Concentra Group Holdings Parent, Inc.

Good morning, and thank you for joining us today for Concentra Group Holdings' Parent Incorporated Earnings Conference Call to discuss the first quarter 2025 results. Speaking today are the company's Chief Executive Officer, Keith Newton, and the company's President and Chief Financial Officer, Matt Picagno. Management will provide an overview 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 concentric 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 will turn the conference over to Mr. Keith Newton. Sir, the floor is yours.

Thanks, operator. Good morning, everyone. Welcome to Concentra's first quarter 2025 earnings call. We had a very successful first quarter to start the year. Today we'll talk about three key trends we saw in our business. First, solid visit growth, including a positive reversal in our employer services visits. Secondly, strong rate growth. And finally, significant corporate development activity. We have always referred to these as our key growth drivers, and this quarter all were nicely trending together. One thing to note, Given that the NOVA Medical Center's acquisition closed on March 1, 2025, and thus we are only reflecting one month of its results in the first quarter, we will talk about some of our results this quarter with and without NOVA so investors and analysts can understand both. First, from a visit perspective, patient visits in Q1 2025 were up across all service lines year over year, with total visits per day increasing 3.2%. to 50.9 thousand. Excluding the impact from the acquisition of NOVA in early March, total visits per day increased 0.6 percent to 49.6 thousand. We continue to see year-over-year growth in workers' compensation volume, with total visits per day increasing 2.4 percent over the first quarter of 2024, excluding NOVA daily workers' compensation visits increased 0.2%. Importantly, on the employer services side, we are pleased to report that we saw year-over-year daily visit growth for the quarter. Employer services volume increased 3.9% per day relative to the first quarter of 2024. Even when excluding NOVA, employer services volume increased 0.9% per day. This marks a pretty significant turnaround in our employer services visits following many consecutive quarters of year-over-year mid-single-digit declines coming out of the post-COVID normalization. From a rate standpoint, we had another strong quarter with a 5.6% increase in revenue per visit in Q1 2025 compared to the same quarter prior year. The growth was driven by increases in both workers' compensation and employer services revenue per visit. Lastly, I will let Matt talk more about our corporate development efforts, but it has been a highly successful few months with the closing of our NOVA acquisition on March 1st, the addition of five new centers in Florida from our Physician Health Center acquisition on March 8th, the opening of three de novo sites in Q1, and the signing of the pivot onsite acquisition that we announced on April 21st. In total, these efforts will add 75 new occupational health centers and approximately 200 onsite health clinics. This is our most active stretch of M&A in quite some time. With the three growth drivers all moving in the same direction, and despite one less revenue day in the quarter versus prior year, we achieved strong financial results for Q1. Revenue was $500.8 million for the three months ended March 31st, 2025, compared to $467.6 million for the three months ended March 31st, 2024, representing 7.1% growth year-over-year, This represents a revenue growth rate of 8.9% year over year on a revenue per day basis. Adjusted EBITDA was $102.7 million in the first quarter of 2025 versus $96.1 million in the first quarter of 2024 for a 6.8% increase. Adjusted EBITDA margin decreased slightly from 20.6% in Q1 2024 to 20.5% in Q1 2025. Matt will provide more detail shortly, but once you normalize Q1 2024 for a favorable out-of-period expense reversal, we would have experienced positive year-over-year growth and adjusted EBITDA margin. Net income was $40.6 million, and adjusted earnings per share were $0.32 for the first quarter of 2025. Net income was lower than same quarter prior year, primarily due to an increase in interest expense resulting from the IPO recapitalization. We had some transaction expenses related to the NOVA acquisition and related financing events that were accounted for as adjustments to earnings per share. Overall, the NOVA acquisition contributed to our strong performance in the month of March, but our core business also performed very well. Just to reiterate, positive workers' compensation visit growth, positive employer services visit growth, strong rate growth for all visit types, and successful M&A, a nice recipe for success with our business. Later in the call, we will discuss our revised financial outlook for 2025, which we are raising from our initial outlook provided in January of 2025. We'll also comment on the expected impact of potential tariffs on our business, why we think we are well-positioned as a company in the event of macroeconomic turbulence. Now, I'll turn it over to Matt to provide some more detail on our financial results and additional commentary on our corporate development efforts.

