Concentra Group Holdings Parent Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 8, 2025

There are 8 speakers on the call.

Operator

Good morning and thank you for joining us today for Concentra Group Holdings Parent Incorporated Earnings Conference Call to discuss the First Quarter twenty twenty five Results. Speaking today are the company's Chief Executive Officer, Keith Newton and the company's President and Chief Financial Officer, Matt Piccanio. 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 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 will turn the conference over to Mr. Keith Newton. Sir, the floor is yours.

Speaker 1

Thanks, operator. Good morning, everyone. Welcome to Concentra's first quarter twenty twenty five 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.

Speaker 1

First, solid visit growth, including a positive reversal in our employer service 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 Centers acquisition closed on 03/01/2025 and thus we are only reflecting one month of its results in the first quarter.

Speaker 1

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 twenty twenty five were up across all service lines year over year with total visit per day increasing 3.2% to 50,900. Excluding the impact from the acquisition of Nova in early March, total visits per day increased 0.6% to 49,600. We continue to see year over year growth in workers' compensation volume with total visits per day increasing 2.4% over the first quarter of twenty twenty four. Excluding Nova, daily workers' compensation visits increased 0.2%.

Speaker 1

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 twenty twenty four. 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 twenty twenty five compared to the same quarter prior year.

Speaker 1

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 1, the addition of five new centers in Florida from our physician health center acquisition on March 8, the opening of three de novo sites in Q1 and the signing of the Pivot On-site acquisition that we announced on April 21. In total, these efforts will add 75 new occupational health centers and approximately 200 On-site health clinics. This is our most active stretch of M and 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.

Speaker 1

Revenue was $500,800,000 for the three months ended 03/31/2025 compared to $467,600,000 for the three months ended 03/31/2024, 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 $102,700,000 in the first quarter of twenty twenty five versus $96,100,000 in the first quarter of twenty twenty four or a 6.8% increase. Adjusted EBITDA margin decreased slightly from 20.6% in Q1 twenty twenty four to 20.5% in Q1 twenty twenty five. Matt will provide more detail shortly, but once you normalize Q1 twenty twenty four for a favorable out of period expense reversal, we would have experienced positive year over year growth in adjusted EBITDA margin.

Speaker 1

Net income was $40,600,000 and adjusted earnings per share were $0.32 for the first quarter of twenty twenty five. 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 and A, a nice recipe for success with our business.

Speaker 1

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 twenty twenty five. We'll also comment on the expected impact of potential tariffs on our business and 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.

Speaker 2

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 acquisition. Total revenue of $472,900,000 in Q1 twenty twenty five 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.

Speaker 2

Total visits per day increased 3.2 over the same quarter prior year and revenue per visit increased 5.6% from $139 in Q1 twenty twenty four to $147 in Q1 twenty twenty five. Workers' compensation revenue of $302,100,000 in Q1 twenty twenty five 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%.

Speaker 2

Within Employer Services, revenue of $160,100,000 in Q1 twenty twenty five 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.

Speaker 2

Excluding the impact of Nova, total revenue within the occupational health center operating segment, which excludes the on-site health clinics and other businesses was $461,700,000 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 twenty twenty four to $147 in Q1 twenty twenty five. 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.

Speaker 2

Employer services revenue per visit was 4% higher than prior year. Moving on from our occupational health centers, our on-site health clinic segment reported revenue of $16,600,000 in Q1 twenty twenty five, a 4.4% increase from the same quarter prior year. And our other business segment generated revenue of $11,300,000 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.

Speaker 2

Cost of services was $357,100,000 or 71.3% of revenue in Q1 twenty twenty five, 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 operation. General and administrative expense includes corporate overhead such as finance, legal, HR, marketing, corporate offices and other administrative areas. Our G and A expense were $46,700,000 or 9.3% of revenue in Q1 twenty twenty five 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 and A expense was $41,200,000 for the quarter or 8.2% of revenue compared to 7.4% of revenue in the same quarter prior year.

