Select Medical Holdings Corporation

10/30/2025 | Press release | Distributed by Public on 10/30/2025 14:33

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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 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;
•changes to United States tariff and import/export regulations and the impact on global economic conditions may have a negative effect on our business, financial condition, and results of operations;
•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;
•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;
•the failure to maintain established relationships with the physicians in the areas we serve could reduce our revenue and profitability;
•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, 2024 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.
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 September 30, 2025, we had operations in 40 states and the District of Columbia. We operated 105 critical illness recovery hospitals in 29 states, 36 rehabilitation hospitals in 14 states, and 1,922 outpatient rehabilitation clinics in 39 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 $4,056.2 million for the nine months ended September 30, 2025. Of this total, we earned approximately 46% of our revenue from our critical illness recovery hospital segment, approximately 23% from our rehabilitation hospital segment, and approximately 24% 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 July 26, 2024, Concentra Group Holdings Parent, Inc. ("Concentra"), a then wholly-owned subsidiary of Select, completed an initial public offering of 22,500,000 shares of its common stock, par value $0.01 per share, at an initial public offering price of $23.50 per share for net proceeds of $499.7 million after deducting underwriting discounts and commission of $29.1 million. In addition, the underwriters exercised the option to purchase an additional 750,000 shares of Concentra's common stock for net proceeds of $16.7 million after deducting discounts and commission of $1.0 million. On November 25, 2024, Select completed a tax-free distribution of 104,093,503 shares of common stock of Concentra to its stockholders. Following the completion of the distribution, the Company no longer owns any shares of Concentra common stock. The results of Concentra are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for the three and nine months ended September 30, 2024.
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, income from continuing operations, income from continuing 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 from continuing operations excluding interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, transaction costs associated with the Concentra separation, gain (loss) on sale of businesses, and equity in earnings (losses) of unconsolidated subsidiaries. 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 income from continuing operations, net of tax, to Adjusted EBITDA and should be referenced when we discuss Adjusted EBITDA:
Three Months Ended September 30, Nine Months Ended September 30,
2024 2025 2024 2025
(in thousands)
Income from continuing operations, net of tax $ 41,276 $ 44,180 $ 140,443 $ 176,791
Income tax expense from continuing operations 4,374 11,749 49,269 45,494
Interest expense 31,379 30,021 100,054 89,071
Equity in earnings of unconsolidated subsidiaries (33,069) (12,992) (53,481) (39,122)
Loss on early retirement of debt 10,939 - 10,939 -
Income from continuing operations before other income and expense 54,899 72,958 247,224 272,234
Stock compensation expense:
Included in general and administrative 10,961 3,448 32,517 9,714
Included in cost of services 2,247 807 6,382 2,465
Depreciation and amortization 34,930 34,442 106,583 104,098
Concentra separation transaction costs 861 - 1,696 -
Adjusted EBITDA $ 103,898 $ 111,655 $ 394,402 $ 388,511
Summary Financial Results
Three Months Ended September 30, 2025
The following tables reconcile our segment performance measures to our consolidated operating results:
Three Months Ended September 30, 2025
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation 		Other Total
(in thousands)
Revenue $ 609,929 $ 328,607 $ 325,383 $ 99,526 $ 1,363,445
Operating expenses (553,827) (260,651) (301,185) (140,382) (1,256,045)
Depreciation and amortization (16,146) (7,571) (9,082) (1,643) (34,442)
Income (loss) from continuing operations before other income and expense $ 39,956 $ 60,385 $ 15,116 $ (42,499) $ 72,958
Depreciation and amortization 16,146 7,571 9,082 1,643 34,442
Stock compensation expense - - - 4,255 4,255
Adjusted EBITDA $ 56,102 $ 67,956 $ 24,198 $ (36,601) $ 111,655
Adjusted EBITDA margin 9.2 % 20.7 % 7.4 % N/M 8.2 %
Three Months Ended September 30, 2024
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation 		Other Total
(in thousands)
Revenue $ 582,950 $ 282,709 $ 312,042 $ 93,881 $ 1,271,582
Operating expenses (533,220) (222,592) (283,723) (143,520) (1,183,055)
Depreciation and amortization (17,032) (6,829) (9,121) (1,948) (34,930)
Other operating income 1,033 - - 269 1,302
Income (loss) from continuing operations before other income and expense $ 33,731 $ 53,288 $ 19,198 $ (51,318) $ 54,899
Depreciation and amortization 17,032 6,829 9,121 1,948 34,930
Concentra separation transaction costs - - - 861 861
Stock compensation expense - - - 13,208 13,208
Adjusted EBITDA $ 50,763 $ 60,117 $ 28,319 $ (35,301) $ 103,898
Adjusted EBITDA margin 8.7 % 21.3 % 9.1 % N/M 8.2 %
Income from continuing operations, net of tax, was $44.2 million for the three months ended September 30, 2025, compared to $41.3 million for the three months ended September 30, 2024.