Thanks, Keith, and good morning, everyone. I'll start by adding some additional commentary on the financials, and then we'll talk more about the exciting growth efforts. In our Occupational Health Center operating segment, the following numbers are inclusive of the NOVA acquisitions. Total revenue of $472.9 million in Q1 2025 was 7.2% higher than the same quarter prior year. With one less revenue day as compared to the prior year, this constitutes an 8.9% year-over-year increase on a revenue-per-day basis. Total visits per day increased 3.2% over the same quarter prior year, and revenue per visit increased 5.6%, from $139 in Q1 2024 to $147 in Q1 2025. Workers' compensation revenue of $302.1 million in Q1 2025 was 8% higher than prior year. This constitutes a 9.7% increase on a revenue per day basis. Work comp visits per day increased 2.4% from prior year and work comp revenue per visit increased 7.1% versus prior year. Excluding the Florida work comp rate increase, our work comp revenue per visit would have increased by approximately 5%. Within employer services, revenue of $160.1 million in Q1 2025 increased 6.2% from prior year. This constitutes a 7.9% increase on a revenue per day basis. Employer services visits per day increased 3.9% from prior year, a welcome reversal of negative year-over-year trends in recent quarters. Employer services revenue per visit increased 3.9% versus prior year. Given the partial quarter contribution of NOVA to the financial results, I'm also going to provide a few metrics excluding the impact of the NOVA acquisition. Excluding the impact of NOVA, Total revenue within the occupational health center operating segment, which excludes the onsite health clinics and other businesses, was $461.7 million, a 4.7% increase over the prior year. This constitutes a 6.3% year-over-year increase on a revenue-per-day basis. Total visits per day increased 0.6% over the same quarter prior year. and revenue per visit increased 5.8% from $139 in Q1 2024 to $147 in Q1 2025. Work comp visits per day were 0.2% higher than prior year, and work comp revenue per visit was 7% higher than prior year. Employer services visits per day were 0.9% higher than prior year, Employer services revenue per visit was 4% higher than prior year. Moving on from our occupational health centers, our onsite health clinic segment reported revenue of $16.6 million in Q1 2025, a 4.4% increase from the same quarter prior year. And our other business segment generated revenue of $11.3 million, a 5.7% increase against same quarter prior year. Now to expenses. 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 $357.1 million, or 71.3% of revenue in Q1 2025, down from 72.1% of revenue for the same quarter prior year. The percentage of revenue was overall lower, predominantly due to the nice increase we saw in revenue, including the rate gains, as well as operational efficiencies resulting from the replacement of contract clinicians with employee clinicians and general improvements in staffing efficiencies across both clinical and operations. General and administrative expense includes corporate overhead such as finance, legal, HR, marketing, corporate offices, and other administrative areas. Our G&A expense were $46.7 million or 9.3% of revenue in Q1 2025 compared to 7.9% of revenue in the same quarter prior year. Excluding items that are added back for the purposes of calculating adjusted EBITDA, including equity compensation expense and certain transaction expenses, G&A expense was $41.2 million for the quarter or 8.2% of revenue compared to 7.4% of revenue in the same quarter prior year. Prior year G&A expense was reduced by a favorable out-of-period legal expense reversal that was recorded during Q1 2024. This had a positive EBITDA impact. The year-over-year increase in G&A as a percentage of revenue is primarily driven by that reversal and the addition of new support FTEs as previously planned as we separate from select medical and build out the team required to operate as a standalone public company. The overall result was adjusted EBITDA margin in Q1 2025 of 20.5%, a slight decrease from 20.6% during the same quarter prior year, removing the impact of the favorable one-time legal expense reversal would have resulted in Q1 2024 adjusted EBITDA margin of 19.8%, demonstrating strong year-over-year margin growth on a run rate basis. In Q1 2025, we generated $11.7 million in operating cash flow. I would note that Q1 is consistently one of our slowest cash quarters due to lower collections following seasonally lower fourth quarter volume as well as other quarter-specific material cash outflows such as company-wide bonus payments related to prior year incentive plans and semiannual interest payments on our unsecured bonds. Relative to Q1 2024, the drop in cash flow from operations was largely attributable to an increase in interest payments following the IPO-driven recapitalization last summer. Investing activities used $294.7 million of cash in the first quarter, predominantly driven by our previously announced