Concentra Group Holdings Parent Q2 2024 Earnings Report

Concentra Group Holdings Parent EPS Results

• Actual EPS: $0.49
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Concentra Group Holdings Parent Revenue Results

• Actual Revenue: $477.92 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Concentra Group Holdings Parent Announcement Details

• Quarter: Q2 2024
• Date: 8/1/2024
• Time: N/A
• Conference Call Date: Friday, August 2, 2024
• Conference Call Time: 10:30AM ET

Concentra Group Holdings Parent (NYSE:CON) (NYSE:CON) is a Canada-based financial services holding company that specializes in serving Canadian credit unions and their members. Through its operating subsidiaries, the group provides wholesale funding, lending solutions and investment management services tailored to the unique needs of cooperative financial institutions. Concentra’s broad suite of offerings includes trust and custody services, mortgage investment products and equipment financing, all designed to support credit-union growth and stability.

In addition to wholesale funding and lending, Concentra Group Holdings Parent distributes life and general insurance products through affiliated insurance brokers and credit-union channels. The company also offers retail investment solutions such as mortgage investment corporations (MICs), pooled asset portfolios and managed accounts for individual investors. By combining institutional expertise with local delivery through a network of credit unions, Concentra helps enhance access to diversified financial products across Canada.

Founded in 1977 and headquartered in Saskatoon, Saskatchewan, Concentra has grown into a national partner for cooperative financial institutions and their members. The group’s leadership team is led by President and Chief Executive Officer Glenn Crawley, who oversees strategic direction and risk management for Concentra’s various business lines. With its cooperative structure and focus on partnership, Concentra continues to support the long-term resilience of Canada’s credit-union system.

Concentra Group Holdings Parent Q2 2024 Earnings Call Transcript

Key Takeaways

• Concentra completed a $528.8 million IPO and secured $650 million in senior notes, an $850 million term loan and a $400 million revolving credit facility, using net proceeds to repay related‐party debt and pay a dividend to Select Medical.
• In Q2 2024, revenue reached $477.9 million (+2.3% YoY) with adjusted EBITDA of $101.6 million (+1.2%) and net income of $53.1 million (EPS $0.50).
• Workers’ compensation visits rose 1.8% while employer services visits fell 4.4% as volumes normalize post-COVID, and revenue per visit increased 3.9% driven by higher fee schedules and negotiated rates.
• Post-IPO, Concentra has $1.5 billion in total debt, $100 million in cash for net debt of $1.4 billion (3.9× leverage) and $500 million of liquidity on its revolver, targeting deleveraging over time.
• The company is expanding its footprint with a newly opened de novo clinic in Florida and has seven signed leases for additional centers through early 2025, alongside growing its on-site health clinic network.

Presentation

[Operator]

Good morning, and thank you for joining us today for Concentra Group Holdings Parent Inc. earnings conference call to discuss the Q2 2024 results. Speaking today are the company's Chief Executive Officer, Keith Newton, and the company's President and Chief Financial Officer, Matthew DiCanio. Management will give you an overview of the quarter and then open up the call for questions. Before we get started, we'd 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, or other statements that refer to Concentra's 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.

[Operator]

At this time, I'd like to turn the conference call over to Mr. Keith Newton.

[Keith Newton, CEO at Concentra]

Thanks, operator. Good morning, everyone. Welcome to Concentra's first earnings call as a public company, where we will discuss financial results for the Q2 of 2024. I would like to begin by extending a heartfelt thank you to all of our colleagues, our patients, our employer customers, ecosystem partners, and especially to all of the investors who believe so strongly in Concentra that it showed in both our public equity and private debt offerings. It was a pleasure to meet many of you over the past few months as we worked towards our public offering, and we appreciate your support through what we believe was a very successful IPO. I would also like to introduce our new board of directors. We have 5 total board members, including myself. Bob Ortenzio will be Chairman of our board and is the Executive Chairman and Co-Founder of Select Medical.