The following table summarizes changes in segment performance measures for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation 		Other Total
Change in revenue 4.6 % 16.2 % 4.3 % 6.0 % 7.2 %
Change in income from continuing operations before other income and expense 18.5 % 13.3 % (21.3) % N/M 32.9 %
Change in Adjusted EBITDA 10.5 % 13.0 % (14.6) % N/M 7.5 %
_______________________________________________________________________________
N/M Not meaningful.
Nine Months Ended September 30, 2025
The following tables reconcile our segment performance measures to our consolidated operating results:
Nine Months Ended September 30, 2025
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation 		Other Total
(in thousands)
Revenue $ 1,848,098 $ 949,770 $ 960,309 $ 298,019 $ 4,056,196
Operating expenses (1,650,584) (740,343) (881,325) (409,204) (3,681,456)
Depreciation and amortization (49,415) (22,441) (27,191) (5,051) (104,098)
Other operating income 1,520 - - 72 1,592
Income (loss) from continuing operations before other income and expense $ 149,619 $ 186,986 $ 51,793 $ (116,164) $ 272,234
Depreciation and amortization 49,415 22,441 27,191 5,051 104,098
Stock compensation expense - - - 12,179 12,179
Adjusted EBITDA $ 199,034 $ 209,427 $ 78,984 $ (98,934) $ 388,511
Adjusted EBITDA margin 10.8 % 22.1 % 8.2 % N/M 9.6 %
Nine Months Ended September 30, 2024
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation 		Other Total
(in thousands)
Revenue $ 1,843,751 $ 816,240 $ 930,696 $ 283,854 $ 3,874,541
Operating expenses (1,608,248) (632,769) (848,678) (434,339) (3,524,034)
Depreciation and amortization (51,779) (21,185) (27,441) (6,178) (106,583)
Other operating income (loss) 3,033 - (2) 269 3,300
Income (loss) from continuing operations before other income and expense $ 186,757 $ 162,286 $ 54,575 $ (156,394) $ 247,224
Depreciation and amortization 51,779 21,185 27,441 6,178 106,583
Concentra separation transaction costs - - - 1,696 1,696
Stock compensation expense - - - 38,899 38,899
Adjusted EBITDA $ 238,536 $ 183,471 $ 82,016 $ (109,621) $ 394,402
Adjusted EBITDA margin 12.9 % 22.5 % 8.8 % N/M 10.2 %
Income from continuing operations, net of tax, was $176.8 million for the nine months ended September 30, 2025, compared to $140.4 million for the nine months ended September 30, 2024.
The following table summarizes the changes in our segment performance measures for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation 		Other Total
Change in revenue 0.2 % 16.4 % 3.2 % 5.0 % 4.7 %
Change in income from continuing operations before other income and expense (19.9) % 15.2 % (5.1) % N/M 10.1 %
Change in Adjusted EBITDA (16.6) % 14.1 % (3.7) % N/M (1.5) %
_______________________________________________________________________________
N/M Not meaningful.
Regulatory Changes
Our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 20, 2025, 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 29% of our revenue for both the nine months ended September 30, 2025, and for the year ended December 31, 2024.
Federal Health Care Program Changes in Response to the COVID-19 Pandemic
On January 31, 2020, HHS declared a public health emergency under section 319 of the Public Health Service Act, 42 U.S.C. § 247d, in response to the COVID-19 outbreak in the United States. The HHS Secretary subsequently renewed the public health emergency determination for 90-day periods through May 11, 2023, the end of the public health emergency.
On March 13, 2020, President Trump declared a national emergency due to the COVID-19 pandemic and the HHS Secretary authorized the waiver or modification of certain requirements under Medicare, Medicaid, and the CHIP program pursuant to section 1135 of the Social Security Act. Under this authority, CMS issued a number of blanket waivers that excused health care providers and suppliers from specific program requirements. Our Annual Report on Form 10-K for the year ended December 31, 2023 contains a detailed discussion of blanket waivers and other actions by CMS in response to the COVID-19 pandemic that affected our operations in Part II - Management's Discussion and Analysis of Financial Condition and Results of Operations - Regulatory Changes.
The American Relief Act, 2025 and Full-Year Continuing Appropriations and Extensions Act, 2025, further extended certain telehealth waivers to March 31, 2025 and September 30, 2025, respectively. CMS issued additional waivers to permit more than 150 additional services to be furnished by telehealth, allow physicians to monitor patient services remotely, and fulfill face-to-face requirements in IRFs. In the calendar year 2025 Medicare physician fee schedule ("MPFS") final rule, CMS extended some of the telehealth flexibilities through December 31, 2025.
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 beginning in 2027 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 proposed changes to Medicaid provider taxes, provider tax waivers and state directed payments ("SDPs"), including new limits on SDPs for inpatient hospital services, outpatient hospital services, and nursing facility services. Under OBBBA, SDP rates will now be capped and will reduce federal Medicaid spending by approximately $149 billion over 10 years. The passage of OBBBA will likely result in many states needing to reform their Medicaid programs to account for the reduced federal funding. Responses by individual states could include adjustments to provider tax assessments, cuts to their Medicaid reimbursement rates for providers, and eliminating Medicaid coverage for certain optional services or patient populations. 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. Additionally, as discussed below under the "Medicare Reimbursement of Outpatient Rehabilitation Clinic Services," the OBBBA requires CMS to implement a statutory increase of 2.5% to the calendar year 2026 MPFS conversion factor.
