Earnings Call Transcript - CON Q3 2025

Operator, Operator

Good morning, and thank you for joining us today for Concentra Group Holdings Parent, Inc. Earnings conference call to discuss the third quarter 2025 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 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. At this time, I will turn the conference call over to Mr. Keith Newton.

Keith Newton, CEO

Thanks, operator. Good morning, everyone. Welcome to Concentra's Third Quarter 2025 Earnings Call. We are pleased to report on another strong quarter with the business generating solid year-over-year volume and rate growth across both workers' compensation and employer services. This resulted in 17% year-over-year revenue growth in the third quarter and 10.6% revenue growth, excluding the impact of the Nova acquisition. During the quarter, we finalized the integration and rebranding of the Nova occupational health centers and opened an additional occupational health center, de novo in Atlanta, Georgia, bringing us to 5 de novo centers opened so far this year with 2 more anticipated by the end of the year. Also, our onsite health clinics operating segment performed well during the quarter, fueled by strong and accelerating organic growth as well as the now nearly completed integration of the Pivot Onsite Innovations business. As with prior quarters, I'll touch on some of our key financial highlights and provide a lens on selected metrics, both including and excluding the impact of the Nova acquisition so that folks have a good sense of core business performance. Similar to last quarter, I would note here at the outset that we had the same number of revenue days in Q3 2025 as Q3 2024, so there is no need to adjust any prior year comparisons for days. Total company revenue was $572.8 million in Q3 2025 compared to $489.6 million in Q3 of the prior year, representing 17% growth year-over-year. As previously mentioned, excluding contributions from Nova, revenue was $541.5 million, resulting in a 10.6% increase over the prior year. Total patient visits increased 9.2% in the quarter to more than 55,500 visits per day. Our workers' compensation visits per day increased 9.8% and employer services visit volumes increased 8.9% relative to the prior year. Excluding the impact from the acquisition of Nova, total visits per day increased 3.0%. Workers' compensation visits increased 4.4%, outpacing the year-over-year growth observed in the first half of the year and employer services visits increased 1.9%, which was in line with the Q2 2025 growth. We had a strong quarter in terms of workers' comp visits with 2 things going for us to contribute in part to the outsized year-over-year growth. First, Hurricane Beryl led to softer than normal volume in early July 2024. Additionally, we continue to see growth from the visit mix within workers' compensation visits driven primarily by follow-up injury visits and physical therapy visits. Our operations and sales and marketing teams have done a nice job driving visits and gaining market share against a macroeconomic backdrop that I would generally describe as uncertain considering interest rates, tariffs and the shutdown. Some recently published jobs data would seemingly indicate that we're in an economic environment that is slowing down, but we aren't necessarily seeing that play out in our business to date. With respect to macroeconomic data reporting over a long period of time, we have seen correlation between our workers' compensation volume and employment levels reported by the BLS, and there is strong correlation between our employer services volumes and quits and hiring rates within the BLS JOLTS data. However, we have also found that our workers' comp visit data has largely lacked correlation with BLS employment data in the most recent times. I just point that out so that the folks don't rely solely on the publicly reported jobs data as the only proxy for our visit volume. On the rate front, we had strong growth again with a 4.2% increase in revenue per visit this quarter versus the same quarter prior year. This growth was driven by a 4.7% increase in workers' compensation and a 2.7% increase in employer services revenue per visit. Adjusted EBITDA was $118.9 million in the quarter versus $101.6 million in the same quarter prior year or a 17.1% increase. Adjusted EBITDA margin increased slightly from 20.7% in Q3 2024 to 20.8% in Q3 2025. As with prior quarters, we are comparing against prior year margin that was not fully burdened by public company and other separation costs. Additionally, similar to last quarter, we had a number of onetime Nova integration costs that burdened adjusted EBITDA. This expansion in margin even with these dynamics is another strong indicator of the performance of our business. Adjusted net income attributable to the company was $49.9 million and adjusted earnings per share was $0.39 for the third quarter 2025. These compare favorably to prior year adjusted net income attributable to the company and adjusted earnings per share of $44.3 million and $0.37, respectively. As a reminder, adjusted EBITDA and adjusted net income reflect the add-back of transaction expenses related to our acquisition activity as well as onetime costs related to our separation from Select Medical. Now I'll turn it over to Matt to provide additional details on our financial results.