[Keith Newton, CEO at Concentra]

Daniel Thomas, an independent director who has served on the board of Select Medical since 2019 and spent 14 years at Concentra from 1993 through 2007 in the positions of President, Chief Operating Officer, and Chief Executive Officer. In addition to Dan, we've also added two other independent directors to our board, Dr. Marc Watkins and Dr. Cheryl Pegus. Dr. Watkins has held over a dozen advisory roles, board seats, and other positions at U.S. healthcare companies and healthcare nonprofits, as well as U.S. educational institutions, including as an adjunct professor in the pharmacy department of University of Cincinnati. Since 2018, Dr. Watkins has served as the Chief Medical Officer of Kroger Health. Dr. Pegus has served on the board of several medical organizations, including the Patient-Centered Outcomes Research Institute and the American Heart Association.

[Keith Newton, CEO at Concentra]

Before taking on large-scale managerial positions, she was a cardiologist, clinical researcher, and fellow at New York-based medical institutions, including the Joan and Sanford I. Weill Medical College of Cornell University and Memorial Sloan Kettering Cancer Center. Dr. Pegus currently serves as a board member for Boston Scientific Corporation and previously served as a partner at Morgan Health from 2022 to 2024. We believe that Dr. Watkins and Dr. Pegus' deep understanding of the healthcare industry and extensive leadership experience make them both well qualified to serve on our board. Both Dr. Watkins and Dr. Pegus bring incredible operational and board experience to Concentra, and I look forward to working with them as we move the company forward. With the addition of these individuals, this brings our total number of directors to five, with three being independent.

[Keith Newton, CEO at Concentra]

As a brief refresher on our business, especially for any new followers, Concentra is the largest provider of occupational health services in the United States. We have approximately 700 locations across 45 states, including both our occupational health centers and our on-site health clinics at the employer's workplace. We see approximately 50,000 patient visits per day and serve approximately 200,000 employer customers. We estimate that 65% of U.S. employer locations are within approximately 12 miles of our occupational health centers. 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 quick return to normal activities. We aim to expediate employees' safe and sustainable return to work and help lower medical and indemnity claims costs incurred by employers.

[Keith Newton, CEO at Concentra]

In this regard, 95% of injured employees treated in a Concentra center last year were recommended for return to work in some capacity, typically with restrictions on the same day of the initial visit. Accordingly, workers' compensation patients treated in a Concentra center have an approximate 25% lower average total claims cost than non-Concentra centers. Concentra has three operating segments, including, one, occupational health centers, two, on-site health clinics, and three, other businesses. Our occupational health center operating segment comprised 94.4% of our total revenue for the Q2 and includes 547 centers as of June 30, 2024. We have only one reporting unit, primarily due to the fact that the three operating segments have very similar economic characteristics and tend to vary based only on the type or location of occupational health services provided....

[Keith Newton, CEO at Concentra]

In our public filings, we have disaggregated our revenue to disclose revenue by our three operating segments. Within our occupational health centers operating segment, we provide the three service lines of workers' compensation, employer services, and consumer health. The breakdown of patient visits per day, total revenue, and revenue per visit is provided at this service line level when disaggregating the occupational health center revenue. We provide this additional information as we believe it is helpful in explaining our business, financial condition, and results of operations. In the occupational health center operating segment, as previously mentioned, Concentra ended Q2 2024 with 547 occupational health centers, including the addition of a new de novo center during the quarter, offset by the fold-in of an existing center into another nearby Concentra location, which we will do occasionally as leases expire to optimize efficiency and profitability.

[Keith Newton, CEO at Concentra]

In the on-site health clinic operating segment, we operated 154 sites at the end of Q2 2024, which is three more than the 151 sites at the end of Q1 2024. We continue to maintain a strong pipeline of de novo centers and potential acquisition opportunities in order to continue to expand our footprint. I will now provide commentary on our overall company's Q2 financial performance before turning it over to Matt. As you are aware, we announced our preliminary estimate of certain financial results for the Q2 on July 12th, at the time of the kickoff of the roadshow for our initial public offering. Our final Q2 results are in line with our preliminary estimates, and overall, we had a successful Q2.