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. For Medicare spending, the cuts would be capped at 4%, an estimated $45 billion for fiscal year 2026. Sequestration currently reduces Medicare payments to all providers and suppliers by 2% but the cut will likely rise to 4% without relief from Congress. Congress has passed legislation to prevent PAYGO cuts in every other prior instance and would need to do so again to prevent a 4% cut in 2026.
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 2024.On August 28, 2023, CMS published the final rule updating policies and payment rates for the LTCH-PPS for fiscal year 2024 (affecting discharges and cost reporting periods beginning on or after October 1, 2023, through September 30, 2024). Certain errors in the final rule were corrected in documents published October 4, 2023 and November 9, 2023. The standard federal rate for fiscal year 2024 was set at $48,117, an increase from the standard federal rate applicable during fiscal year 2023 of $46,433. The update to the standard federal rate for fiscal year 2024 included a market basket increase of 3.5%, less a productivity adjustment of 0.2%. The standard federal rate also included an area wage budget neutrality factor of 1.0031599. The fixed-loss amount for high cost outlier cases paid under LTCH-PPS was set at $59,873, an increase from the fixed-loss amount in the 2023 fiscal year of $38,518. The fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate was set at $42,750, an increase from the fixed-loss amount in the 2023 fiscal year of $38,788.
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 recent 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.
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. 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 IPPS 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.
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. The revised policy was scheduled to be effective for cost reporting periods beginning on or after October 1, 2024. However, CMS recently issued Transmittal 13428 to delay the effective date by one year, for cost reporting periods beginning on or after October 1, 2025. MACs would 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 2024.On August 2, 2023, CMS published the final rule updating policies and payment rates for the IRF-PPS for fiscal year 2024 (affecting discharges and cost reporting periods beginning on or after October 1, 2023, through September 30, 2024). Certain errors in the final rule were corrected in a document published on October 4, 2023. The standard payment conversion factor for discharges for fiscal year 2024 was set at $18,541, an increase from the standard payment conversion factor applicable during fiscal year 2023 of $17,878. The update to the standard payment conversion factor for fiscal year 2024 included a market basket increase of 3.6%, less a productivity adjustment of 0.2%. CMS decreased the outlier threshold amount for fiscal year 2024 to $10,423 from $12,526 established in the final rule for fiscal year 2023.
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 a 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). 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 $10,062 from $12,043 established in the final rule for fiscal year 2025.
Medicare Reimbursement of Outpatient Rehabilitation Clinic Services
Our Annual Report on Form 10-K for the year ended December 31, 2024 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 2024, CMS expected that its final policies would result in a 3% decrease in Medicare payments for the therapy specialty. The policies CMS announced for the calendar year 2025 MPFS final rule 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 proposed rule, CMS proposes to implement 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 professionals will receive an annual update of 0.25%. CMS expects that its proposed 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%.
CMS also proposes changes to the quality payment program, including changes to support the transition from the Merit-Based Incentive Payment System ("MIPS") to the MIPS Value Pathways ("MVPs"). First, CMS proposes revisions to the existing 21 MVPs that were adopted in the calendar years 2022-2025 final rules. CMS would remove certain measures and improvement activities from these MVPs and add other quality measures for MVP participants to choose from for data reporting. This proposal includes a new "Advancing Health and Wellness" subcategory with new measures to report under the improvement activities performance category. For the rehabilitative support for musculoskeletal care MVP, which is most applicable to clinicians who specialize in rehabilitation support for musculoskeletal care (including physical therapists and occupational therapists), CMS proposes to add two quality measures and three improvement activities, and remove one quality measure. CMS is also considering modifications to four qualified clinical data registry measures for this MVP. Finally, CMS proposes to add six new MVPs. If finalized, these new MVPs would be available for voluntary reporting for the calendar year 2026 performance period.
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, 2024, 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.