Speaker 2

Prior year G and A expense was reduced by a favorable out of period legal expense reversal that was recorded during Q1 twenty twenty four. This had a positive EBITDA impact. The year over year increase in G and 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 twenty twenty five 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 twenty twenty four adjusted EBITDA margin of 19.8%, demonstrating strong year over year margin growth on a run rate basis.

Speaker 2

In Q1 twenty twenty five, we generated $11,700,000 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 semi annual interest payments

Speaker 2

from operations was largely attributable to an increase in interest payments following the IPO driven recapitalization last summer. Investing activities used $294,700,000 of cash in the first quarter, predominantly driven by our previously announced acquisition activity. Also included in this number was $15,700,000 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 151,900,000 for the first quarter. As a reminder, in conjunction with funding the Nova acquisition in early March, we drew $50,000,000 on our revolving credit facility and we upsized our Term Loan B from approximately $848,000,000 to $950,000,000 Additionally, we repriced our Term Loan B at SOFR plus 200, down from SOFR plus two twenty five with a 25 basis point step down at net leverage of less than 3.25 times.

Speaker 2

At the same time, we upsized our revolver capacity from $400,000,000 to $450,000,000 and we repriced at SOFR plus 200 down from SOFR plus two fifty 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 $1,600,000,000 and a cash balance of 52,000,000 At the March, our net leverage ratio per our credit agreement was 3.9 times, up from 3.5 times at year end twenty twenty four 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 $600,000,000 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 currently outstanding debt, while retaining solid exposure to potential rate decreases.

Speaker 2

Switching gears, we are pleased to announce a continuation of our dividend this quarter with Concentra's Board of Directors declaring a cash dividend of $0.06 $25 per share on 05/06/2025. The dividend will be payable on or about 05/29/2025 to stockholders of record as of the close of business on 05/20/2025. 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.

Speaker 2

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's systems, processes and signage over the coming months, which we anticipate will further enhance top line and cost efficiency. Our physician health center acquisition in Florida and our three de novos opened in the quarter are a continuation of our core center growth strategy and all eight centers are off to a great start.

Speaker 2

Lastly, with respect to Pivot On-site Innovations, this is an acquisition we're really excited about and demonstrates our commitment to investing in and scaling our on-site 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 $17,000,000,000 across both occupational health and advanced primary care service offering. We announced the signing of this transaction on 04/21/2025 and posted a brief investor deck on our website. The purchase price is $55,000,000 and the expected acquired revenue will be approximately $60,000,000 The deal is immediately accretive from a value standpoint and we expect to capture cost synergies over the first twelve months post acquisition, resulting in a pro form a purchase multiple below nine times.

Speaker 2

We expect to close in Q2 twenty twenty five 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 delevering. 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.

Speaker 2

We anticipate limited M and 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 three point zero leverage ratio within the next eighteen to twenty four months.

Speaker 1

Thanks, Matt. As you can see, we made great progress in the first quarter. I'd like to take a few minutes to address the current macroeconomic landscape and outlook for Concentra from a qualitative perspective and then Matt will review our updated 2025 financial outlook. Like everyone else, we are actively monitoring global fiscal monetary regulatory and trade policy and are evaluating potential impacts to our business. There is obviously a fair amount of broader economic uncertainty right now, but I will note that we have not observed an impact to the visit volumes in our centers as of the date of this earnings call, which I think is an encouraging macro data point, especially given the breadth and diversity of our domestic customer base and our footprint.

Speaker 1

Like everyone else, I wish we had a crystal ball with respect to the impact of the implementation and outcomes of these policies. But in the absence of that, we feel that we are positioned well here at Concentra to address any economic slowdown should it occur and had proven that in the past. What we can share anecdotally at least is how the administration's current policies could directly impact us over time. If to the extent economic policy does result in an expansion of manufacturing through the reshoring of American industrial jobs over the long term as the Trump administration hopes, that would serve as a tailwind for Concentra because we serve America's workforce. To that end, there has been a flurry of recent announcement from domestic and international companies indicating plans to invest in incremental manufacturing capacity in The U.

