 2025 | 2026 | |||||||||||||
| (in thousands) | ||||||||||||||
| Net income | $ | 74,732 | $ | 63,775 | ||||||||||
| Income tax expense | 21,453 | 18,318 | ||||||||||||
| Interest expense | 29,072 | 28,336 | ||||||||||||
| Equity in earnings of unconsolidated subsidiaries | (12,512) | (12,011) | ||||||||||||
| Income from operations | 112,745 | 98,418 | ||||||||||||
| Stock compensation expense: | ||||||||||||||
| Included in general and administrative | 3,108 | 3,609 | ||||||||||||
| Included in cost of services | 784 | 1,029 | ||||||||||||
| Depreciation and amortization | 34,808 | 37,666 | ||||||||||||
| Take private transaction costs | — | 846 | ||||||||||||
| Adjusted EBITDA | $ | 151,445 | $ | 141,568 | ||||||||||
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Summary Financial Results
Three Months Ended March 31, 2026
The following tables reconcile our segment performance measures to our consolidated operating results:
| Three Months Ended March 31, 2026 | |||||||||||||||||||||||||||||
| Critical Illness Recovery Hospital | Rehabilitation Hospital | Outpatient Rehabilitation | Other | Total | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Revenue | $ | 638,776 | $ | 351,942 | $ | 321,300 | $ | 109,458 | $ | 1,421,476 | |||||||||||||||||||
| Operating expenses | (565,343) | (270,864) | (299,316) | (149,869) | (1,285,392) | ||||||||||||||||||||||||
| Depreciation and amortization | (17,651) | (9,215) | (9,149) | (1,651) | (37,666) | ||||||||||||||||||||||||
| Income (loss) from operations | $ | 55,782 | $ | 71,863 | $ | 12,835 | $ | (42,062) | $ | 98,418 | |||||||||||||||||||
| Depreciation and amortization | 17,651 | 9,215 | 9,149 | 1,651 | 37,666 | ||||||||||||||||||||||||
| Take private transaction costs | — | — | — | 846 | 846 | ||||||||||||||||||||||||
| Stock compensation expense | — | — | — | 4,638 | 4,638 | ||||||||||||||||||||||||
| Adjusted EBITDA | $ | 73,433 | $ | 81,078 | $ | 21,984 | $ | (34,927) | $ | 141,568 | |||||||||||||||||||
| Adjusted EBITDA margin | 11.5 | % | 23.0 | % | 6.8 | % | N/M | 10.0 | % | ||||||||||||||||||||
| Three Months Ended March 31, 2025 | |||||||||||||||||||||||||||||
| Critical Illness Recovery Hospital | Rehabilitation Hospital | Outpatient Rehabilitation | Other | Total | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Revenue | $ | 637,030 | $ | 307,388 | $ | 307,342 | $ | 101,412 | $ | 1,353,172 | |||||||||||||||||||
| Operating expenses | (550,381) | (236,964) | (283,069) | (135,205) | (1,205,619) | ||||||||||||||||||||||||
| Depreciation and amortization | (16,648) | (7,378) | (9,052) | (1,730) | (34,808) | ||||||||||||||||||||||||
| Income (loss) from operations | $ | 70,001 | $ | 63,046 | $ | 15,221 | $ | (35,523) | $ | 112,745 | |||||||||||||||||||
| Depreciation and amortization | 16,648 | 7,378 | 9,052 | 1,730 | 34,808 | ||||||||||||||||||||||||
| Stock compensation expense | — | — | — | 3,892 | 3,892 | ||||||||||||||||||||||||
| Adjusted EBITDA | $ | 86,649 | $ | 70,424 | $ | 24,273 | $ | (29,901) | $ | 151,445 | |||||||||||||||||||
| Adjusted EBITDA margin | 13.6 | % | 22.9 | % | 7.9 | % | N/M | 11.2 | % | ||||||||||||||||||||
Net income was $63.8 million for the three months ended March 31, 2026, compared to $74.7 million for the three months ended March 31, 2025.
The following table summarizes the changes in our segment performance measures for the three months ended March 31, 2026, compared to the three months ended March 31, 2025:
| Critical Illness Recovery Hospital | Rehabilitation Hospital | Outpatient Rehabilitation | Other | Total | |||||||||||||||||||||||||
| Change in revenue | 0.3 | % | 14.5 | % | 4.5 | % | 7.9 | % | 5.0 | % | |||||||||||||||||||
| Change in income from operations | (20.3) | % | 14.0 | % | (15.7) | % | N/M | (12.7) | % | ||||||||||||||||||||
| Change in Adjusted EBITDA | (15.3) | % | 15.1 | % | (9.4) | % | N/M | (6.5) | % | ||||||||||||||||||||
N/M Not meaningful.
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Regulatory Changes
Our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on February 19, 2026, contains a detailed discussion of the regulations that affect our business in Part I — Business — Government Regulations. The following is a discussion of some of the more significant healthcare regulatory changes that have affected our financial performance in the periods covered by this report, or are likely to affect our financial performance and financial condition in the future. The information below should be read in conjunction with the more detailed discussion of regulations contained in our Form 10-K.
Medicare Reimbursement
The Medicare program reimburses healthcare providers for services furnished to Medicare beneficiaries, which are generally persons age 65 and older, those who are chronically disabled, and those suffering from end stage renal disease. The program is governed by the Social Security Act of 1965 and is administered primarily by the Department of Health and Human Services (“HHS”) and CMS. Revenue generated directly from the Medicare program represented approximately 31% and 29% of our revenue for the three months ended March 31, 2026, and for the year ended December 31, 2025, respectively.