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 September 30, Nine Months Ended September 30,
2024 2025 2024 2025
Critical illness recovery hospital data:
Number of consolidated hospitals-start of period(1)
107 104 107 104
Number of hospitals acquired - 1 - 1
Number of hospital start-ups - - 1 -
Number of hospitals closed/sold (1) - (2) -
Number of consolidated hospitals-end of period(1)
106 105 106 105
Available licensed beds(3)
4,512 4,451 4,512 4,451
Admissions(3)(4)
8,676 8,859 27,093 27,176
Patient days(3)(5)
270,760 265,730 844,623 835,970
Average length of stay (days)(3)(6)
31 30 31 31
Revenue per patient day(3)(7)
$ 2,145 $ 2,287 $ 2,175 $ 2,203
Occupancy rate(3)(8)
65 % 65 % 68 % 69 %
Percent patient days-Medicare(3)(9)
35 % 34 % 35 % 35 %
Rehabilitation hospital data:
Number of consolidated hospitals-start of period(1)
21 24 21 23
Number of hospitals acquired - - - -
Number of hospital start-ups 1 - 1 1
Number of hospitals closed/sold - - - -
Number of consolidated hospitals-end of period(1)
22 24 22 24
Number of unconsolidated hospitals managed-end of period(2)
12 12 12 12
Total number of hospitals (all)-end of period 34 36 34 36
Available licensed beds - consolidated hospitals(3)
1,589 1,696 1,589 1,696
Available licensed beds - unconsolidated hospitals managed(12)
632 652 632 652
Admissions(3)(4)
8,439 9,385 25,039 27,335
Patient days(3)(5)
116,835 129,787 350,724 378,536
Average length of stay (days)(3)(6)
14 14 14 14
Revenue per patient day(3)(7)
$ 2,148 $ 2,254 $ 2,119 $ 2,242
Occupancy rate(3)(8)
82 % 83 % 84 % 82 %
Percent patient days-Medicare(3)(9)
48 % 50 % 48 % 50 %
Outpatient rehabilitation data:
Number of consolidated clinics-start of period 1,625 1,620 1,633 1,617
Number of clinics acquired 1 4 7 4
Number of clinic start-ups 5 4 14 20
Number of clinics closed/sold (4) (5) (27) (18)
Number of consolidated clinics-end of period 1,627 1,623 1,627 1,623
Number of unconsolidated clinics managed-end of period 298 299 298 299
Total number of clinics (all)-end of period 1,925 1,922 1,925 1,922
Number of visits(3)(10)
2,773,465 2,924,794 8,336,216 8,568,784
Revenue per visit(3)(11)
$ 101 $ 100 $ 100 $ 101
_______________________________________________________________________________
(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.
Results of Operations
The following table outlines selected operating data as a percentage of revenue for the periods indicated:
Three Months Ended September 30, Nine Months Ended September 30,
2024 2025 2024 2025
Revenue 100.0 % 100.0 % 100.0 % 100.0 %
Costs and expenses:
Cost of services, exclusive of depreciation and amortization(1)
89.3 89.2 87.2 88.1
General and administrative 3.7 2.9 3.8 2.7
Depreciation and amortization 2.7 2.5 2.8 2.6
Total costs and expenses 95.7 94.6 93.8 93.4
Other operating income 0.0 - 0.2 0.1
Income from continuing operations before other income and expense 4.3 5.4 6.4 6.7
Loss on early retirement of debt (0.9) - (0.3) -
Equity in earnings of unconsolidated subsidiaries 2.6 1.0 1.4 1.0
Interest expense (2.4) (2.3) (2.6) (2.2)
Income from continuing operations before income taxes 3.6 4.1 4.9 5.5
Income tax expense from continuing operations 0.4 0.9 1.3 1.1
Income from continuing operations, net of tax 3.2 3.2 3.6 4.4
Discontinued operations:
Income from discontinued business 4.9 - 5.1 -
Income tax expense from discontinued business 1.8 - 1.2 -
Income from discontinued operations, net of tax 3.1 - 3.9 -
Net income 6.3 3.2 7.5 4.4
Net income attributable to non-controlling interests 1.9 1.1 1.6 1.3
Net income attributable to Select Medical Holdings Corporation 4.4 % 2.1 % 5.9 % 3.1 %
_______________________________________________________________________________
(1)Cost of services includes personnel expense, facilities expense, and other operating costs.
The following table summarizes selected financial data by segment for the periods indicated:
Three Months Ended September 30, Nine Months Ended September 30,
2024 2025 % Change 2024 2025 % Change
(in thousands, except percentages)
Revenue:
Critical illness recovery hospital $ 582,950 $ 609,929 4.6 % $ 1,843,751 $ 1,848,098 0.2 %
Rehabilitation hospital 282,709 328,607 16.2 816,240 949,770 16.4
Outpatient rehabilitation 312,042 325,383 4.3 930,696 960,309 3.2
Other(1)
93,881 99,526 6.0 283,854 298,019 5.0
Total Company $ 1,271,582 $ 1,363,445 7.2 % $ 3,874,541 $ 4,056,196 4.7 %
Income (loss) from continuing operations before other income and expense:
Critical illness recovery hospital $ 33,731 $ 39,956 18.5 % $ 186,757 $ 149,619 (19.9) %
Rehabilitation hospital 53,288 60,385 13.3 162,286 186,986 15.2
Outpatient rehabilitation 19,198 15,116 (21.3) 54,575 51,793 (5.1)
Other(1)
(51,318) (42,499) N/M (156,394) (116,164) N/M
Total Company $ 54,899 $ 72,958 32.9 % $ 247,224 $ 272,234 10.1 %
Adjusted EBITDA:
Critical illness recovery hospital $ 50,763 $ 56,102 10.5 % $ 238,536 $ 199,034 (16.6) %
Rehabilitation hospital 60,117 67,956 13.0 183,471 209,427 14.1
Outpatient rehabilitation 28,319 24,198 (14.6) 82,016 78,984 (3.7)
Other(1)
(35,301) (36,601) N/M (109,621) (98,934) N/M
Total Company $ 103,898 $ 111,655 7.5 % $ 394,402 $ 388,511 (1.5) %
Adjusted EBITDA margins:
Critical illness recovery hospital 8.7 % 9.2 % 12.9 % 10.8 %
Rehabilitation hospital 21.3 20.7 22.5 22.1
Outpatient rehabilitation 9.1 7.4 8.8 8.2
Other(1)
N/M N/M N/M N/M
Total Company 8.2 % 8.2 % 10.2 % 9.6 %
Total assets:
Critical illness recovery hospital $ 2,658,301 $ 2,631,998 $ 2,658,301 $ 2,631,998
Rehabilitation hospital 1,294,125 1,478,363 1,294,125 1,478,363
Outpatient rehabilitation 1,414,009 1,415,655 1,414,009 1,415,655
Other(1)
162,937 159,707 162,937 159,707
Total Company $ 5,529,372 $ 5,685,723 $ 5,529,372 $ 5,685,723
Purchases of property and equipment:
Critical illness recovery hospital $ 16,208 $ 18,186 $ 49,765 $ 58,096
Rehabilitation hospital 10,595 25,608 32,514 82,878
Outpatient rehabilitation 8,402 8,959 26,064 27,850
Other(1)
333 349 2,766 1,301
Total Company $ 35,538 $ 53,102 $ 111,109 $ 170,125
_______________________________________________________________________________
(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.
