Concentra Group Holdings Parent, Inc.

Good morning, and thank you for joining us today for Concentra Group Holdings Parent and Earnings Conference Call to discuss the third quarter 2024 results. Speaking today are the company's Chief Executive Officer, Keith Newton, and the company's President and Chief Financial Officer, Matt DiCanio. Management will give you an overview of the quarter and then open the call for questions. Before we get started, we would like to remind you that this conference call may contain forward-looking statements regarding future events or the future financial performance of the company, including without limitation statements regarding operating results, growth opportunities, and other statements that refer to concentrous plans, expectations, strategies, intentions, and beliefs. These forward-looking statements are based on the information available to management of Concentra today, and the company assumes no obligation to update these statements as circumstances change. At this time, I'd like to turn the conference call over to Mr. Keith Newton.

Thanks, operator. Good morning, everyone. Welcome to Concentra's third quarter 2024 earnings call. I would like to start today with a brief refresher on our business. We previously provided comments during our second quarter earnings call, but we know we continue to gain new followers of our company. Incentra is the largest provider of occupational health services in the United States. We have over 700 locations across 45 states, including both our occupational health centers and our onsite health clinics at employers' workplace. We see approximately 50,000 patients per day and serve approximately 200,000 employer customers across our occupational health centers, onsite health clinics, and our telemedicine platform. We serve almost every industry and have little to no industry concentration. Manufacturing, distribution, transportation, retail, healthcare, government, schools, construction, hospitality are just some of the examples. Our mission is to improve the health of America's workforce, one patient at a time. We provide employer-focused healthcare services, and we are patient-centric in everything we do. We deliver a consistent, high-quality patient experience as exemplified by our high patient satisfaction scores. Our value proposition is focused on supporting the improvement of injured workers' health with a timely and safe return to work. Injured employees tend to recover better through early intervention and a quick return to normal activities. We expedite employees' safe and sustainable return to work and help lower medical and indemnity claims cost incurred by employers. Workers' compensation patients treated in a concentra health center have an approximate 25% lower average total claim cost than in non-concentra centers. Within our occupational health center's operating segment, which represents 94% of total revenue for the third quarter, we provide three service lines consisting of workers' compensation, employer services, and consumer health. Reimbursement for our workers' compensation services is guided by the various state workers' compensation fee schedules, which are set by legislative bodies and paid for by employers, typically through their workers' compensation insurance company or their third-party claims administrator. The reimbursement for our employer services line is paid directly by employers at market rates or through entities who manage these types of visits on an employer's behalf. We have virtually no reimbursement from government programs such as Medicare or Medicaid or from commercial healthcare insurance. As existing and potential investors look at Concentra on a standalone basis or as compared to other companies in the healthcare services sector, we would point you to the unique reimbursement environment in which we operate, our growth opportunities, our margin profile, our cash flow statistics, our diversification across geographies and industries, our experienced management and leadership teams, and our strong track record over a sustained period of time. For those interested in learning more about our business, we welcome you to spend time reviewing our publicly filed registration statement and other quarterly filings, or by following the company through one of our many communication channels. Now, switching to our third quarter performance, where we saw a continuation of themes from our Q2 2024 performance. Overall, we had a successful quarter in line with our expectations, made progress on strategic initiatives, grew our development pipeline, and continued to execute on the steps to separate from select medical. Concentra ended the quarter with 549 occupational health centers and 156 on-site health clinics for a total of 705 locations, which is 21 more than at the end of Q3 2023. In the quarter, revenue was $489.6 million compared to $474.0 million in the prior year, representing a 3.3% growth year-over-year. Adjusted EBITDA was $101.6 million in the quarter versus $98.9 million in the same quarter prior year, or a 2.7% increase. EBITDA margin decreased slightly to 20.7% for the quarter compared to 20.9% for the same quarter prior year. Net income was $45.8 million, and earnings per common share were $0.37 for the third quarter 2024. The lower net income in EPS versus prior year was due to the recapitalization of the company at the time of the IPO and the associated higher interest expense as compared to prior year. From a patient visit standpoint, we had a very similar quarter to the second quarter of 2024 in terms of year-over-year comparisons. Total visits decreased 0.7% in Q3 2024 as compared to the prior year. This was driven by a 2.6% decline in our employer services visit. This decline is something we have been experiencing for several quarters