One Big Beautiful Bill Act
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (Pub. L. No. 119-21) (“OBBBA”) into law. OBBBA made several significant changes to Medicaid funding and coverage requirements that will impact many health care providers. The Congressional Budget Office (“CBO”) estimates that OBBBA will reduce federal funding for Medicaid and the Children’s Health Insurance Program by approximately $1 trillion over the next 10 years. The OBBBA includes significant changes to Medicaid provider taxes, provider tax waivers, and state directed payments (“SDPs”). On January 29, 2026, CMS issued a final rule titled "Preserving Medicaid Funding for Vulnerable Populations - Closing a Health Care-Related Tax Loophole.” Effective April 3, 2026, the rule finalizes and codifies proposed regulations under the OBBBA to close a loophole that currently allows some health care-related taxes, especially taxes on managed care organizations, to be imposed at higher tax rates on Medicaid taxable units than non-Medicaid taxable units. It is likely that some states will need to reform their Medicaid programs to account for the reduced federal funding under the OBBBA. Responses by affected states could include adjustments to provider tax assessments, cuts to their Medicaid reimbursement rates for providers, or eliminating Medicaid coverage for certain optional services or patient populations. On February 2, 2026, CMS issued updated guidance addressing the new limits in OBBBA on SDPs for inpatient hospital services, outpatient hospital services, nursing facility services, and qualified practitioner services at academic medical centers. Medicaid programs use SDPs to increase Medicaid managed care organization payment rates for certain services. Section 71116 of OBBBA requires CMS to limit SDP payment rates for the specified services to 100% of the Medicare rate in Medicaid expansion states and 110% of the Medicare rate in non-expansion states. The updated guidance states that CMS intends to issue a proposed rule to implement OBBBA’s new limits on SDPs, and this rule could extend the limits on SDPs for other services beyond the four services mandated by Section 71116 of OBBBA. In addition, the updated guidance expands the time-period slightly to determine whether a state’s SDP is eligible for the temporary grandfathering provision in OBBBA that allows certain existing SDPs to exceed the new limits until the first rating period that begins on or after January 1, 2028. At this time, we cannot estimate the OBBBA’s impact, nor can we predict the timing of that impact, on our future financial condition or results of operations; however, we may experience decreased reimbursement from governmental health care programs as a result of OBBBA, including the law’s changes to Medicaid provider taxes and SDPs. Additionally, as discussed below under the “Medicare Reimbursement of Outpatient Rehabilitation Clinic Services,” CMS implemented a statutory increase of 2.5% to the calendar year 2026 Medicare physician fee schedule (“MPFS”) conversion factor, as required by the OBBBA.
The CBO sent an August 15, 2025, letter to Democratic budget and finance committee leaders in Congress estimating that OBBBA will increase the federal deficit by $2.1 trillion from 2025 to 2029 and by $3.4 trillion from 2025 to 2034, triggering Pay-As-You-Go (“PAYGO”) Act cuts to government spending through a sequestration provision. A sequestration cut under the Budget Control Act (“BCA”) of 2011 (Pub. L. 112-25) currently reduces Medicare payments to all providers and suppliers by 2%. Medicare payments would have been reduced by an additional 4% as a result of a PAYGO sequestration order, without relief from Congress. However, the Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026 (Pub. L. No. 119-37) reset the PAYGO scorecards to zero at the end of 2025. This eliminated the 4% PAYGO sequestration cut to Medicare payments in 2026. The 2% BCA sequestration cut to Medicare payments will continue to apply.
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Medicare Reimbursement of LTCH Services
The following is a summary of significant regulatory changes to the Medicare prospective payment system for our critical illness recovery hospitals, which are certified by Medicare as LTCHs, which have affected our results of operations, as well as the policies and payment rates that may affect our future results of operations. Medicare payments to our critical illness recovery hospitals are made in accordance with the long-term care hospital prospective payment system (“LTCH-PPS”).
Fiscal Year 2025. On August 28, 2024, CMS published a final rule updating policies and payment rates for the LTCH-PPS for fiscal year 2025 (affecting discharges and cost reporting periods beginning on or after October 1, 2024, through September 30, 2025). Certain errors in the final rule were corrected in a document published on October 2, 2024. In an interim final action document published on October 3, 2024, CMS also made modifications to the fiscal year 2025 policies and payment rates as a result of a decision issued by the United States Court of Appeals for the District of Columbia Circuit. The standard federal rate for fiscal year 2025 was set at $49,383, an increase from the standard federal rate applicable during fiscal year 2024 of $48,117. The update to the standard federal rate for fiscal year 2025 included a market basket increase of 3.5%, less a productivity adjustment of 0.5%. The standard federal rate also included an area wage budget neutrality factor of 0.9964315. The fixed-loss amount for high cost outlier cases paid under LTCH-PPS was set at $77,048, an increase from the fixed-loss amount in the 2024 fiscal year of $59,873. The fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate was set at $46,217, an increase from the fixed-loss amount in the 2024 fiscal year of $42,750.
Fiscal Year 2026. On August 4, 2025, CMS published a final rule updating policies and payment rates for the LTCH-PPS for fiscal year 2026 (affecting discharges and cost reporting periods beginning on or after October 1, 2025, through September 30, 2026). The standard federal rate for fiscal year 2026 is $50,825, an increase from the standard federal rate applicable during fiscal year 2025 of $49,383. The update to the standard federal rate for fiscal year 2026 includes a market basket increase of 3.4%, less a productivity adjustment of 0.7%. The standard federal rate also includes an area wage budget neutrality factor of 1.0021275. The fixed-loss amount for high cost outlier cases paid under LTCH-PPS is $78,936, an increase from the fixed-loss amount in the 2025 fiscal year of $77,048. The fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate is $40,397, a decrease from the fixed-loss amount in the 2025 fiscal year of $46,217.
Fiscal Year 2027. On April 14, 2026, CMS published a proposed rule to update policies and payment rates for the LTCH-PPS for fiscal year 2027 (affecting discharges and cost reporting periods beginning on or after October 1, 2026, through September 30, 2027). The proposed standard federal rate for fiscal year 2027 is $52,177, an increase from the standard federal rate applicable during fiscal year 2026 of $50,825. The proposed update to the standard federal rate for fiscal year 2027 includes a market basket increase of 3.2%, less a productivity adjustment of 0.8%. The proposed standard federal rate also includes an area wage budget neutrality factor of 1.0025505. The proposed fixed-loss amount for high cost outlier cases paid under LTCH-PPS is $78,936, which is the same fixed-loss amount CMS adopted for fiscal year 2026. The proposed fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate is $51,679, an increase from the fixed-loss amount in the 2026 fiscal year of $40,397.
Criteria for Reconciliation of Outlier Payments
Under the LTCH-PPS, CMS makes two types of outlier payments to LTCHs. First, CMS makes additional payments to LTCHs for high cost outlier cases that have extraordinarily high costs relative to the costs of most discharges. For these cases, CMS sets a fixed-loss amount each year that represents the maximum loss an LTCH will incur for a case before qualifying for a high cost outlier payment. A high cost outlier threshold equal to the LTCH-PPS adjusted federal payment for the case plus the fixed-loss amount determines when Medicare pays a high cost outlier payment. Such payments are based on 80% of the estimated cost of the case above the high cost outlier threshold. Second, CMS reduces payments to LTCHs for patients with a relatively short stay, which is defined as a length of stay less than or equal to five-sixths of the geometric average length of stay for that particular “MS-LTC-DRG”, which is a Medicare severity long-term diagnosis-related group for LTCHs. Short stay outlier cases are paid using a per diem rate based on 120% of the MS-LTC-DRG specific per diem amount and an inpatient prospective payment system per diem amount.