Speaker 1

S, which would likely drive an increase in total employment and thus both visit growth at our centers as well as potential new employer on-site opportunities. If new policy leads to higher inflation, our rates would likely increase due to many of those states' workers' compensation fee schedules having built in inflationary adjustments. Employer services rates have also generally grown in line with inflation in recent years. So higher inflation would likely result in higher revenue per visit, which was what we have experienced in the past. From a supply chain standpoint, we expect minimal bottom line impact from tariffs since medical supplies and pharmacies as a line item expense category constitute less than 3% of total revenue for us, which based on our research is one of the lowest percentages among comparable healthcare services companies.

Speaker 1

That said, we are certainly taking proactive steps to mitigate any potential exposure to trade induced cost creep within our business. Lastly, in the event economic activity does slow over the near term, which to be clear, we are not currently predicting nor seem to be experiencing in our visits, we are well positioned to weather the storm. Although we are a new standalone public company, we have a long history of nimbly managing our cost structure through down cycles in the economy. During the global financial crisis in 02/2008 and 02/2009 and during COVID in 2020, we experienced a substantial drop in visits, but we limited the negative adjusted EBITDA impact. We have a highly experienced and capable operational team actively monitoring day to day volume and managing our cost trends throughout the country, And we are well positioned to react quickly in the event overall economic growth were to slow.

Speaker 1

Longer term, these policies could serve as tailwinds for our business if they result in material growth in U. S. Jobs.

Speaker 2

With that, Matt can share thoughts on our updated financial guidance. Great. Thanks. I think Keith summarized the uncertainty nicely in the way these policies could impact Concentra. While we are obviously tracking the broader macroeconomic landscape, we aren't seeing an impact to our business currently.

Speaker 2

In fact, April volume across work comp and employer services was up year over year and into early May even after excluding the impact of Nova. Given the strong financial start to the year and additional development activity that previously wasn't factored into our guidance including the acquisitions of Physician Health Center and Pivot On-site, we felt it was appropriate at this time to raise our view of some of the previously provided 2025 financial metrics. For 2025, Concentra now expects to deliver revenue in the range of 2,100,000,000.0 to $2,150,000,000 and adjusted EBITDA in the range of $415,000,000 to $430,000,000 We are tracking well to the capital expenditures and net leverage ratio outlook guidance that we previously communicated, so there's no change there. We intend to closely monitor potential macro impacts to our business over the next few months as well as progress on integration of our recent acquisitions and we may have additional updates with respect to full year 2025 guidance during our Q2 earnings call.

Speaker 1

Thanks, Matt. Obviously, a lot of good news here for the quarter. As a management team, we're excited about the progress we've made as a standalone company post IPO and are proud of the outstanding effort and execution from all of our colleagues across clinical, operational support and development functions. Our people and culture have served as a cornerstone of our company for over forty five years and we are focused on maintaining our values and adhering to our mission of improving the health of America's workforce one patient at a time as we continue our growth. We think we have a strong value proposition to offer healthcare investors given our industry leading market position as a provider of choice for over 215,000 employer customers due to our long history of clinical excellence, patient care and our overall value proposition to help employers lower healthcare cost.

Speaker 1

Also, strong geographic industry customer and service offering diversification representative of 45 states the attractive reimbursement model that mitigates stroke of the pen risk due to less than one percent of our revenue having government payer exposure our flexible operating structure that allows us to quickly scale staffing and cost up and down from real time volume trends our history of successful execution on M and A and the white space that exists for those trends to continue and our motivated and highly experienced management team that has a long track record producing mid to high single digit top line growth, consistent 20% adjusted EBITDA margins, significant free cash flow and low to mid teens return on invested capital. We are excited to continue to share our story with the market and provide updates on our performance and growth initiatives over the coming quarters. That concludes our prepared remarks and we thank everybody for the time today. We'd like to turn it back over to the operator to open the call for questions.