Three Months Ended September 30, 2025, Compared to Three Months Ended September 30, 2024
For the three months ended September 30, 2025, we had revenue of $1,363.4 million and income from continuing operations before other income and expense of $73.0 million, as compared to revenue of $1,271.6 million and income from continuing operations before other income and expense of $54.9 million for the three months ended September 30, 2024. For the three months ended September 30, 2025, Adjusted EBITDA was $111.7 million, with an Adjusted EBITDA margin of 8.2%, as compared to Adjusted EBITDA of $103.9 million and an Adjusted EBITDA margin of 8.2% for the three months ended September 30, 2024.
Revenue
Critical Illness Recovery Hospital Segment.Revenue increased 4.6% to $609.9 million for the three months ended September 30, 2025, compared to $583.0 million for the three months ended September 30, 2024. The increase in revenue was attributable to revenue per patient day, which increased 6.6% to $2,287 for the three months ended September 30, 2025, compared to $2,145 for the three months ended September 30, 2024. The increase in revenue per patient day was partially driven by the deferral of the implementation of the 20 percent transmittal rule, as discussed further in Regulatory Changes, which resulted in a change in revenue estimates made in prior periods. Our patient days were 265,730 for the three months ended September 30, 2025, compared to 270,760 days for the three months ended September 30, 2024. Occupancy in our critical illness recovery hospitals was 65% for both the three months ended September 30, 2025 and 2024.
Rehabilitation Hospital Segment.Revenue increased 16.2% to $328.6 million for the three months ended September 30, 2025, compared to $282.7 million for the three months ended September 30, 2024. The increase in revenue was principally attributable to our patient days, which increased 11.1% to 129,787 days for the three months ended September 30, 2025, compared to 116,835 days for the three months ended September 30, 2024. Revenue per patient day increased 4.9% to $2,254 for the three months ended September 30, 2025, compared to $2,148 for the three months ended September 30, 2024. Occupancy in our rehabilitation hospitals was 83% and 82% for the three months ended September 30, 2025 and 2024, respectively.
Outpatient Rehabilitation Segment.Revenue increased 4.3% to $325.4 million for the three months ended September 30, 2025, compared to $312.0 million for the three months ended September 30, 2024. The increase in revenue was attributable to patient visits, which increased 5.5% to 2,924,794 visits for the three months ended September 30, 2025, compared to 2,773,465 visits for the three months ended September 30, 2024. Our revenue per visit was $100 for the three months ended September 30, 2025, compared to $101 for the three months ended September 30, 2024. The decrease in revenue per visit was primarily driven by a reduction in Medicare reimbursement and an unfavorable shift in payor mix.
Operating Expenses
Our operating expenses consist principally of cost of services and general and administrative expenses. Our operating expenses were $1,256.0 million, or 92.1% of revenue, for the three months ended September 30, 2025, compared to $1,183.1 million, or 93.0% of revenue, for the three months ended September 30, 2024. Our cost of services, a major component of which is labor expense, was $1,216.0 million, or 89.2% of revenue, for the three months ended September 30, 2025, compared to $1,135.7 million, or 89.3% of revenue, for the three months ended September 30, 2024. General and administrative expenses were $40.1 million, or 2.9% of revenue, for the three months ended September 30, 2025, compared to $47.3 million, or 3.7% of revenue, for the three months ended September 30, 2024. The decrease in general and administrative expenses was principally attributable to lower stock compensation expense as a result of modifications to our restricted stock awards which occurred in November 2024 in connection with the Company's spin-off of Concentra.