[Keith Newton, CEO at Concentra]

In the quarter, on the same number of business days year-over-year, revenue was $477.9 million, compared to $467.1 million in the prior year, representing 2.3% growth year-over-year. Adjusted EBITDA was $101.6 million in the quarter versus $100.4 million in the same quarter prior year, or a 1.2% increase. EBITDA margin decreased slightly to 21.3% for the quarter, compared to 21.5% for the same quarter prior year. Net income decreased 1.8% to $53.1 million for the second quarter ended June 30th, 2024, compared to $54 million for the same quarter prior year.

[Keith Newton, CEO at Concentra]

Earnings per common share were $0.50 for the Q2, 2024, compared to $0.51 per share in the same quarter prior year. Adjusted earnings per share were $0.49 for the Q2 ended June 30th, 2024, compared to $0.51 for the same quarter prior year. Total visits decreased 53,639, or 1.6%, from 3,267,894 in Q2 2023, to 3,214,255 in Q2 2024. Workers' compensation volume increased by 26,219 visits, or 1.8%, from 1,429,035 last year to 1,455,254 in Q2 of this year.

[Keith Newton, CEO at Concentra]

The workers' comp increase was offset by a decline in employer services volume of 78,613, or 4.4%. We believe the decrease in employer service visits is driven by the expected normalization of these visit types coming off the COVID years, when employers were rebuilding labor forces and wage inflation created a large reshuffling of the workforce, with continuous hiring of the same applicants. We're seeing the volumes in these visit types trend closer to pre-pandemic levels and believe the decrease will level out in the near term. Our revenue increase in the quarter was driven primarily by a 3.9% increase in revenue per visit and a 1.8% increase in workers' compensation visits per day in our occupational health centers.

[Keith Newton, CEO at Concentra]

We experienced a higher revenue per visit, principally due to increases in the reimbursement rates payable pursuant to certain state fee schedules for workers' compensation visits, increases in our employer services rates per visit, which we negotiate and set directly with employer customers, and as noted before, the higher percentage mix of the workers' compensation visits with their higher revenue rates per visit. This concludes my overall company remarks. I'll now turn the call over to Matt to provide color on our operating segments, key operating metrics, costs and expenses, cash flow, and balance sheet, as well as provide an update on our growth efforts and our separation activities from Select Medical. Matt?

[Matthew DiCanio, President and CFO at Concentra]

Thanks, Keith. Good morning, everyone. I would first like to extend my own heartfelt thank you to the Concentra colleagues, patients, customers, and investors for getting Concentra to this point in the company's evolution, which is a very exciting time that positions Concentra for many growth opportunities in the years to come. Now, as Keith mentioned, in our filings, we have included disaggregated revenue information and other key operating metrics from our occupational health center operating segment.... I'll add some additional commentary here and also discuss our major expense categories, as well as other key performance indicators and strategic initiatives. I'll begin with commentary on our occupational health center operating segment. In this center operating segment, revenue of $451.2 million in Q2 2024 was $9.5 million higher than the same quarter prior year of $441.8 million.

[Matthew DiCanio, President and CFO at Concentra]

This outlined our 1.6% visit decline year-over-year, driven by the expected lower employer services volume, which are lower revenue visits, and the 3.9% increase in revenue per visit from $134.50 in Q2 2023, to $139.81 in Q2 2024. Within this center operating segment, workers' compensation revenue of $288.4 million was $9.9 million more, or 3.5%, than prior year of $278.6 million. Q2 2024 work comp visits per day of 22,738 increased by 410, or 1.8%, from prior year of 22,329.

[Matthew DiCanio, President and CFO at Concentra]

The Q2, 2024 work comp revenue per visit of $198.18 was above prior year revenue per visit of $194.92 by $3.26, or 1.7%. Workers' compensation revenue represents 63.9% of our total center operating segment revenue in Q2, 2024, versus 63.1% in Q2, 2023, or a 0.8 percentage point increase. Employer services revenue in the center operating segment of $153.3 million increased $141,000, or 0.1%, from prior year of $153.2 million.