acquisition activity. Also included in this number was $15.7 million of CapEx that covered our normal course capital program, opening de novos and upgrading and maintaining existing facilities. Financing activities resulted in net cash inflows of $151.9 million for the first quarter. As a reminder, in conjunction with funding the NOVA acquisition in early March, we drew $50 million on a revolving credit facility, and we upsized our term loan B from approximately $848 million to $950 million. Additionally, we repriced our term loan B at SOFR plus $200 down from SOFR plus 225 with a 25 basis point step down at net leverage of less than 3.25 times. At the same time, we upsized our revolver capacity from 400 million to 450 million and we repriced at SOFR plus 200 down from SOFR plus 250 with a 25 basis point step down at net leverage of less than 3.5 times. We ended the quarter with a total debt balance of 1.6 billion and a cash balance of 52 million. At the end of March, our net leverage ratio per our credit agreement was 3.9 times, up from 3.5 times at year end 2024, and approximately the same as our leverage ratio at the time of our IPO last July. The increase in leverage during the quarter was driven by our NOVA acquisition and is in line with what we previously communicated at the time of the acquisition signing. In early March, we executed interest rate hedges on $600 million of notional value related to our floating rate term loan B. This, along with our fixed rate bonds, now gives us protection from rising interest rates on over 75% of our currently outstanding debt while retaining solid exposure to potential rate decreases. Switching gears, we're pleased to announce a continuation of our dividend this quarter with Concentra's board of directors declaring a cash dividend of six and a quarter cents per share on May 6th, 2025. The dividend will be payable on or about May 29th, 2025 to stockholders of record as of the close of business on May 20th, 2025. Now, before I turn it back to Keith, I want to add some more color on our corporate development updates. First, we are very excited about the last few months and what our collective teams have accomplished. We closed on a core and strategic acquisition of Nova. Our team is working hard on the integration efforts, and we're really pleased with the progress to date. We are ahead of schedule on Synergy capture, and we are trending above forecast with respect to patient visit volume in those centers. Our new Concentra colleagues that came over from the NOVA acquisition have hit the ground running and have done an excellent job adhering to best-in-class clinical and operational standards and maintaining customer relationships through the transition. We will be converting all NOVA centers over to Concentra systems, processes, and signage over the coming months, which we anticipate will further enhance top-line and cost efficiencies. Our physician health center acquisition in Florida and our three de novos open in the quarter are a continuation of our core center growth strategy, and all eight centers are off to a great start. Lastly, with respect to pivot onsite innovations, this is an acquisition we're really excited about and demonstrates our commitment to investing in and scaling our onsite health clinics business. This effectively doubles the revenue of that segment and brings an additional 700-plus colleagues into the Concentra family. We see a lot of opportunity for both organic and inorganic growth within the on-site health space with an estimated serviceable, addressable market of more than $17 billion across both occupational health and advanced primary care service offerings. We announced the signing of this transaction on April 21, 2025, and posted a brief investor deck on our website. The purchase price is $55 million, and the expected acquired revenue will be approximately $60 million. The deal is immediately accretive from a value standpoint, and we expect to capture cost synergies over the first 12 months post-acquisition, resulting in a pro forma purchase multiple below nine times. We expect to close in Q2 2025, subject to certain closing conditions. Our teams will be highly focused on integrating growing employer relationships and continuing to scale the on-site health segment. We look forward to updating you on the continued growth of our on-site business in future quarters. Given the recent pace of deal activity, I would like to take a moment to underscore our long-term commitment to de-levering. As of quarter end, our leverage ratio is approximately 3.9 times, and we do not expect that to change materially because of the pivot acquisition following the close of that deal later this quarter. We anticipate limited M&A activity over the remainder of this year, with our focus now on integration efforts. We intend to deploy free cash flow towards debt repayment and other organic growth initiatives and will continue to target a year-end 2025 leverage ratio of approximately 3.5 times and a 3.0 leverage ratio within the next 18 to 24 months.