Operator

Thank you. At this time, we'll be conducting our question and answer session. Our first question is coming from Benjamin Rossi with JPMorgan. Your line is live.

Speaker 3

Great. Thanks for the question here. So on Employer Services volumes with the strong performance during 1Q coming in ahead of expectations, it seems as though we've potentially hit an inflection point on visit volume erosion in that segment. Can you just discuss your turnaround here organically? And what are some of the factors that aided this turnaround?

Speaker 3

And then looking ahead, how are you factoring volume trends here for the remainder of the year?

Speaker 1

Yes. I'll start with that. Matt, feel free to chime in. I think as we've talked about in the past, coming off some highs and lows from the COVID years of ramping up and the churn that took place and then the downturn that we subsequently saw that created year over year negative comps. I think we bottomed out and we talked about it last year that we felt that we were slowly starting to see some improvement there.

Speaker 1

And I think as we came into this year, there seemed to be a little more optimism we felt from the noise from the employer base. And I think just continued sales and marketing efforts that we've deployed through several channels within our sales and marketing group as far as continuing to gain market share in those markets has really helped us start to turn that needle and drive it back in the direction it's going. We've seen several of these if you go back years and years where there's little bit peaks and valleys associated with what's going on from an economic standpoint there. And so I think we're starting to see some of the rewards of the hard work we put in over the last year along with just some of the dynamics coming out of the COVID and the great the hiring and the churn associated with that. We continue to see that and we're cautiously optimistic.

Speaker 1

There's a lot of turbulence out there and projections of what could or could not happen from an economic standpoint. But so far, we've been pleased with what we're seeing.

Speaker 3

Great. Appreciate the color there. And just as a follow-up, so taking a step back, it sounds to a series of acquisitions, it makes you one of the most scaled platforms in occupational health across both your workers' comp and employer services segments. Just with these transactions, could you take a step back and describe to us where you see Concentrix going from here with these added capabilities and ultimately how this scaled platform helps you deliver upon your long term growth goals?

Speaker 1

Yes, I'll take that one also. We the bricks and mortar, we're going to continue to pick and axe down that pathway. There's still opportunities out there. The size we have also has created greater partnerships with the managed care ecosystem world or the work comp industry. We've got a lot of relationships that are helping drive additional volume from that standpoint.

Speaker 1

What I'm really excited about that we've talked about in the past many times is three legs on the stool here at Concentra. The largest by far, the bricks and mortar, the second being our employer on sites and the third being our other business lines, primarily telemedicine. Really excited with the opportunity that we have from an on-site perspective. As we mentioned on the call, we're doubling that segment from a revenue standpoint with the acquisition of Pivot. It still puts us on the smaller end of on-site companies.

Speaker 1

We're definitely in the top 10. But we think there's going to be tremendous growth there. We have other opportunities to look at in the future that are going to allow us to grow that business. We're in the process of scaling it. We think Pivot helps a lot.

Speaker 1

It's a very similar business to what we have from an occupational medicine standpoint. We are We have deployed our advanced primary care product and are starting to get a few wins relative to RFPs in that area. And that's a big marketplace for us that we're going to prospect very hard as we push forward. And now that we have a very good solid foundation built around that business with a Pivot acquisition and our own business that we feel very good about the growth from that perspective that that segment is going to help drive for us in the future.

Speaker 2

Yes. Ben, the only thing I would add there too, I always talk about providing great access to our employer customers and we do that through our locations, so employers can send their employees to us at our occ health clinics. But we can also go to them through our on-site business and we do that episodically. We do that from a mobile standpoint and then full time as well. And then the third one is our virtual telemedicine service offering.

Speaker 2

So we're trying to do is just continue to build out all three of those areas and provide a very comprehensive solution set for our employer customers. Great. Thanks for the commentary.