Other Operating Income
For the three months ended September 30, 2024, we had other operating income of $1.3 million.
Adjusted EBITDA
Critical Illness Recovery Hospital Segment.Adjusted EBITDA increased 10.5% to $56.1 million for the three months ended September 30, 2025, compared to $50.8 million for the three months ended September 30, 2024. Our Adjusted EBITDA margin for the critical illness recovery hospital segment was 9.2% for the three months ended September 30, 2025, compared to 8.7% for the three months ended September 30, 2024. The increases in our Adjusted EBITDA and Adjusted EBITDA margin during the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, were principally attributable to an increase in revenue.
Rehabilitation Hospital Segment.Adjusted EBITDA increased 13.0% to $68.0 million for the three months ended September 30, 2025, compared to $60.1 million for the three months ended September 30, 2024. Our Adjusted EBITDA margin for the rehabilitation hospital segment was 20.7% for the three months ended September 30, 2025, compared to 21.3% for the three months ended September 30, 2024. The increase in Adjusted EBITDA for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, was principally attributable to an increase in revenue.
Outpatient Rehabilitation Segment. Adjusted EBITDA was $24.2 million for the three months ended September 30, 2025, compared to $28.3 million for the three months ended September 30, 2024. Our Adjusted EBITDA margin for the outpatient rehabilitation segment was 7.4% for the three months ended September 30, 2025, compared to 9.1% for the three months ended September 30, 2024. The decreases in our Adjusted EBITDA and Adjusted EBITDA margin for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, were principally attributable to an increase in operating expenses, primarily personnel expense, and partially offset by an increase in revenue.
Depreciation and Amortization
Depreciation and amortization expense was $34.4 million for the three months ended September 30, 2025, compared to $34.9 million for the three months ended September 30, 2024.
Income from Continuing Operations before Other Income and Expense
For the three months ended September 30, 2025, we had income from continuing operations before other income and expense of $73.0 million, compared to $54.9 million for the three months ended September 30, 2024. The increase in income from continuing operations before other income and expense is principally attributable to the increase in revenue within our Rehabilitation Hospital segment and Critical Illness Recovery Hospital segment, as discussed above under "Revenue".
Loss on Early Retirement of Debt
For the three months ended September 30, 2024, we had a loss on early retirement of debt of $10.9 million related to the prepayment on our term loan and the amendment to the Select credit agreement.
Equity in Earnings of Unconsolidated Subsidiaries
For the three months ended September 30, 2025, we had equity in earnings of unconsolidated subsidiaries of $13.0 million, compared to $33.1 million for the three months ended September 30, 2024. The decrease in equity in earnings of unconsolidated subsidiaries is principally due to a gain recognized during the three months ended September 30, 2024, upon gaining a controlling financial interest in a previously unconsolidated subsidiary.
Interest
Interest expense was $30.0 million for the three months ended September 30, 2025, compared to $31.4 million for the three months ended September 30, 2024.
Income Tax Expense from Continuing Operations
We recorded income tax expense of $11.7 million for the three months ended September 30, 2025, which represented an effective tax rate of 21.0%. We recorded income tax expense of $4.4 million for the three months ended September 30, 2024, which represented an effective tax rate of 9.6%. Our income tax expense is computed based on annual estimates which we allocate throughout the year based on our projected income. Changes in our estimate of projected income can result in variability in our income tax expense and effective tax rate from period to period.
Income from Discontinued Operations, Net of Tax
For the three months ended September 30, 2024, we had income from discontinued operations, net of tax, of $39.7 million, which represents the operations of Concentra.
Nine Months Ended September 30, 2025, Compared to Nine Months Ended September 30, 2024
For the nine months ended September 30, 2025, we had revenue of $4,056.2 million and income from continuing operations before other income and expense of $272.2 million, as compared to revenue of $3,874.5 million and income from continuing operations before other income and expense of $247.2 million for the nine months ended September 30, 2024. For the nine months ended September 30, 2025, Adjusted EBITDA was $388.5 million, with an Adjusted EBITDA margin of 9.6%, as compared to Adjusted EBITDA of $394.4 million and an Adjusted EBITDA margin of 10.2% for the nine months ended September 30, 2024, respectively.
Revenue
Critical Illness Recovery Hospital Segment.Revenue increased to $1,848.1 million for the nine months ended September 30, 2025, compared to $1,843.8 million for the nine months ended September 30, 2024. Our revenue per patient day increased 1.3% to $2,203 for the nine months ended September 30, 2025, compared to $2,175 for the nine months ended September 30, 2024. Our patient days were 835,970 for the nine months ended September 30, 2025, compared to 844,623 days for the nine months ended September 30, 2024. Occupancy in our critical illness recovery hospitals was 69% and 68% for the nine months ended September 30, 2025 and 2024, respectively.