[Matthew DiCanio, President and CFO at Concentra]

Employer services visits per day of 26,600 decreased from prior year of 27,828 by 1,228 visits per day, or 4.4%, in line with our expectations as these visits continue to trend towards normalized levels. The Q2, 2024, employer services revenue per visit increased $4.05, or 4.7%, from $86 in prior year to $90.05. On-site revenue of $15.5 million in Q2, 2024, increased $0.8 million from the same quarter prior year of $14.7 million, or 5.7%. Our other business revenue of $11.1 million increased 5.1% against same quarter prior year of $10.6 million, or $0.5 million.

[Matthew DiCanio, President and CFO at Concentra]

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 $339.3 million, or 71% of revenue, for the three months ended June 30th, 2024, compared to $329.8 million, or 70.6% of revenue, for the three months ended June 30th, 2023. 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 $36.8 million, or 7.7% of revenue, for the three months ended June 30th, 2024, compared to $37 million, or 7.9% of revenue, for the three months ended June 30th, 2023.

[Matthew DiCanio, President and CFO at Concentra]

Our labor costs in the quarter was helped by fewer full-time equivalents, or FTEs, quarter-over-quarter, despite having 7 more occupational health centers and 13 more on-site health clinics compared to the same quarter prior year. The lower FTEs are primarily in the center operating segment, where we have fewer FTEs quarter-over-quarter, largely due to the lower employer services visit. For the Q2, operating activities provided $70.4 million in cash flow, and our days sales outstanding, or DSO, was 44 days at June 30th, 2024, compared to 45 days at June 30th, 2023. Investing activities used $15.3 million of cash in the Q2.

[Matthew DiCanio, President and CFO at Concentra]

This includes $13.3 million in purchases of property and equipment, and $2 million of continued investments in our clinical and operational systems, where we've committed to technological initiatives that will ultimately drive efficiencies in the centers and make it easier for our customers to do business with us. Financing activities used $54.1 million of cash for the Q2. We had $50 million in net payments on our revolving credit with Select Medical and $2.1 million in payments on other debt. On July 26, 2024, Concentra completed an initial public offering of 22.5 million shares of its common stock, par value $0.01 per share, at an initial public offering price of $23.50 per share for gross proceeds of $528.8 million.

[Matthew DiCanio, President and CFO at Concentra]

In addition, Concentra has granted the underwriters a 30-day option to purchase up to an additional $3.375 million shares of its common stock. Concentra shares begin trading on the New York Stock Exchange under the symbol CON on July 25th, 2024. In connection with the offering, Concentra Health Services, Inc., a wholly owned subsidiary of Concentra, entered into certain financing arrangements, which included credit facilities and a $650 million aggregate principal amount of 6.875% senior notes due 2032. The notes are unconditionally guaranteed jointly and severally on a senior unsecured basis by Concentra and certain of its wholly owned subsidiaries. The credit facilities consist of an $850 million term loan and a $400 million revolving credit facility.

[Matthew DiCanio, President and CFO at Concentra]

The term loan matures in July 2031 and has an interest rate of SOFR +2.25%, subject to a leverage-based pricing grid. The revolving credit facility matures in July 2029 and has an interest rate of SOFR +2.5%, subject to a leverage-based pricing grid. The net proceeds of the IPO were used to pay down the long-term debt and promissory note with the related party, and the net proceeds of the debt financing transactions, except for the $34.7 million, were used to issue a dividend to Select Medical Corporation. Upon completion of the IPO, this recapitalization results in $1.5 billion in total debt and $100 million in cash on our balance sheet, or a total net debt of $1.4 billion.

[Matthew DiCanio, President and CFO at Concentra]

With the $400 million revolver, we have $500 million in total liquidity. Our net debt represents a 3.9x net leverage ratio based on trailing twelve-month Adjusted EBITDA. Concentra will target a lower leverage ratio on a go-forward basis as we use our cash flow to pay down debt. This should not impact our growth prospects or strategic initiatives. Now, some brief remarks on our growth efforts. During the Q2, Concentra opened a de novo clinic in Hialeah Gardens, Florida, and as an extension of our Miami market. We also continued to build out our de novo roadmap, where we now have seven signed leases for de novos, slated to open throughout the remainder of 2024 and early 2025. Next to open will be centers in Chattanooga, Tennessee, Knoxville, Tennessee, and Orlando, Florida.