now on a year over year basis. The employer services decrease was offset by a 1.7% increase in our workers' compensation volume. After adjusting for the one additional revenue day in Q3 2024 versus Q3 2023, Employer services and workers' compensation per business day visit volumes were 4.1% lower and 0.2% higher than the prior year, respectively. Our workers' compensation and employer services visits are driven by employment levels and hiring events across the United States. Approximately two-thirds of our employer service visit volumes are driven by hiring events, which have experienced a slowdown over the last year as quit rates and job openings have fallen. Q3 saw some positive and negative economic news prints, which we are following closely. Within our occupational health centers, our visits were softer in July but trended better in August and September. Hurricane Beryl and the CrowdStrike-related IT outage contributed to the softer July visits. The takeaway for Concentra is that the number of people employed has continued to rise, which is a positive driver for our workers' compensation visit volumes. The decline in employer services volume is not a new trend, as hiring events, employee quit rates, and job openings have all receded. It has been something we have been experiencing for more than a year now. We have adjusted to it accordingly and have continued to show profit growth and stable margins. From a rate standpoint, we had a 3.9% increase in revenue per visit principally due to increases in the reimbursement rates payable pursuant to certain state fee schedules for workers' compensation visits and increases in our employer services rates per visit, which we negotiate and set directly with employer customers. The higher percentage mix of the workers' compensation visits with their higher revenue rates per visit also contributed to the blended higher rate per visit. Overall, we are proud of our company's performance and our team's continued dedication to our mission. We are optimistic for the coming quarters and 2025. We are well positioned to continue our growth trajectory, especially with a more normalized visit volume profile. Matt will share more details as well as some guidance for full year 2024 in a few minutes. Before I hand it over to Matt, I wanted to highlight some other important developments in the quarter, including some great work the team has done to advance our development pipeline, the early but significant progress we've made as it relates to the separation from select medical, and our continued advancement of key technology initiatives. We spoke about all three of these areas during our IPO process in our last quarter's call. I'm excited about the continued accomplishments in these areas. and the roadmap we have in the coming quarters. This concludes my overall company remarks. I now turn the call over to Matt to provide more color on our operating segments, key operating metrics, cost and expenses, cash flow and balance sheet, and full year 2024 guidance, as well as provide further detail on some important strategic work streams.

Matt? Thanks, Keith. Good morning, everyone. I'll begin with some additional commentary on our operating segments and our major expense categories, as well as other key performance indicators. In our occupational health center operating segment, revenue of $463.1 million in Q3 2024 was 3.3% higher than the same quarter prior year. Keith outlined our 0.7% visit decline year-over-year driven by the continued and expected lower employer services volume, which are lower revenue visits, and the 3.9% increase in revenue per visit from $136.11 in Q3 2023 to $141.42 in Q3 2024. Within the center operating segment, workers' compensation revenue of $298.7 million was 4.5% higher than prior year. Q3 2024 work comp visits increased 1.7% from prior year or 0.2% on a per day basis. The Q3 2024 work comp revenue per visit increased 2.7% versus prior year. Workers' compensation revenue represents 64.5% of our total center operating segment revenue in Q3 2024 versus 63.8% in Q3 2023, or a 0.7 percentage point increase. Employer services revenue in the center operating segment of $154.8 million increased 0.9% from prior year. Employer services visits decreased 2.6% from prior year, or 4.1% on a per day basis. and in line with expectations and continued trends from recent quarters. The Q3 2024 employer services revenue per visit increased 3.6% versus prior year. On-site revenue of $15.6 million in Q3 increased 3.9% from the same quarter prior year. We had a solid business development quarter in this operating segment, winning more than 10 new onsites that will open in the coming months. including additional onsites with our advanced primary care service offering that we recently launched. Other business revenue of $11 million increased 4.4% against same quarter prior year. Our cost of services expense, excluding depreciation and amortization, a major component of which is personnel costs, includes all direct and indirect support costs related to providing services to our customers. Cost of services was $351.1 million, or 71.7% of revenue in Q3 2024, compared to 71.1% of revenue for the same quarter per year. General and administrative expense includes corporate overhead such as finance, legal, human resources, marketing, corporate offices, and other administrative areas. Our general and administrative expenses were $37.1 million, or 7.6% of revenue, in Q3 2024, compared to 8.1% of revenue in the same quarter prior year. Our total company labor costs in the quarter was helped by fewer full-time equivalents, or FTEs, quarter over quarter, despite having 10 more occupational health centers and 11 more on-site health clinics compared to the same quarter prior year. The lower FTEs are primarily in the center operating