Outlier payments made to LTCHs during the cost reporting year may be reconciled at cost report settlement by the Medicare Administrative Contractor (“MAC”) if certain criteria are met. According to CMS, the reconciliation of outlier payments is intended to account for the fact that the LTCH’s cost-to-charge ratio (“CCR”) used to pay Medicare claims during the cost reporting year may differ from the LTCH’s final CCR for the year calculated by the MAC at cost report settlement. The outlier reconciliation criteria were: (1) a change in the LTCH’s CCR of 10 percentage points or more when comparing the actual CCR to the CCR used during the cost reporting period to make outlier payments; and (2) the LTCH received at least $500,000 in outlier payments during the cost reporting period. If the criteria for outlier reconciliation are met, the MAC will conduct an outlier reconciliation to determine whether the LTCH was overpaid or underpaid for outlier cases. If the LTCH was overpaid, the LTCH must repay Medicare in the amount of the overpayment plus the time value of money (i.e., interest). If the LTCH was underpaid, Medicare must pay the LTCH in the amount of the underpayment plus the time value of money.
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On April 26, 2024, CMS issued new guidance in Transmittal 12594 changing the criteria for LTCH outlier reconciliations. CMS modified the first criterion to a change in the LTCH’s CCR of 20 percent or more from the CCR used to make outlier payments during the cost reporting period. CMS did not change the second criterion for reconciliation that the LTCH must have received at least $500,000 in outlier payments during the cost reporting period. CMS added a new requirement that every new LTCH will be subject to outlier reconciliation. The revised policy was scheduled to be effective for cost reporting periods beginning on or after October 1, 2024. However, CMS issued Transmittal 13428 on September 22, 2025, to delay the effective date by one year, for cost reporting periods beginning on or after October 1, 2025. MACs should receive the first cost reports subject to the revised policy in March 2027.
Setting the threshold at 20 percent for changes in the hospital’s CCR will result in more outlier reconciliations. This increases the likelihood that LTCHs will have a portion of their outlier payments recouped by the MAC at cost report settlement. Because outlier reconciliations often delay the final settlement of cost reports, and providers cannot appeal disputed reimbursement amounts until the cost report is settled, this new policy will likely result in additional delays of reimbursement appeals related to LTCH cost reports.
Medicare Reimbursement of IRF Services
The following is a summary of significant regulatory changes to the Medicare prospective payment system for our rehabilitation hospitals, which are certified by Medicare as IRFs, which have affected our results of operations, as well as the policies and payment rates that may affect our future results of operations. Medicare payments to our rehabilitation hospitals are made in accordance with the inpatient rehabilitation facility prospective payment system (“IRF-PPS”).
Fiscal Year 2025. On August 6, 2024, CMS published the final rule to update policies and payment rates for the IRF-PPS for fiscal year 2025 (affecting discharges and cost reporting periods beginning on or after October 1, 2024, through September 30, 2025). Certain errors in the final rule were corrected in a document published on October 2, 2024. The standard payment conversion factor for discharges for fiscal year 2025 was set at $18,907, an increase from the standard payment conversion factor applicable during fiscal year 2024 of $18,541. The update to the standard payment conversion factor for fiscal year 2025 included a market basket increase of 3.5%, less a productivity adjustment of 0.5%. CMS increased the outlier threshold amount for fiscal year 2025 to $12,043 from $10,423 established in the final rule for fiscal year 2024.
Fiscal Year 2026. On August 5, 2025, CMS published the final rule to update policies and payment rates for the IRF-PPS for fiscal year 2026 (affecting discharges and cost reporting periods beginning on or after October 1, 2025, through September 30, 2026). Certain errors in the final rule were corrected in a document published on December 17, 2025. The standard payment conversion factor for discharges for fiscal year 2026 was set at $19,371, an increase from the standard payment conversion factor applicable during fiscal year 2025 of $18,907. The update to the standard payment conversion factor for fiscal year 2026 included a market basket increase of 3.3%, less a productivity adjustment of 0.7%. CMS decreased the outlier threshold amount for fiscal year 2026 to $10,141 from $12,043 established in the final rule for fiscal year 2025.
Fiscal Year 2027. On April 6, 2026, CMS published a proposed rule to update policies and payment rates for the IRF-PPS for fiscal year 2027 (affecting discharges and cost reporting periods beginning on or after October 1, 2026, through September 30, 2027). The standard payment conversion factor for discharges for fiscal year 2027 would be set at $19,881, an increase from the standard payment conversion factor applicable during fiscal year 2026 of $19,371. The update to the standard payment conversion factor for fiscal year 2027, if adopted, would include a market basket increase of 3.2%, less a productivity adjustment of 0.8%. CMS proposed to decrease the outlier threshold amount for fiscal year 2027 to $8,689 from $10,141 established in the final rule for fiscal year 2026.
Medicare Reimbursement of Outpatient Rehabilitation Clinic Services
Our Annual Report on Form 10-K for the year ended December 31, 2025 contains a detailed discussion of Medicare reimbursement that affects our outpatient rehabilitation clinic operations in Part I — Business — Government Regulations. Outpatient rehabilitation providers enroll in Medicare as a rehabilitation agency, a clinic, or a public health agency. The Medicare program reimburses outpatient rehabilitation providers based on the Medicare physician fee schedule.
For calendar year 2025, CMS reduced Medicare payments for the physical and occupational therapy services we provide by approximately 3%.
Congress directed the Secretary to increase calendar year 2026 MPFS payments by 2.5% in section 71202 of OBBBA. In the calendar year 2026 MPFS final rule, CMS implemented this OBBBA statutory 2.5% increase to the conversion factor for calendar year 2026, along with the two separate conversion factors based on alternative payment model (“APM”) participation as required under the Medicare Access and CHIP Reauthorization Act ("MACRA"). Starting in 2026, as required by MACRA, eligible professionals participating in an APM who meet certain criteria will receive an annual update of 0.75%, while all other
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professionals will receive an annual update of 0.25%. CMS expects that its policies for 2026 will result in a 1% decrease in Medicare payments for the therapy specialty but it did not consider the statutory increases to the conversion factor and APM in its therapy specialty estimated impact. After factoring in these statutory increases, the calendar year 2026 MPFS final rule will increase Medicare payments for the physical and occupational therapy services we provide by approximately 2%.
The increase to the conversion factors is mitigated by a new -2.5% efficiency adjustment applied to certain work relative value units (“RVUs”) for certain non-time-based services and an update to the practice expense RVU methodology. The efficiency adjustment reduces PFS payments for certain non-time-based codes, some of which are used by our physical and occupational therapists. The new practice expense methodology reduces certain facility practice expense RVUs allocated based on work RVUs.
Modifiers to Identify Services of Physical Therapy Assistants or Occupational Therapy Assistants
Our Annual Report on Form 10-K for the year ended December 31, 2025, contains a detailed discussion of Medicare regulations concerning services provided by physical therapy assistants and occupational therapy assistants in Part I — Business — Government Regulations and in Part II — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Regulatory Changes. There have been no significant updates to these regulations subsequently.