Rehabilitation Hospital Segment.Revenue increased 16.4% to $949.8 million for the nine months ended September 30, 2025, compared to $816.2 million for the nine months ended September 30, 2024. The increase in revenue was attributable to an increase in patient days and an increase in revenue per patient day. Our patient days increased 7.9% to 378,536 days for the nine months ended September 30, 2025, compared to 350,724 days for the nine months ended September 30, 2024. Revenue per patient day increased 5.8% to $2,242 for the nine months ended September 30, 2025, compared to $2,119 for the nine months ended September 30, 2024. Occupancy in our rehabilitation hospitals was 82% and 84% for the nine months ended September 30, 2025 and 2024, respectively.
Outpatient Rehabilitation Segment.Revenue increased 3.2% to $960.3 million for the nine months ended September 30, 2025, compared to $930.7 million for the nine months ended September 30, 2024. The increase in revenue was principally attributable to patient visits, which increased 2.8% to 8,568,784 visits for the nine months ended September 30, 2025, compared to 8,336,216 visits for the nine months ended September 30, 2024. Our revenue per visit increased 1.0% to $101 for the nine months ended September 30, 2025, compared to $100 for the nine months ended September 30, 2024.
Operating Expenses
Our operating expenses consist principally of cost of services and general and administrative expenses. Our operating expenses were $3,681.5 million, or 90.8% of revenue, for the nine months ended September 30, 2025, compared to $3,524.0 million, or 91.0% of revenue, for the nine months ended September 30, 2024. Our cost of services, a major component of which is labor expense, was $3,572.7 million, or 88.1% of revenue, for the nine months ended September 30, 2025, compared to $3,378.4 million, or 87.2% of revenue, for the nine months ended September 30, 2024. The increase in our cost of services relative to our revenue was principally attributable to the operating performance of our Critical Illness Recovery Hospital segment and Outpatient Rehabilitation segment. General and administrative expenses were $108.7 million, or 2.7% of revenue, for the nine months ended September 30, 2025, compared to $145.7 million, or 3.8% of revenue, for the nine months ended September 30, 2024. The decrease in general and administrative expenses was principally attributable to lower stock compensation expense as a result of modifications to our restricted stock awards which occurred in November 2024 in connection with the Company's spin-off of Concentra and a reduction in personnel expense related to accrued bonus.
Other Operating Income
For the nine months ended September 30, 2025, we had other operating income of $1.6 million, compared to $3.3 million for the nine months ended September 30, 2024.
Adjusted EBITDA
Critical Illness Recovery Hospital Segment.Adjusted EBITDA was $199.0 million for the nine months ended September 30, 2025, compared to $238.5 million for the nine months ended September 30, 2024. Our Adjusted EBITDA margin for the critical illness recovery hospital segment was 10.8% for the nine months ended September 30, 2025, compared to 12.9% for the nine months ended September 30, 2024. The decreases in our Adjusted EBITDA and Adjusted EBITDA margin during the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, were principally due to an increase in operating expenses.
Rehabilitation Hospital Segment.Adjusted EBITDA increased 14.1% to $209.4 million for the nine months ended September 30, 2025, compared to $183.5 million for the nine months ended September 30, 2024. Our Adjusted EBITDA margin for the rehabilitation hospital segment was 22.1% for the nine months ended September 30, 2025, compared to 22.5% for the nine months ended September 30, 2024. The increase in our Adjusted EBITDA for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, was principally attributable to an increase in revenue.
Outpatient Rehabilitation Segment.Adjusted EBITDA was $79.0 million for the nine months ended September 30, 2025, compared to $82.0 million for the nine months ended September 30, 2024. Our Adjusted EBITDA margin for the outpatient rehabilitation segment was 8.2% for the nine months ended September 30, 2025, compared to 8.8% for the nine months ended September 30, 2024. The decreases in our Adjusted EBITDA and Adjusted EBITDA margin during the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, was principally attributable to an increase in personnel expense, partially offset by an increase in revenue.
Depreciation and Amortization
Depreciation and amortization expense was $104.1 million for the nine months ended September 30, 2025, compared to $106.6 million for the nine months ended September 30, 2024.
Income from Continuing Operations before Other Income and Expense
For the nine months ended September 30, 2025, we had income from continuing operations before other income and expense of $272.2 million, compared to $247.2 million for the nine months ended September 30, 2024. The increase in income from continuing operations before other income and expense is attributable to an increase in revenue within our Rehabilitation Hospital segment, as well as a decrease in general and administrative expenses.
Loss on Early Retirement of Debt
For the nine months ended September 30, 2024, we had a loss on early retirement of debt of $10.9 million, related to the prepayment on our term loan and the amendment to the Select credit agreement.
Equity in Earnings of Unconsolidated Subsidiaries
For the nine months ended September 30, 2025, we had equity in earnings of unconsolidated subsidiaries of $39.1 million, compared to $53.5 million for the nine months ended September 30, 2024. The decrease in equity in earnings of unconsolidated subsidiaries is principally due to a gain recognized during the three months ended September 30, 2024, upon gaining a controlling financial interest in a previously unconsolidated subsidiary. This was partially offset by improved operating performance of our rehabilitation businesses in which we are a minority owner.
Interest
Interest expense was $89.1 million for the nine months ended September 30, 2025, compared to $100.1 million for the nine months ended September 30, 2024. The decrease in interest expense was principally due to a reduction in total debt, partially offset by an increase in our effective interest rate resulting from the impact of our interest rate cap.