Operator

Thank you. Our next question is coming from Jamie Perce with Goldman Sachs. Your line is live.

Speaker 3

Hey, thanks. Good morning. Just starting on workers' comp, I think visits were up 2.4% per day. It sounds like that was 0.2% organic and two twenty basis points from Nova. How would contextualize the organic performance there slower than trends and I think slower than the roughly 2% long term framing you provided for that business?

Speaker 3

So what did you see in the quarter? Do you expect improvement from here? And how should we get confidence in that kind of roughly 2% long term outlook for that business?

Speaker 2

Sure. I can take that. Hey, Jamie. So yes, work comp from a core standpoint was a little lighter than prior quarter, but still positive overall. We continue to see total employment growth.

Speaker 2

There's obviously some changes within that category, practice patterns and things like that. So overall, we expect to see positive work comp visit growth from a core perspective on a go forward basis.

Speaker 3

Okay. And then on gross margins, I think you cited 150 basis points improvement from last excluding the reversal you had last year. How much of that was from the acquisition of Nova versus more underlying performance? And then is that a sustainable level adjusting for seasonality that we should think about as a starting point for the year given the kind of potential improvement in volumes, the pricing you're getting, etcetera? Just how should we think about gross margin progression this year?

Speaker 3

Thanks.

Speaker 2

Sure. Yes, there's a lot of moving pieces in the margin profile. Obviously, we had strong rate performance. We had positive visit growth. We had the acquisitions.

Speaker 2

We also have some incremental hires as we're separating from Select. And we had the one time out of period favorable item prior year. So all of those are kind of contributing to where we presented. But fourth, fifth year here in a row with 20 plus percent margins, we expect that sustainable. And with the continued M and A activity, we think there's upside from there as well.

Speaker 1

Yes. And I would add that, NOBLE was only one month of the results, so it had very little impact this quarter. But we feel pretty good with the synergies that we're executing on right now that it's going to contribute as we go forward. But the rate has really been a nice driver this year.

Operator

Thank you. Our next question is coming from Ben Hendrix with RBC Capital Markets. Your line is live.

Speaker 4

Great. Thank you very much. The first question here for Keith just following up on your trade policy discussion. Just in that high inflation scenario you noted that rate increases would likely flow through. Just want to get any commentary on your views on the uniformity of that across your states.

Speaker 4

I know these states have different rate mechanisms. Are there any particular key areas or key markets where you where we could be at risk of rate updates lagging inflation more than others? Just want to get an idea of the uniformity across footprint. Thanks.

Speaker 1

Yes. Typically, are MEI there's some sort of inflationary factor they use and it could be CPI, could be MEI. But what historically we've seen is the implementation of the adjustments to their fee schedule typically within the first quarter of the year. And they'll look back kind of what's happened in the last three to six months. So it's been fairly reflective at the time that they go in as to what recently has happened relative to inflation.

Speaker 1

And so it that's what we've seen historically. So it's worked pretty well from that standpoint.

Speaker 4

Great. Thank you for that. And then just my other question for Matt. I just wanted to go back to the cost of service performance and the lower cost of service as a percent of revenue and you noticed some labor efficiencies you captured in there. Just wanted to kind of give a little more color around that kind of what the if there's more room to run-in that regard and kind of how you see labor flushing out for the long term as a percent of revenue and if there's any change to that forecast?

Speaker 4

Thanks.

Speaker 2

Sure. Yes, I'll add a couple of comments there. Obviously, the revenue increase and the rate gains helped cost of services as a percentage of revenue go down. But we also noted that we had some staffing efficiency gains at the center level across all disciplines and across the country. So our teams are doing a great job.

Speaker 2

The visit volumes are more stable than they have been in prior years. We have some technology initiatives that have helped with efficiencies. And we're really happy with some of the key metrics we look at, whether it's patient satisfaction or turnaround times and things like that. We'll continue to invest in technologies and other ways to make our colleagues at the centers more efficient in the future. Thank you.