New Provider-Based Attestation and Separate NPI Requirements for Off-Campus Outpatient Departments
CMS requires that off-campus outpatient departments meet the provider-based entity requirements at 42 C.F.R. § 413.65. CMS currently allows providers to submit a voluntary attestation of compliance with the applicable provider-based entity requirements. However, section 6225 of the Consolidated Appropriations Act, 2026 (“CAA”) (Pub. L. No. 119-75) added a new mandatory provider-based entity attestation requirement for off-campus outpatient departments. Subject to new CMS regulations implementing the CAA, after January 1, 2028, Medicare will not pay for services and items under the Outpatient Prospective Payment System (“OPPS”) or the MPFS provided by an off-campus outpatient department of a provider, unless: (1) the provider submits an attestation confirming that its off-campus outpatient department complies with the Medicare provider-based entity regulation, and (2) the off-campus outpatient department has its own National Provider Identifier (“NPI”) and bills for services under that NPI. The CAA requires that CMS conduct rulemaking to implement these new requirements. That rulemaking should address how frequently a provider must submit subsequent attestations of continued compliance with the provider-based entity requirements. Many of our outpatient rehabilitation clinics are off-campus provider-based departments of our rehabilitation hospitals. Subject to CMS rulemaking, we expect that these off-campus outpatient departments will need to comply with the new attestation and NPI requirements to continue receiving payment under the MPFS after January 1, 2028.
New CMS Fraud Initiatives
CMS is implementing several new initiatives to prevent fraud, waste, and abuse in the Medicare program. On February 25, 2026, CMS issued a request for information (“RFI”) for the Comprehensive Regulations to Uncover Suspicious Healthcare (“CRUSH”) initiative. The RFI seeks input on potential regulatory or policy changes to address fraud in Medicare, Medicaid, Medicare Advantage, and other federal health care programs. As part of the CRUSH initiative, CMS is considering modifications to program integrity requirements, enhanced identity proofing and ownership requirements, reducing the claim filing deadline for high-risk items and services, and using artificial intelligence to increase the efficiency and accuracy of hospital billing. The policies developed under this initiative could increase the administrative burden for our providers.
The CMS Innovation Center also launched the Wasteful and Inappropriate Service Reduction (“WISeR”) model on January 1, 2026, in six states (New Jersey, Ohio, Oklahoma, Texas, Arizona, and Washington). The WISeR model, which is scheduled to run until December 31, 2031, uses artificial intelligence and other enhanced technologies to conduct medical necessity reviews of certain services and items with historically elevated risk of fraud, including skin and tissue substitutes, implantation of electrical nerve stimulators, and knee arthroscopy for knee osteoarthritis. Providers in the selected states will need to obtain prior authorization from the technology company contractor, known as the WISeR participant, for the selected services. If the provider does not request prior authorization, the WISeR participant will conduct a pre-payment medical review. WISeR participants use enhanced technologies, including artificial intelligence, for these tasks. The WISeR model could increase the administrative burdens for our providers in the selected states.
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Operating Statistics
The following table sets forth operating statistics for each of our segments for the periods presented. The operating statistics reflect data for the period of time we managed these operations. Our operating statistics include metrics we believe provide relevant insight about the number of facilities we operate, volume of services we provide to our patients, and average payment rates for services we provide. These metrics are utilized by management to monitor trends and performance in our businesses and therefore may be important to investors because management may assess our performance based in part on such metrics. Other healthcare providers may present similar statistics, and these statistics are susceptible to varying definitions. Our statistics as presented may not be comparable to other similarly titled statistics of other companies.
| Three Months Ended March 31, | ||||||||||||||
| 2025 | 2026 | |||||||||||||
| Critical illness recovery hospital data: | ||||||||||||||
Number of consolidated hospitals—start of period(1) | 104 | 104 | ||||||||||||
| Number of hospitals acquired | — | — | ||||||||||||
| Number of hospital start-ups | — | — | ||||||||||||
| Number of hospitals closed/sold | — | (1) | ||||||||||||
Number of consolidated hospitals—end of period(1) | 104 | 103 | ||||||||||||
Available licensed beds(3) | 4,432 | 4,380 | ||||||||||||
Admissions(3)(4) | 9,351 | 9,449 | ||||||||||||
Patient days(3)(5) | 291,324 | 284,936 | ||||||||||||
Average length of stay (days)(3)(6) | 32 | 31 | ||||||||||||
Revenue per patient day(3)(7) | $ | 2,179 | $ | 2,234 | ||||||||||
Occupancy rate(3)(8) | 73 | % | 72 | % | ||||||||||
Percent patient days—Medicare(3)(9) | 35 | % | 37 | % | ||||||||||
| Rehabilitation hospital data: | ||||||||||||||
Number of consolidated hospitals—start of period(1) | 23 | 26 | ||||||||||||
| Number of hospitals acquired | — | — | ||||||||||||
| Number of hospital start-ups | — | 1 | ||||||||||||
| Number of hospitals closed/sold | — | — | ||||||||||||
Number of consolidated hospitals—end of period(1) | 23 | 27 | ||||||||||||
Number of unconsolidated hospitals managed—end of period(2) | 12 | 14 | ||||||||||||
| Total number of hospitals (all)—end of period | 35 | 41 | ||||||||||||
Available licensed beds - consolidated hospitals(3) | 1,657 | 1,873 | ||||||||||||
Available licensed beds - unconsolidated hospitals managed(12) | 652 | 765 | ||||||||||||
Admissions(3)(4) | 8,848 | 9,999 | ||||||||||||
Patient days(3)(5) | 122,822 | 138,133 | ||||||||||||
Average length of stay (days)(3)(6) | 14 | 14 | ||||||||||||
Revenue per patient day(3)(7) | $ | 2,234 | $ | 2,296 | ||||||||||
Occupancy rate(3)(8) | 82 | % | 83 | % | ||||||||||
Percent patient days—Medicare(3)(9) | 50 | % | 53 | % | ||||||||||
| Outpatient rehabilitation data: | ||||||||||||||
| Number of consolidated clinics—start of period | 1,617 | 1,617 | ||||||||||||
| Number of clinics acquired | — | — | ||||||||||||
| Number of clinic start-ups | 9 | 4 | ||||||||||||
| Number of clinics closed/sold | (12) | (14) | ||||||||||||
| Number of consolidated clinics—end of period | 1,614 | 1,607 | ||||||||||||
| Number of unconsolidated clinics managed—end of period | 297 | 305 | ||||||||||||
| Total number of clinics (all)—end of period | 1,911 | 1,912 | ||||||||||||
Number of visits(3)(10) | 2,709,964 | 2,831,858 | ||||||||||||
Revenue per visit(3)(11) | $ | 102 | $ | 102 | ||||||||||
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_______________________________________________________________________________
(1)Represents the number of hospitals included in our consolidated financial results at the end of each period presented.
(2)Represents the number of hospitals which are managed by us at the end of each period presented. We have minority ownership interests in these businesses.
(3)Data excludes locations managed by the Company.