Income Tax Expense from Continuing Operations
We recorded income tax expense of $45.5 million for the nine months ended September 30, 2025, which represented an effective tax rate of 20.5%. We recorded income tax expense of $49.3 million for the nine months ended September 30, 2024, which represented an effective tax rate of 26.0%. The decrease in our effective tax rate was primarily due to lower permanent differences and lower state and local taxes associated with reduced executive compensation.
Income from Discontinued Operations, Net of Tax
For the nine months ended September 30, 2024, we had income from discontinued operations, net of tax, of $152.5 million, which represents the operations of Concentra.
Liquidity and Capital Resources
Cash Flows for the Nine Months Ended September 30, 2025 and Nine Months Ended September 30, 2024
In the following, we discuss cash flows from operating activities, investing activities, and financing activities.
Nine Months Ended September 30,
2024 2025
(in thousands)
Net cash provided by operating activities $ 392,432 $ 282,142
Net cash used in investing activities (156,818) (149,594)
Net cash used in financing activities (128,152) (132,188)
Net increase in cash and cash equivalents 107,462 360
Cash and cash equivalents at beginning of period 84,006 59,694
Cash and cash equivalents at end of period $ 191,468 $ 60,054
Operating activities provided $282.1 million of cash flows for the nine months ended September 30, 2025, compared to $392.4 million of cash flows provided by operating activities for the nine months ended September 30, 2024. The decrease in cash flows provided by operating activities year over year was principally driven by the decrease in cash flows from our discontinued operations, partially offset by increases in our Income from continuing operations, net of tax, and our net working capital.
Our days sales outstanding was 56 days at September 30, 2025, compared to 58 days at December 31, 2024. Our days sales outstanding was 60 days at September 30, 2024, compared to 55 days at December 31, 2023. Our days sales outstanding will fluctuate based upon variability in our collection cycles and patient volumes.
Investing activities used $149.6 million of cash flows for the nine months ended September 30, 2025, principally for the purchase of property and equipment. The principal source of cash was proceeds from sales and exchanges of assets of $22.1 million. Investing activities used $156.8 million of cash flows for the nine months ended September 30, 2024. The principal uses of cash were $158.7 million for purchases of property and equipment, and $2.3 million for investments in and acquisitions of businesses.
Financing activities used $132.2 million of cash flows for the nine months ended September 30, 2025. The principal uses of cash were $99.5 million for repurchases of common stock, $48.8 million for distributions to and purchases of non-controlling interests, a decrease in our overdrafts of $25.8 million, and $23.7 million of dividend payments to common stockholders. The principal sources of cash were net borrowings under our revolving facility of $45.0 million, net borrowings on other debt of $15.6 million, and proceeds of $13.0 million from the issuance of non-controlling interests. Financing activities used $128.2 million of cash flows for the nine months ended September 30, 2024. The principal uses of cash were payments of $1,719.5 million on our term loan, $270.0 million of net repayments under our revolving facilities, $48.5 million of dividend payments to common stockholders, and $35.8 million for distributions to and purchases of non-controlling interests. The principal sources of cash were net proceeds from Concentra's term loans of $836.7 million, net proceeds from the issuance of Concentra's 6.875% senior notes of $637.3 million, and net proceeds from Concentra's equity issuance of $511.2 million.
Capital Resources
Working capital.We had net working capital of $80.9 million at September 30, 2025, compared to $42.1 million at December 31, 2024. The increase in net working capital was principally due to decreases in our accrued other and accrued payroll.
Credit facilities. At September 30, 2025, Select had outstanding borrowings under its credit facilities consisting of a $1,042.1 million term loan (excluding unamortized original issue discounts and debt issuance costs of $7.4 million) and borrowings of $150.0 million under its revolving facility. At September 30, 2025, Select had $419.1 million of availability under its revolving facility after giving effect to $30.9 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. On October 29, 2025, the Board of Directors extended the common stock repurchase program from December 31, 2025, to December 31, 2027. The common stock repurchase program will remain in effect until then, 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. During the nine months ended September 30, 2025, Holdings repurchased 6,375,512 shares at a cost of approximately $96.5 million, or $15.13 per share, which includes transaction costs. Since the inception of the program through September 30, 2025, 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. As of September 30, 2025, $0.9 million has been accrued 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 September 30, 2025, we had cash and cash equivalents of $60.1 million and $419.1 million of availability under our revolving facilities after giving effect to $150.0 million of outstanding borrowings and $30.9 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 13, 2025, April 30, 2025, and July 30, 2025, our Board of Directors declared a cash dividend of $0.0625 per share. On March 13, 2025, May 29, 2025, and August 28, 2025, cash dividends totaling $8.1 million, $7.9 million, and $7.7 million were paid.
On October 29, 2025, our Board of Directors declared a cash dividend of $0.0625 per share. The dividend will be payable on or about November 25, 2025 to stockholders of record as of the close of business on November 12, 2025.
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.
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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