Concentra Group Holdings Parent Inc
NYSE:CON
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Good morning, and thank you for joining us today for Concentra Group Holdings Parent, Inc. earnings conference call to discuss the second 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 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.
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 first earnings call as a public company, where we will discuss financial results for the second quarter 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 work 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. Dan 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 2 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. health care companies and health care 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 Institution and American Heart Association. Before taking on large-scale managerial position, she was a cardiologist, clinical researcher and fellow at New York-based medical institutions, including the Joan & 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 health care 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 5 with 3 being independent.
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 employers' 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. 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 3 operating segments including, one, occupational health centers; two, on-site health clinics; and three, other businesses. Our occupational health center operating segment comprise 94.4% of our total revenue for the second quarter and includes 547 centers as of June 30, 2024. We have only one reporting unit, primarily due to the fact that the 3 operating segments had very similar economic characteristics and tend to vary based only on the type or location of occupational health services provided.
In our public filings, we have disaggregated our revenue to disclose revenue by our 3 operating segments. Within our occupational health centers operating segment, we provide the 3 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.
In the on-site health clinic operating segment, we operated 154 sites at the end of Q2 2024, which is 3 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 second quarter financial performance before turning it over to Matt. As you're aware, we announced our preliminary estimate of certain financial results for the second quarter on July 12 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 second quarter.
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 a 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 30, 2024, compared to $54 million for the same quarter prior year. Earnings per common share were $0.50 for the second quarter 2024 compared to $0.51 per share in the same quarter prior year. Adjusted earnings per share were $0.49 for the second quarter ended June 30, 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. 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 of the COVID years when employers were rebuilding labor forces and wage inflation created 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 visit per day in our occupational health centers. 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 customersand 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?
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. These 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 the 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. 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. 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 same quarter prior year of $14.7 million or 5.7%. And our other business revenue of $11.1 million increased 5.1% against same quarter prior year of $10.6 million or $0.5 million.
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 3 months ended June 30, 2024, compared to $329.8 million or 70.6% of revenue for the 3 months ended June 30, 2023.
General and administrative expense includes corporate overheads 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 3 months ended June 30, 2024, compared to $37 million or 7.9% of revenue for the 3 months ended June 30, 2023. 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 second quarter, operating activities provided $70.4 million in cash flow. And our days sales outstanding, or DSO, was 44 days at June 30, 2024, compared to 45 days at June 30, 2023. Investing activities used $15.3 million of cash in the second quarter. 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 the 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 second quarter. 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. 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 began trading on the New York Stock Exchange under the symbol CON on July 25, 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. The term loan matures in July 2031 and has an interest rate of SOFR plus 2.25%, subject to a leverage-based pricing grid. The revolving credit facility matures in July 2029 and has an interest rate of SOFR plus 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 a 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 total net debt of $1.4 billion. 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 12-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 second quarter, Concentra opened a de novo clinic in Hialeah Gardens, Florida as an extension of our Miami market. We also continued to build out our de novo road map, where we now have 7 signed leases for de novo, 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.
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 statements. 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 2-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 the separation activities already with a handful of key hires and work completed from a technology system standpoint. Over time, the incremental recurring stand-alone expenses are estimated at approximately [ $13 million ]. We will 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 second quarter financial results. At this time, we'd like to turn it back to the operator to open up the call for questions.
[Operator Instructions] Your first question is coming from Rishi Parekh from JPMorgan.
One, can you just walk us through your growth prospects 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 what are your thoughts? And how should we think about that in 2025?
Yes. Thanks for your question, Rishi. This is Matt DiCanio. So I can take those 2. On the growth prospects, 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 6 months of this year through the remainder of the year. And then a 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.
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?
Sure. Yes, I can take that as well. So yes, Governor DeSantis signed into law a rate increase related to worker compensation reimbursement in the state of Florida. That goes into place on January 1, 2025. And we have -- 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 going to 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 going to be very good news for our growth and for the work comp industry in the state of Florida.
[Operator Instructions] 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.
I just wanted to say thanks for everybody joining the call today. And operator, I believe we are finished. Thank you.
Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.