(4)Represents the number of patients admitted to our hospitals during the periods presented.
(5)Each patient day represents one patient occupying one bed for one day during the periods presented.
(6)Represents the average number of days in which patients were admitted to our hospitals. Average length of stay is calculated by dividing the number of patient days, as presented above, by the number of patients discharged from our hospitals during the periods presented.
(7)Represents the average amount of revenue recognized for each patient day. Revenue per patient day is calculated by dividing patient service revenues, excluding revenues from certain other ancillary and outpatient services provided at our hospitals, by the total number of patient days.
(8)Represents the portion of our hospitals being utilized for patient care during the periods presented. Occupancy rate is calculated using the number of patient days, as presented above, divided by the total number of bed days available during the period. Bed days available is derived by adding the daily number of available licensed beds for each of the periods presented.
(9)Represents the portion of our patient days which are paid by Medicare. The Medicare patient day percentage is calculated by dividing the total number of patient days which are paid by Medicare by the total number of patient days, as presented above.
(10)Represents the number of visits in which patients were treated at our outpatient rehabilitation clinics during the periods presented.
(11)Represents the average amount of revenue recognized for each patient visit. Revenue per visit is calculated by dividing patient service revenue, excluding revenues from certain other ancillary services, by the total number of visits.
(12)Represents the number of available licensed beds at hospitals which are managed by us at the end of each period presented. We own a minority interest in these businesses.
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Results of Operations
The following table outlines selected operating data as a percentage of revenue for the periods indicated:
| Three Months Ended March 31, | ||||||||||||||
| 2025 | 2026 | |||||||||||||
| Revenue | 100.0 | % | 100.0 | % | ||||||||||
| Costs and expenses: | ||||||||||||||
Cost of services, exclusive of depreciation and amortization(1) | 86.7 | 87.7 | ||||||||||||
| General and administrative | 2.4 | 2.8 | ||||||||||||
| Depreciation and amortization | 2.6 | 2.6 | ||||||||||||
| Total costs and expenses | 91.7 | 93.1 | ||||||||||||
| Income from operations | 8.3 | 6.9 | ||||||||||||
| Equity in earnings of unconsolidated subsidiaries | 0.9 | 0.8 | ||||||||||||
| Interest expense | (2.1) | (1.9) | ||||||||||||
| Income before income taxes | 7.1 | 5.8 | ||||||||||||
| Income tax expense | 1.6 | 1.3 | ||||||||||||
| Net income | 5.5 | 4.5 | ||||||||||||
| Net income attributable to non-controlling interests | 1.3 | 1.4 | ||||||||||||
| Net income attributable to Select Medical Holdings Corporation | 4.2 | % | 3.1 | % | ||||||||||
_______________________________________________________________________________
(1)Cost of services includes personnel expense, facilities expense, and other operating costs.
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The following table summarizes selected financial data by segment for the periods indicated:
| Three Months Ended March 31, | ||||||||||||||||||||
| 2025 | 2026 | % Change | ||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Critical illness recovery hospital | $ | 637,030 | $ | 638,776 | 0.3 | % | ||||||||||||||
| Rehabilitation hospital | 307,388 | 351,942 | 14.5 | |||||||||||||||||
| Outpatient rehabilitation | 307,342 | 321,300 | 4.5 | |||||||||||||||||
Other(1) | 101,412 | 109,458 | 7.9 | |||||||||||||||||
| Total Company | $ | 1,353,172 | $ | 1,421,476 | 5.0 | % | ||||||||||||||
| Income (loss) from operations: | ||||||||||||||||||||
| Critical illness recovery hospital | $ | 70,001 | $ | 55,782 | (20.3) | % | ||||||||||||||
| Rehabilitation hospital | 63,046 | 71,863 | 14.0 | |||||||||||||||||
| Outpatient rehabilitation | 15,221 | 12,835 | (15.7) | |||||||||||||||||
Other(1) | (35,523) | (42,062) | N/M | |||||||||||||||||
| Total Company | $ | 112,745 | $ | 98,418 | (12.7) | % | ||||||||||||||
| Adjusted EBITDA: | ||||||||||||||||||||
| Critical illness recovery hospital | $ | 86,649 | $ | 73,433 | (15.3) | % | ||||||||||||||
| Rehabilitation hospital | 70,424 | 81,078 | 15.1 | |||||||||||||||||
| Outpatient rehabilitation | 24,273 | 21,984 | (9.4) | |||||||||||||||||
Other(1) | (29,901) | (34,927) | N/M | |||||||||||||||||
| Total Company | $ | 151,445 | $ | 141,568 | (6.5) | % | ||||||||||||||
| Adjusted EBITDA margins: | ||||||||||||||||||||
| Critical illness recovery hospital | 13.6 | % | 11.5 | % | ||||||||||||||||
| Rehabilitation hospital | 22.9 | 23.0 | ||||||||||||||||||
| Outpatient rehabilitation | 7.9 | 6.8 | ||||||||||||||||||
Other(1) | N/M | N/M | ||||||||||||||||||
| Total Company | 11.2 | % | 10.0 | % | ||||||||||||||||
| Total assets: | ||||||||||||||||||||
| Critical illness recovery hospital | $ | 2,696,663 | $ | 2,798,255 | ||||||||||||||||
| Rehabilitation hospital | 1,405,911 | 1,668,331 | ||||||||||||||||||
| Outpatient rehabilitation | 1,415,655 | 1,396,662 | ||||||||||||||||||
Other(1) | 177,774 | 178,835 | ||||||||||||||||||
| Total Company | $ | 5,696,003 | $ | 6,042,083 | ||||||||||||||||
| Purchases of property and equipment: | ||||||||||||||||||||
| Critical illness recovery hospital | $ | 16,671 | $ | 13,804 | ||||||||||||||||
| Rehabilitation hospital | 25,925 | 34,944 | ||||||||||||||||||
| Outpatient rehabilitation | 9,047 | 8,692 | ||||||||||||||||||
Other(1) | 696 | 1,458 | ||||||||||||||||||
| Total Company | $ | 52,339 | $ | 58,898 | ||||||||||||||||
_______________________________________________________________________________
(1) Other includes our corporate administration and shared services, as well as employee leasing services with our non-consolidating subsidiaries. Total assets include certain non-consolidating joint ventures and minority investments in other healthcare related businesses.
N/M Not meaningful.
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Three Months Ended March 31, 2026, Compared to Three Months Ended March 31, 2025
For the three months ended March 31, 2026, we had revenue of $1,421.5 million and income from operations of $98.4 million, as compared to revenue of $1,353.2 million and income from operations of $112.7 million for the three months ended March 31, 2025. For the three months ended March 31, 2026, Adjusted EBITDA was $141.6 million, with an Adjusted EBITDA margin of 10.0%, as compared to Adjusted EBITDA of $151.4 million and an Adjusted EBITDA margin of 11.2% for the three months ended March 31, 2025.