segment, consistent with prior quarters, where we have fewer FTEs year-over-year, largely due to the lower employer services visits. For the third quarter, we had strong cash flow generation, with operating activities providing $65.9 million in cash flow and our Days Sales Outstanding, or DSO, at 44 days at September 30, 2024, which was three days better than prior years. Our cash flow metrics continue to improve over historical levels. Investing activities used $17 million of cash in the third quarter. This includes $15.1 million in purchases of property and equipment and $1.8 million for the one center acquisition in the quarter. Our teams have done a nice job of managing to consistent levels of maintenance and growth capital expenditures each quarter. Financing activities provided $37.2 million of cash for the third quarter, and with the cash retained by the company from the debt and equity transactions in the quarter, we now have a cash balance of $137 million. With our cash flow in the quarter and our higher TTM EBITDA versus June 30, 2024, our total net debt is now $1.35 billion, and our net leverage came down from 3.9 times at IPO to to 3.7 times at September 30, 2024. We still have our undrawn revolver of $400 million, less $14 million of outstanding letters of credit. Given the solid financial performance and following up on previous quarters' comments about a potential dividend, we are pleased to announce that on October 28, 2024, Concentra's Board of Directors declared a cash dividend of $6 Per share, the dividend will be payable on or about November 22, 2024 to stockholders of record as of the close of business on November 13, 2024. From a capital standpoint, we remain focused on growth efforts and deleveraging in addition to this return of capital to stockholders. The dividend does not change our growth outlook and prospects. Now switching gears to our corporate development efforts. In July, we acquired a practice in Bolingbrook, Illinois, to further expand our presence in the greater Chicago area. In September, we opened a new center in Chattanooga, Tennessee, and we are close to opening a new center in nearby Knoxville, Tennessee. Both are new areas for Concentra, and we look forward to providing additional access points nearby in the future. Post-quarter end in early October, we opened a new center in Orlando, Florida as well. We also had a very good quarter in terms of building our acquisition and de novo pipeline. We are excited about some opportunities we're working on and hope to have more information available soon. We intend to pursue continued organic growth within our existing occupational health centers and onsite health clinics at employer work sites and to take advantage of opportunities to continue to grow our footprint and base of customers via strategic acquisitions and the opening of new centers in key areas. Regarding our separation process from Select Medical, as Keith mentioned in his opening remarks, we made solid progress with these efforts, though it is early in the process. We recruited and successfully hired some key senior leaders that will help support the and they have already taken productive steps towards achieving our end goal of operating completely independently from select medical before the end of 2026. Our hires include a new chief legal counsel who has 30 plus years of healthcare experience, a vice president of transition services and HR who is an individual with years of prior experience at Concentra and in healthcare, a chief information security officer with many years of experience in this area, as well as leaders in accounting and tax to help us replace the services we currently pay Select Medical for. It has been a solid start to the process. Our teams are well synced on what we need to do, the associated costs, which have not materially changed from previous estimates. And finally, just some overarching comments from me on the results from the quarter. and our outlook for the remainder of the year and beyond. Looking back on what we discussed during the IPO process, we feel good about the progress and execution we have shown since becoming a public company. We discussed how we navigate as a company through economic headwinds, including the negative employer services decline, and we showed that through our execution in the second and third quarters. Our reimbursement rate growth has been strong It is predictable and is insulated from any election-related uncertainty. Cost of services remains consistent as a percentage of revenue, as our teams have managed staffing levels very effectively. Cash flow remains robust and margins consistent with prior periods. Our development pipeline continues to grow. We declared a dividend to show our commitment to returning capital to our stockholders. and we have made good progress with our separation from Select and our latest technology efforts. As we continue our path forward as a public company, we will continue with transparency. To that end, we are providing guidance on where we believe we will end the full year for 2024. We expect revenue to be approximately $1.9 billion, adjusted EBITDA to be in the range of $370 to $375 million, capital expenditures to be in the range of $65 to $70 million, and our net leverage ratio to be in the range of 3.5 to 3.6 times. We will have guidance for 2025 early into the new year. With this information and all the remarks from myself and Keith, we hope investors are becoming more familiar with and excited about Concentra. We believe we remain very well positioned for continued success. With that, this concludes our prepared remarks. Thank you for your time today to go through Consentra's business update and third quarter financial results. At this time, we'd like to turn it back to the operator to open the call for any questions.