Operator

Thank you. Our next question is coming from Joanna Gajuk with Bank of America. Your line is live.

Speaker 5

Hi, good morning. Thank you so much for taking the question. So I guess a couple of follow ups just to clarify on your guidance update where you see you raised the revenue and your EBITDA guidance was raised by $5,000,000 And you said to reflect the Q1 and also the deal activity. So just to make sure, do you include a Pivot acquisition that did knock on in this updated guidance?

Speaker 2

Yes. So I'll add a little commentary just to make sure that's very clear. Our previous guidance included Nova and all of our de novos for this year. Subsequent to that, we closed on the small PHC deal in Florida and then we announced the Pivot acquisition. So both PHC and Pivot are included in our revised guidance.

Speaker 2

Pivot is not closed yet, but we expect it to close here shortly.

Speaker 5

Okay. So expect to close shortly. That's why you're including it. Okay. And another follow-up.

Speaker 5

Thank you for that. And another follow-up. So your workers' comp revenue per visit even if you exclude Florida rates would still be pretty good out there 5%. So is that a good number to kind of assume longer term?

Speaker 2

Over a long period of time, the stat that we've always referenced is 3% is the long term average on work comp rate increases. You can look over five, ten, fifteen, twenty year period and it's pretty much in line with that. Obviously inflation has been higher, in recent years and I think that's what's reflected in our numbers this year. And to Keith's comments earlier, if there is any sustained inflation, we expect it to be slightly higher than 3% in the near term.

Speaker 5

And if I may another follow-up on workers' comp. So your comment was that, I guess excluding Nova, the rents per day decelerated and were only up like 0.2% versus 1% in Q4. So, I wasn't quite sure whether you're trying to call out anything there or are you just kind of in the range of things that you would have expected? Thank you.

Speaker 2

No, we're not trying to call out anything there other than we just felt it was really important to exclude the Nova visits, people can look at our core company performance this quarter, especially with the one month of Nova visits. But work comp was in line with expectations, maybe slightly softer than what we thought, bounces around a little bit and it's still positive. And I think the big news for us really as we spoke about was the turning point with employer services visits. So we're very happy about that.

Speaker 5

Yes, for sure. Thank you so much.

Operator

Thank you. Our next question is coming from Steven Baxter with Wells Fargo. Your line is live.

Speaker 4

Hi, thanks. Just wanted

Speaker 6

to follow-up a little bit on some of the moving parts on guidance. Perhaps you could start by reminding us, I guess, when exactly you're expecting the Pivot deal to close and what the annual revenue contribution is there? I kind of thought that getting a couple of quarters of that deal would maybe explain the entirety of your guidance rate, maybe even more than that potentially. Just trying to sort out the organic pieces versus how you're thinking about Pivot and how much revenue is in the guidance for Pivot? And I guess also these the smaller $05 deal that you closed as well.

Speaker 6

Thanks.

Speaker 2

Sure. Thanks for the question, Steve. So Pivot, we are expecting to close towards the end of Q2. So there'll be approximately half a year impact, on our financials. Obviously, there's going to with the PHC deal and Pivot, there'll be some transition time and ramp and things like that.

Speaker 2

So, PHC closed in mid March and Pivot at the end of Q2. Okay.

Speaker 6

And I believe Pivot was a potentially a $60,000,000 annual revenue business and maybe the disclosure. Do guys do we have that right? Or there a different number for some reason that we should be thinking about for two quarters of that for the balance of the year?

Speaker 2

No, that's correct. Dollars 60,000,000 revenue on an annualized basis. And just to add a couple of comments on, I think as you're getting to how we thought about guidance, obviously there's a lot of moving pieces. We've got the M and A coming on board. We've got some uncertainty that Keith and I both talked about.