Revenue
Critical Illness Recovery Hospital Segment. Revenue increased 0.3% to $638.8 million for the three months ended March 31, 2026, compared to $637.0 million for the three months ended March 31, 2025. Our revenue per patient day increased 2.5% to $2,234 for the three months ended March 31, 2026, compared to $2,179 for the three months ended March 31, 2025. Our patient days were 284,936 for the three months ended March 31, 2026, compared to 291,324 days for the three months ended March 31, 2025. Occupancy in our critical illness recovery hospitals was 72% and 73% for the three months ended March 31, 2026 and 2025, respectively.
Rehabilitation Hospital Segment. Revenue increased 14.5% to $351.9 million for the three months ended March 31, 2026, compared to $307.4 million for the three months ended March 31, 2025. The increase in revenue was principally attributable to patient days, which increased 12.5% to 138,133 days for the three months ended March 31, 2026, compared to 122,822 days for the three months ended March 31, 2025. Revenue per patient day increased 2.8% to $2,296 for the three months ended March 31, 2026, compared to $2,234 for the three months ended March 31, 2025. Occupancy in our rehabilitation hospitals was 83% and 82% for the three months ended March 31, 2026 and 2025, respectively.
Outpatient Rehabilitation Segment. Revenue increased 4.5% to $321.3 million for the three months ended March 31, 2026, compared to $307.3 million for the three months ended March 31, 2025. The increase in revenue was attributable to patient visits, which increased 4.5% to 2,831,858 visits for the three months ended March 31, 2026, compared to 2,709,964 visits for the three months ended March 31, 2025. Our revenue per visit was $102 for both the three months ended March 31, 2026 and 2025.
Operating Expenses
Our operating expenses consist principally of cost of services and general and administrative expenses. Our operating expenses were $1,285.4 million, or 90.5% of revenue, for the three months ended March 31, 2026, compared to $1,205.6 million, or 89.1% of revenue, for the three months ended March 31, 2025. Our cost of services, a major component of which is labor expense, was $1,246.0 million, or 87.7% of revenue, for the three months ended March 31, 2026, compared to $1,172.6 million, or 86.7% of revenue, for the three months ended March 31, 2025. The increase in our cost of services relative to our revenue was principally attributable to the operating performance of our Critical Illness Recovery Hospital and Outpatient Rehabilitation segments. General and administrative expenses were $39.4 million, or 2.8% of revenue, for the three months ended March 31, 2026, compared to $33.0 million, or 2.4% of revenue, for the three months ended March 31, 2025. The increase in general and administrative expenses was principally attributable to an increase in personnel expense, partially due to the timing of accrued bonuses and a decrease in support services costs charged to Concentra Group Holdings Parent, Inc. under the transition services agreement.
Adjusted EBITDA
Critical Illness Recovery Hospital Segment. Adjusted EBITDA was $73.4 million for the three months ended March 31, 2026, compared to $86.6 million for the three months ended March 31, 2025. Our Adjusted EBITDA margin for the critical illness recovery hospital segment was 11.5% for the three months ended March 31, 2026, compared to 13.6% for the three months ended March 31, 2025. The decreases in our Adjusted EBITDA and Adjusted EBITDA margin during the three months ended March 31, 2026, as compared to the three months ended March 31, 2025, were principally attributable to the increase in personnel expense exceeding the increase in revenue during the quarter.
Rehabilitation Hospital Segment. Adjusted EBITDA increased 15.1% to $81.1 million for the three months ended March 31, 2026, compared to $70.4 million for the three months ended March 31, 2025. Our Adjusted EBITDA margin for the rehabilitation hospital segment was 23.0% for the three months ended March 31, 2026, compared to 22.9% for the three months ended March 31, 2025. The increase in our Adjusted EBITDA for the three months ended March 31, 2026, as compared to the three months ended March 31, 2025, was principally attributable to an increase in revenue.
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Outpatient Rehabilitation Segment. Adjusted EBITDA was $22.0 million for the three months ended March 31, 2026, compared to $24.3 million for the three months ended March 31, 2025. Our Adjusted EBITDA margin for the outpatient rehabilitation segment was 6.8% for the three months ended March 31, 2026, compared to 7.9% for the three months ended March 31, 2025. The decreases in our Adjusted EBITDA and Adjusted EBITDA margin during the three months ended March 31, 2026, as compared to the three months ended March 31, 2025, were principally attributable to an increase in personnel expense, partially offset by an increase in revenue.
Depreciation and Amortization
Depreciation and amortization expense was $37.7 million for the three months ended March 31, 2026, compared to $34.8 million for the three months ended March 31, 2025.
Income from Operations
For the three months ended March 31, 2026, we had income from operations of $98.4 million, compared to $112.7 million for the three months ended March 31, 2025. The decrease in income from operations is attributable to a decrease in the Adjusted EBITDA of our Critical Illness Recovery Hospital and Outpatient Rehabilitation segments and an increase in general and administrative expenses, partially offset by an increase in Adjusted EBITDA within our Rehabilitation Hospital segment.
Equity in Earnings of Unconsolidated Subsidiaries
For the three months ended March 31, 2026, we had equity in earnings of unconsolidated subsidiaries of $12.0 million, compared to $12.5 million for the three months ended March 31, 2025.
Interest
Interest expense was $28.3 million for the three months ended March 31, 2026, compared to $29.1 million for the three months ended March 31, 2025.
Income Tax Expense
We recorded income tax expense of $18.3 million for the three months ended March 31, 2026, which represented an effective tax rate of 22.3%. We recorded income tax expense of $21.5 million for the three months ended March 31, 2025, which represented an effective tax rate of 22.3%.
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Liquidity and Capital Resources
Cash Flows for the Three Months Ended March 31, 2026 and Three Months Ended March 31, 2025
In the following, we discuss cash flows from operating activities, investing activities, and financing activities.
| Three Months Ended March 31, | ||||||||||||||
| 2025 | 2026 | |||||||||||||
| (in thousands) | ||||||||||||||
| Net cash provided by (used in) operating activities | $ | (3,457) | $ | 37,860 | ||||||||||
| Net cash used in investing activities | (52,315) | (56,655) | ||||||||||||
| Net cash provided by financing activities | 49,291 | 17,955 | ||||||||||||
| Net decrease in cash and cash equivalents | (6,481) | (840) | ||||||||||||
| Cash and cash equivalents at beginning of period | 59,694 | 26,523 | ||||||||||||
| Cash and cash equivalents at end of period | $ | 53,213 | $ | 25,683 | ||||||||||
Operating activities provided $37.9 million of cash flows for the three months ended March 31, 2026, compared to $3.5 million of cash flows used by operating activities for the three months ended March 31, 2025. The change in our Net cash provided by (used in) operating activities was attributable to routine changes in net working capital.