[Matthew DiCanio, President and CFO at Concentra]

I would also like to add some brief comments around our separation efforts from Select Medical. Since Select Medical's acquisition of Concentra back in 2015, they have provided certain support functions, including portions of finance, human resources, benefits administration, information technology, legal, corporate governance, and other services that have been allocated to us at cost for purposes of preparing our consolidated financial statement. On the closing date of the IPO, Concentra entered into several agreements with Select Medical to continue to provide transition and other employee and tax-related services for a two-year period post the proposed distribution of Concentra shares to Select stockholders. We have a full plan in place to stand up these services at Concentra and have made good progress on these separation activities already, with a handful of key hires and work completed from a technology system standpoint.

[Matthew DiCanio, President and CFO at Concentra]

Over time, the incremental recurring standalone expenses are estimated at approximately $13 million. We'll update everyone as we make more progress with the separation. Lastly, we have a slide in our investor presentation that outlines our long-term financial targets. This presentation is available on our website. We will have more specific guidance on future results at a later time. This concludes our prepared remarks. Thank you for your time today to go through Concentra's business update and Q2 financial results. At this time, we'd like to turn it back to the operator to open up the call for questions.

[Operator]

Certainly. Everyone at this time, we'll be conducting a question-and-answer session. If you have any questions or comments, please press star one on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star one on your phone. Please hold while we poll for questions. Thank you. Once again, everyone, if you have any questions or comments, please press star, then one on your phone. Please hold while we poll for questions. Thank you. Your first question is coming from Rishi Parekh from J.P. Morgan. Your line is live.

[Rishi Parekh, Managing Director at J.P. Morgan]

Hi, thanks for taking my questions. One, can you just walk us through your growth prospects, you know, for this year? Where are you looking to expand, any particular regions? And then specifically, just around, rate, how should we think about rate going into the second half of the year? And then, you know, what are your thoughts, and how should we think of—think about that in 2025? Thanks.

[Matthew DiCanio, President and CFO at Concentra]

Yeah, thanks for the question, Rishi. This is Matt DiCanio, so I can take those two. On the growth prospects, you know, we're looking to continue to add dots on the map and extend our footprint across the country. We're looking all across the country. There's really a handful of states that we're not focused on, but pretty broad growth strategy. And we'll continue what we've been doing for many years into the future. And then, your second question was around rate. So, we expect rate to be very consistent with what we've experienced through the first six months of this year, through the remainder of the year.

[Matthew DiCanio, President and CFO at Concentra]

And then, long-term view, we've outlined in our investor presentation, our long-term view on rate prospects, but very much in line with what we've seen historically.

[Rishi Parekh, Managing Director at J.P. Morgan]

You also had a rate bump in Florida. Can you just quantify what that bump is? And what are the opportunities outside of just Florida, where you might see something similar?

[Matthew DiCanio, President and CFO at Concentra]

Sure. Yeah, I can take that as well. So yes, Governor DeSantis signed into law a rate increase related to workers' compensation reimbursement in the state of Florida. That goes into place on January first, two thousand and twenty-five. We are not disclosing the impact to us at this point in time. We'll have more guidance on that in the future. But what I will say is it's gonna add to our growth efforts. Florida is a state where we can continue to grow in. This reimbursement change makes it more attractive for us to add centers there. So we'll continue to add centers. We'll create jobs in the state of Florida and create access for employers. So overall, it's gonna be very good news for our growth and for the work comp industry in the state of Florida.

[Rishi Parekh, Managing Director at J.P. Morgan]

Thank you.

[Matthew DiCanio, President and CFO at Concentra]

Sure.

[Operator]

Thank you. Once again, everyone, if you have any questions or comments, please press star, then one on your phone. Please hold while I poll for questions. Thank you. There are no further questions in the queue. I'll now hand the conference back to Mr. Keith Newton for closing remarks. Please go ahead.

[Keith Newton, CEO at Concentra]

Just wanted to say thanks for everybody joining the call today, and operator, I believe we are finished. Thank you.

[Operator]

Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.

Participants

Analysts

• Keith Newton, CEO at Concentra
• Matthew DiCanio, President and CFO at Concentra
• Rishi Parekh, Managing Director at J.P. Morgan