Speaker 2

And we felt like at the end of Q1 with the strong Q1 performance and then a couple additional deals, we felt like it was appropriate to increase the guidance by 50,000,000 on the top end of the revenue range and then $5,000,000 on both ends of the EBITDA range. And really just being very thoughtful about where we are in the year and the uncertainty that Keith talked about. Other than that, I think it likely could have been a higher or larger increase.

Speaker 1

Yes. I was going to add, in my comments I mentioned, we wish we all had a crystal ball. We feel really good about how we ended the first quarter and how we're going in to the second quarter. But again, there's a lot of uncertainty and turbulence out there. So as an organization and what we say at this point in time, we want to remain cautious, especially in the early stages of being a public company as far as what we think will end and we'll update as we go forward each quarter as to what we're seeing in the business.

Speaker 6

Okay, makes sense. So better Q1, but just maintaining a prudent stance on the rest of the business organically and folding in deals. I think we can appreciate that then. And then I just wanted to follow-up on some of the macro discussion. I think we do understand the workers' compensation side of the business and how there's often tie ins to inflation benchmarking.

Speaker 6

Can you talk a little bit about how employer services rates have held up when you've had previous economic cycles with more pressure, maybe more uncertainty, maybe more akin to the environment that we're in now? Thank you.

Speaker 1

Yes. We've historically, our employer services rates have reflected the trended very similar kind of the inflationary environment out there. What we historically do around October, November each year is look back on the year, look at what's happening from that standpoint and then identify what we feel is the right number to communicate to be effective on January 1. And typically, long as we kind of use a guideline of inflation, what's happening from that perspective on how we handle our employer services pricing, it's been well received with minimal pushback at all. And so that's historically year after year how we've approached things.

Operator

Thank you.

Speaker 1

Yes. And to add to that, I think it's reflective of what's happening this year at our 3.9%. What we're seeing so far this year is right in line with what we targeted and what we communicated to an employer perspective in the fourth quarter.

Operator

Thank you. Our next question is coming from Justin Bowers with Deutsche Bank. Your line is live.

Speaker 7

Hi, good morning everyone. Just sticking with the rate topic, can you remind us sort of the seasonality of when you get the updates or when those kick in for the fee schedules on the workers' comp side? So for example, is it 75% on Jan one, twenty 5% on October 1? Just trying to get a sense of phasing here.

Speaker 1

I would say 80% to 90% we're going to see within the first quarter. A good majority are effective January 1. Some states lag a little bit as far as updating their schedules, but it typically happens in the first quarter. You'll get the other 20% or so in the middle of the year, July. There's some updates.

Speaker 1

And then again, in October, there's a couple of states. I believe Arizona typically is an October update, but the majority of what we're going to see each year happens within the first quarter.

Speaker 7

Okay. Thank you, Keith. And then sticking with workers' comp, just a two parter. One, was there any weather impact to call out in the first quarter? I know that and we're seeing that in other parts of services.

Speaker 7

And then the second part is just you talked about share gains in employer services and just curious about consolidation opportunities or share gain opportunities with some of those Fortune five hundred accounts and how you're thinking about that over the next, call it, two to three years?

Speaker 1

Yes. I'll comment on both, if I understood the second part. But as far as weather, yes, we get impacted by weather just like everybody else. It's a walk in, our urgent care practices. And if there's ice and snow, it can significantly impact us as far as when initially hits.

Speaker 1

It also potentially helps us with slips and falls along with that weather. But we have it every year and it's hard to really ascertain if there's really a more negative impact this year than last year. So that's why we didn't really comment from that perspective relative to weather this year impacting us. As far as employers, we've built some of the larger ones. We get further and further integrated with them within workers' comp ecosystems and their other partners, their TPAs, their managed care entities that may support some of the programs they have in place to where there is a true direction of care that occurs relative to trying to get patients to us versus somebody else because of the ease of business or that we provide for them and their payers.