Our days sales outstanding was 60 days at March 31, 2026, compared to 57 days at December 31, 2025. Our days sales outstanding was 60 days at March 31, 2025, compared to 58 days at December 31, 2024. Our days sales outstanding will fluctuate based upon variability in our collection cycles and patient volumes.
Investing activities used $56.7 million of cash flows for the three months ended March 31, 2026, principally for the purchase of property and equipment. The principal source of cash was proceeds from sale of assets and business of $2.2 million. Investing activities used $52.3 million of cash flows for the three months ended March 31, 2025, principally for the purchase of property and equipment.
Financing activities provided $18.0 million of cash flows for the three months ended March 31, 2026. The principal sources of cash were net borrowings under our revolving facility of $25.0 million, net borrowings on other debt of $9.5 million, and proceeds of $5.9 million from the issuance of non-controlling interests. The principal uses of cash were $14.7 million for distributions to and purchases of non-controlling interests and $7.8 million of dividend payments to common stockholders. Financing activities provided $49.3 million of cash flows for the three months ended March 31, 2025. The principal sources of cash were net borrowings under our revolving facilities of $75.0 million and net borrowings on our other debt of $8.3 million. The principal uses of cash were $14.7 million for distributions to and purchases of non-controlling interests, $11.4 million for repurchases of common stock, and $8.1 million of dividend payments to common stockholders.
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Capital Resources
Working capital. We had net working capital of $141.7 million at March 31, 2026, compared to $40.8 million at December 31, 2025. The increase in net working capital was principally due to an increase in our accounts receivable.
Credit facilities. At March 31, 2026, Select had outstanding borrowings under its credit facilities consisting of a $1,036.9 million term loan (excluding unamortized original issue discounts and debt issuance costs of $6.8 million) and borrowings of $125.0 million under its revolving facility. At March 31, 2026, Select had $443.5 million of availability under its revolving facility after giving effect to $31.5 million of outstanding letters of credit.
Stock Repurchase Program. Holdings’ Board of Directors has authorized a common stock repurchase program to repurchase up to $1.0 billion worth of shares of its common stock. The common stock repurchase program will remain in effect until December 31, 2027, unless further extended or earlier terminated by the Board of Directors. Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as Holdings deems appropriate. Holdings funds this program with cash on hand and borrowings under its revolving facility. Holdings did not repurchase shares under the program during the three months ended March 31, 2026. Since the inception of the program through March 31, 2026, Holdings has repurchased 54,610,335 shares at a cost of approximately $696.8 million, or $12.76 per share, which includes transaction costs. On August 16, 2022, Congress passed the Inflation Reduction Act of 2022, which enacted a 1% excise tax on stock repurchases that exceed $1.0 million, effective January 1, 2023. Since the inception of the program through March 31, 2026, $0.8 million has been incurred for the 1% excise tax as a cost of the stock repurchase.
Use of Capital Resources. We may from time to time pursue opportunities to develop new joint venture relationships with large, regional health systems and other healthcare providers. We also intend to open new outpatient rehabilitation clinics in local areas that we currently serve where we can benefit from existing referral relationships and brand awareness to produce incremental growth. In addition to our development activities, we may grow through opportunistic acquisitions.
Liquidity
We believe our internally generated cash flows and borrowing capacity under our revolving facility will allow us to finance our operations in both the short and long term. As of March 31, 2026, we had cash and cash equivalents of $25.7 million and $443.5 million of availability under our revolving facility after giving effect to $125.0 million of outstanding borrowings and $31.5 million of outstanding letters of credit.
We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions, tender offers or otherwise. Such repurchases or exchanges, if any, may be funded from operating cash flows or other sources and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Dividend
On February 12, 2026, our Board of Directors declared a cash dividend of $0.0625 per share. On March 12, 2026, a cash dividend totaling $7.8 million was paid.
On April 29, 2026, the Company’s Board of Directors declared a cash dividend of $0.0625 per share. The dividend will be payable on or about May 28, 2026, to stockholders of record as of the close of business on May 14, 2026.
There is no assurance that future dividends will be declared. The declaration and payment of dividends in the future are at the discretion of our Board of Directors after taking into account various factors, including, but not limited to, our financial condition, operating results, available cash and current and anticipated cash needs, the terms of our indebtedness, and other factors our Board of Directors may deem to be relevant.
Effects of Inflation
The healthcare industry is labor intensive and our largest expenses are labor related costs. Wage and other expenses increase during periods of inflation and when labor shortages occur in the marketplace. We have recently experienced higher labor costs related to an inflationary environment and competitive labor market. In addition, suppliers have passed along rising costs to us in the form of higher prices. Higher prices could also result from the impact of proposed tariffs. We cannot predict our ability to pass along cost increases to our customers.
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Recent Accounting Pronouncements
Refer to Note 2 – Accounting Policies of the notes to our condensed consolidated financial statements included herein for information regarding recent accounting pronouncements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to interest rate risk in connection with our variable rate long-term indebtedness. Our principal interest rate exposure relates to the loans outstanding under our credit facilities, which bear interest rates that are indexed against Term SOFR.
At March 31, 2026, Select had outstanding borrowings under its credit facilities consisting of a $1,036.9 million term loan (excluding unamortized original issue discounts and debt issuance costs of $6.8 million) and $125.0 million of borrowings under its revolving facility, which bear interest at variable rates.
In order to mitigate our exposure to rising interest rates, we entered into an interest rate cap effective on March 31, 2025, which limits the Term SOFR rate to 4.5% on $1.0 billion of principal outstanding under our term loan. The agreement applies to interest payments through March 31, 2028. As of March 31, 2026, the Term SOFR rate was 3.66%. As of March 31, 2026, we had $36.9 million of term loan borrowings which would still be subject to variable interest rates if the Term SOFR rate were to exceed 4.5%.
As of March 31, 2026, the first 0.25% increase in market interest rates will impact the annual interest expense on our variable rate debt by approximately $2.9 million per year.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered in this report. Based on this evaluation, as of March 31, 2026, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures, including the accumulation and communication of disclosure to our principal executive officer and principal financial officer as appropriate to allow timely decisions regarding disclosure, are effective to provide reasonable assurance that material information required to be included in our periodic SEC reports is recorded, processed, summarized, and reported within the time periods specified in the relevant SEC rules and forms.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) identified in connection with the evaluation required by Rule 13a-15(d) of the Securities Exchange Act of 1934 that occurred during the first quarter ended March 31, 2026, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions.
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Refer to the “Litigation” section contained within Note 12 – Commitments and Contingencies of the notes to our condensed consolidated financial statements included herein.
ITEM 1A. RISK FACTORS
The risk factors set forth in this report update, and should be read together with, the risk factors discussed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025.
Stockholder litigation could prevent or delay the closing of the Merger or otherwise negatively impact our business, operating results, and financial condition.
We may incur additional costs in connection with the defense or settlement of any stockholder litigation relating to the Merger. Such litigation may adversely affect our ability to complete the Merger. We could incur significant costs in connection with any such litigation, including costs associated with our indemnification obligations to our Board of Directors.
The announcement and pendency of the proposed Merger may result in disruptions to our business which could adversely affect our business, operating results, and financial condition.
The announcement and pendency of the proposed Merger could cause disruptions or uncertainty surrounding our business, that could adversely affect our operating results and financial condition, regardless of whether the proposed Merger is completed. Such risks include, but are not limited to the following, all of which could be exacerbated by a delay in the completion of the proposed Merger:
• We may not be able to attract, retain, and motivate our employees, including key personnel. Any loss or distraction of such employees could adversely affect our business and operating results.
• We have diverted, and will continue to divert, significant management resources, and have expended, and will continue to expend, significant cash amounts, toward the completion of the proposed Merger, which could adversely affect our business, operating results, and financial condition.
• We may face difficulties maintaining relationships with our existing and potential patients, suppliers, and other business partners.
• There could be potential uncertainty regarding our future plans and strategy, including business model changes and transformation.
• The possibility of negative publicity or a negative impression of us in the financial markets could result from the announcement and pendency of the proposed Merger.
• We may be unable to pursue strategic business opportunities or to take certain actions with respect to our business that we may consider advantageous because of restrictions in the Merger Agreement.
• There could be other developments beyond our control that may affect the timing or success of the proposed Merger.
Failure to consummate the proposed Merger within the expected timeframe, or at all, may adversely affect our business, operating results, and financial condition.
Consummation of the proposed Merger is subject to several conditions beyond our control. If any of these conditions are not satisfied or waived, it is possible the proposed Merger will not be consummated in the expected time frame, or at all. For example, the proposed Merger requires: (a) the affirmative vote of (1) the holders of the Company's common stock representing a majority of the aggregate voting power of the outstanding common stock entitled to vote thereon and (2) holders of the Company's common stock representing a majority of the aggregate voting power of the outstanding common stock entitled to vote thereon that are not beneficially owned (directly or indirectly) by Parent, Merger Sub, the Rollover Holders (as defined in the Merger Agreement) and their respective affiliates, “associates” or members of their respective “immediate family” (as such terms are respectively defined in Rules 12b-2 and 16a-1 of the Securities Exchange Act of 1934, as amended) (collectively, the “Requisite Stockholder Approvals”); (b) the absence of any order or other action that is in effect (whether temporary, preliminary or permanent) by a governmental authority restraining, enjoining or otherwise prohibiting the consummation of the proposed Merger or applicable law that is in effect that makes consummation of the Merger illegal or otherwise prohibited and (c) the expiration or termination of the applicable waiting period (and any extension thereof, including pursuant to any timing or
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similar agreement with a governmental entity) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; and (d) the receipt of certain required regulatory approvals, including certain healthcare regulatory approvals required in connection with the change of control of the Company and its licensed healthcare facilities. There is no assurance that the various conditions will be satisfied, or that the proposed Merger will be consummated on the proposed terms, within the expected timeframe, or at all.
The proposed Merger may be delayed, and ultimately not be completed, due to a number of factors, including, but not limited to:
• the failure to obtain the Requisite Stockholder Approval;
• the failure to receive the consents required under certain antitrust and foreign investment laws (or the imposition of any conditions, limitations, or restrictions on such consents);
• the failure to obtain the required healthcare regulatory approvals;
• failure to satisfy the other conditions to the consummation of the proposed Merger; and
• current or potential future stockholder litigation and other legal and regulatory proceedings.
If the proposed Merger is delayed or does not close, we may suffer consequences that could adversely affect our business, operating results and financial condition. We have incurred, and will continue to incur, significant costs, expenses, and fees for professional services and other transaction costs in connection with the proposed Merger, for which we will have received little or no benefit if the proposed Merger is not consummated. Many of these fees and costs are payable regardless of whether or not the proposed Merger is consummated. If there is any delay in the consummation of the proposed Merger, these costs could increase significantly. Under certain circumstances, if the Company terminates the proposed Merger it will be required to pay the Company Termination Fee, which could adversely affect our financial condition.
The obligation of each party to consummate the proposed Merger is also conditioned upon each party's representations and warranties being true and correct to the extent specified in the Merger Agreement. Any failure to consummate the proposed Merger may result in negative publicity or a negative impression of us among our customers or in the investment community or business community generally which may cause the price of our common stock to decline.
If the proposed Merger is consummated, our stockholders will not be able to participate in any further upside to our business.
If the proposed Merger is consummated, our stockholders (subject to certain exceptions specified in the Merger Agreement) will receive $16.50 in cash per share of the common stock owned by them, without interest thereon and subject to any applicable withholding taxes, and will not receive any equity interests of Parent. As a result, if our business following the proposed Merger performs well, our current stockholders will not receive any additional consideration and will therefore not receive any benefit from any such future performance of our business.
While the Merger Agreement is in effect, we are subject to restrictions on our business activities.
While the Merger Agreement is in effect and subject to certain exceptions (including obtaining prior written consent of Parent, which is not to be unreasonably withheld, conditioned, or delayed) we are generally required to conduct our business in all material respects in the ordinary course, and are restricted from taking certain actions. These restrictions could prevent us from pursuing strategic business opportunities and taking actions with respect to our business that we may consider advantageous and may, as a result, materially and adversely affect our business, results of operations, and financial condition.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer
Holdings’ Board of Directors authorized a common stock repurchase program to repurchase up to $1.0 billion worth of shares of its common stock. The common stock repurchase program will remain in effect until December 31, 2027, unless further extended or earlier terminated by the Board of Directors. Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as Holdings deems appropriate.
During the three months ended March 31, 2026, Holdings did not repurchase shares under the authorized common stock repurchase program. The common stock repurchase program has an available capacity of $303.2 million as of March 31, 2026. Pursuant to the Merger Agreement, the Company is restricted from initiating share repurchases without the prior written consent of Parent.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Plans
During the three months ended March 31, 2026, none of our directors or executive officers adopted or terminated any contract, instruction, or written plan for the purchase or sale of our securities to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement.
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ITEM 6. EXHIBITS
| Number | Description | |||||||
| 2.1 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SELECT MEDICAL HOLDINGS CORPORATION | ||||||||
| By: | /s/ Michael F. Malatesta | |||||||
| Michael F. Malatesta | ||||||||
| Executive Vice President and Chief Financial Officer | ||||||||
| (Duly Authorized Officer) | ||||||||
| By: | /s/ Christopher S. Weigl | |||||||
| Christopher S. Weigl | ||||||||
| Senior Vice President, Controller & Chief Accounting Officer | ||||||||
| (Principal Accounting Officer) | ||||||||
Dated: April 30, 2026
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