Speaker 1

A big part of what our value prop is about is velocity of information regarding patients, return to work, communication. And if they can use a provider that is technology advanced, that can provide them information in a faster manner than others that can help return their workers to full functionality quicker than others, it's going to save tremendous cost as we've shown in the past. Validation studies have shown 25% to 30% cost of savings with us versus a non consent facility. And so we feel good, especially with the size that we have, the footprint, the ability for employer to come to us and have good penetration into their employee base across the country as far as using us. And it just streamlines things to them.

Speaker 1

So it's a great value prop that we have.

Speaker 7

Thank you. Appreciate that.

Operator

Thank you. Our next question is coming from Ed Kressler with TPG Angelo Gordon. Your line is live.

Speaker 3

Good morning. Thanks for having the call today. Much appreciated. And thanks for the outlook on the macro. Helpful.

Speaker 3

You did discuss the flexibility of your cost structure in the event of a macro downturn. Can you give a little bit of more color on how variable your COGS is? And just looking at the Q, is it right to think that kind of low 70s percent of your COGS is labor? And just curious how much of that is variable?

Speaker 2

Yes. I can take that Ed. Thanks for the question. Most of our cost structure is labor. And there's obviously a core staffing group for each individual center.

Speaker 2

But the teams in the field that manage the centers and work in the centers every day are really good at staffing up and down to volume. We have large PRN pools across all functional areas. And the teams are used to the seasonality within the work week, within the month and month by month throughout the year. So we saw that as we navigate prior cycles, The teams can do a really nice job of managing the personnel to the appropriate visit volumes.

Speaker 3

Got you. Okay, great. And then last thing for me. Just from the on-site side, obviously, you're doubling down there. Can you talk a little bit about experience in a macro downturn there?

Speaker 3

Do you have you seen, for example, in great financial crisis, did you see employers dial back on providing these services? Or is that something that kind of once it's in,

Speaker 2

they stick with? Thank you.

Speaker 1

I'll take that one. We weren't that big into the on-site arena back in 'eight or 'nine, but we didn't. There's always some that may decide that that's a cost that may not be needed there or an investment maybe is a better way to say that. But for the most part, we haven't felt that whether it was during the COVID years or what I can remember what we saw during the global financial crisis. I don't hear that and I don't see that much from the competition out there relative to what they may have said relative to their experience.

Speaker 1

I think Polaris, I mean, they really look at it as an investment that they've made for their employee base that's there at the practice at their worksite. As long as a return on investment can be shown from that perspective, then those employers will keep that. Typically in a downturn, even if they downsize, most of those sites, there are several hundred employees there at that site. So a small reduction in force at the worksite is not going to necessarily dictate an elimination of that worksite. So we feel pretty optimistic that they'll weather the storm well if something were to happen from that perspective.

Speaker 2

Yes. And the only thing I would add there too is, we're thinking long term about the business and everything going on with the current administration and reshoring of America jobs. We think that's going to be a really nice tailwind as companies continue to announce their investment back here in The U. S. With large labor forces and there's going to be an increased need for on-site long term in our view.

Speaker 3

Got you. And then I lied. Last thing is just thinking about that on the Onsites side, should we think I think you've characterized it as generally kind of cost plus in the past. The should we be thinking about that as volume dependent as well? So to the extent that an employer has an authorization and they reduce staff, would

Speaker 2

that affect us? Or is do we think of

Speaker 3

it as kind of cost plus for the box and

Speaker 2

not volume dependent? Thank you. I would think of it Rob as cost plus.

Speaker 1

Great. Thanks for the help.

Operator

Thank you. As we have no further questions on the lines at this time, I'd like to hand it back to Mr. Newton for any closing remarks.

Speaker 1

Well, we appreciate everybody's participation today and thank you very much.

Operator

Thank you, ladies and gentlemen. This does conclude today's call. You may disconnect your lines at this time and we thank you for your participation.

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Earnings Conference Call
Concentra Group Holdings Parent Q1 2025
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