Matthew DiCanio, CFO

Thanks, Keith, and good morning, everyone. I'll begin by discussing our results across our three operating segments. In our occupational health segment, total revenue reached $526 million in the third quarter of 2025, marking a 13.6% increase compared to the same quarter last year. Workers' compensation revenue was $343.5 million, up 15% from the previous year. Daily workers' compensation visits rose by 9.8%, and revenue per visit increased by 4.7% year-over-year. For employer services, revenue reached $173.2 million, reflecting an 11.9% increase compared to last year. Daily employer services visits were up by 8.9%, and revenue per visit increased by 2.7% over the prior year. In order to isolate our core business from the Q1 acquisition, here are the stats excluding the impact of Nova. Total revenue in the occupational health center segment was $494.7 million, a 6.8% rise from last year. Daily visits increased by 3%, and revenue per visit grew from $141 in the third quarter of 2024 to $147 in the same period of 2025. Workers' compensation revenue of $324 million was 8.5% higher than last year, with daily visits up by 4.4% and revenue per visit increasing by 3.9%. For employer services, revenue of $161.7 million in Q3 2025 represented a 4.4% increase over the previous year, with daily visits up by 1.9% and revenue per visit increasing by 2.5%. Moving to our onsite health clinics segment, revenue totaled $34.9 million in Q3 2025, illustrating a significant 123.8% increase from the same quarter last year, largely driven by the acquisition of Pivot Onsite Innovations earlier this year. Excluding Pivot's impact, revenue in the Onsite segment grew by 17.5% year-over-year. The growth in the legacy Onsite business reflects strong momentum as employers face rising employee health benefit costs. We are strategically positioned to further tap into this growing market with our extensive national presence and strong relationships with approximately 200,000 employer customers. We anticipate that this will play a key role in our growth strategy moving forward. Lastly, other businesses generated $11.9 million in revenue during the quarter, an 8.1% increase compared to the same period last year. Now, moving on to expenses. The cost of services was $405.5 million, or 70.8% of revenue in Q3 2025, a reduction from 71.7% for the same period last year. This decrease in percentage terms largely stems from improved staffing efficiencies at our centers. As noted in the previous quarter, we incurred some one-time costs related to the Nova transition that are included in our adjusted EBITDA. We estimate these net incremental costs exceeded $500,000 this quarter and are largely resolved as of September. Our total general and administrative expenses were $52.9 million, equating to 9.2% of revenue in Q3 2025, compared to 7.6% a year ago. This comparison isn't entirely apples-to-apples, as we incurred expenses this quarter that weren't present last year prior to our separation from Select and due to public company costs. Furthermore, there are one-time acquisition-related expenses attributed to Pivot and Nova in our adjusted EBITDA calculations. After accounting for these adjustments, our G&A expense was $48.5 million, or 8.5% of revenue, compared to 7.5% last year, driven primarily by anticipated increases in personnel costs. Regarding our separation from Select, we've onboarded about two-thirds of the necessary colleagues for the transition, making significant progress on reducing expenditures under our transition services agreement as we approach full knowledge transfer. We aim to complete the transition by November 2026 but expect to finish most activities by mid-2026. While we will incur net incremental expenses as a public company, many of these costs are already reflected in our 2025 results and guidance. The overall adjusted EBITDA margin in Q3 2025 stood at 20.8%, slightly up from 20.7% in the same quarter last year, highlighting our ability to improve margins even amid increased public company and separation costs. In terms of cash flow, we reported $60.6 million in operating cash flow for Q3 2025, down from $65.9 million in the same quarter of 2024, largely due to a $25 million increase in cash interest payments, although this was mitigated by a $12 million decrease in cash taxes. Investment activities consumed $20.5 million in cash during the quarter, primarily for center developments and maintenance, reflecting an increase from $17 million in Q3 2024, partly due to approximately $3 million in one-time capital expenditures tied to the Nova integration. The predominant portion of the Nova capital expenditures has been completed by the end of Q3. Our free cash flow, which is defined as cash flow from operations minus cash flow from investing activities, excluding business combinations, amounted to $40.2 million, down from $50.8 million in the previous year’s third quarter. This decrease is chiefly attributed to higher cash interest expenses following the business recapitalization in July 2024 and associated integration costs. Over the last twelve months, excluding acquisitions, our free cash flow totaled $176.3 million, net of approximately $11 million in one-time integration capital expenditures. During the quarter, financing activities led to net cash outflows of $64.1 million, primarily due to $25 million in repayments on our revolving credit facility and an $8 million dividend payment. Following the quarter's end, we made an additional $35 million repayment on the revolving credit, leaving an outstanding balance of zero. Our total debt at the end of the quarter was $1.61 billion, with a cash balance of $50 million. At the end of September, our net leverage ratio, as per our credit agreement, stood at 3.6 times. We are committed to de-leveraging towards our target of 3.5 times or lower by year-end and below 3.0 times by the end of 2026. The fourth quarter is typically our strongest period for cash flow, so we expect to make significant progress towards these targets. Now, concerning our growth initiatives with Nova, we have converted all centers to Concentra's systems, processes, and signage and are now prioritizing increased visit volumes and aligning operational efficiencies. As of Q3, we estimate that we have achieved over 85% of our planned synergies. Although we still need time to reach our expected performance in both revenue and costs, we are pleased with the progress thus far. The integration of our Pivot acquisition is also proceeding well, with most anticipated synergies realized. This quarter, we opened one new location in Atlanta and plan to introduce two additional locations in California and Florida in Q4. Looking ahead to 2026, we have six sites in advanced stages of development across Florida, Georgia, Missouri, Idaho, and Arizona, with additional locations under evaluation. On the M&A front, with the integrations of Nova and Pivot primarily behind us, we are refocusing on our core acquisition strategy targeting practices with around one to five occupational health centers. We have enjoyed considerable success with smaller acquisitions over the past decade, averaging an acquisition multiple of less than 3 times EBITDA post-synergies. We are building our deal pipeline and actively pursuing several targets that could close within the next three to six months. From a capital allocation perspective, we believe we can execute our growth strategy alongside our de-leveraging efforts, aiming for leverage targets of at or below 3.5 times by the end of 2025 and at or below 3 times by the end of 2026. Most of these smaller M&A deals and new sites tend to be leverage accretive for us. In summary, we are pleased to announce a continuation of our dividend this quarter, with Concentra's Board of Directors declaring a cash dividend of $0.0625 per share on November 5, 2025, payable around December 9, 2025, to stockholders of record as of December 2, 2025. The Board has also authorized a share repurchase program of up to $100 million of outstanding common stock, set to expire on December 31, 2027, unless extended or terminated earlier. While our leverage targets and growth objectives are our top priorities, the company's robust cash flow generation allows for opportunistic buybacks when market conditions are favorable. Finally, with respect to guidance, we are raising the lower end of our 2025 revenue guidance range to between $2.13 billion and $2.145 billion and the lower end of our adjusted EBITDA guidance range to between $420 million and $425 million, while the upper ends of both remain unchanged. We are reaffirming our CapEx range of $80 million to $90 million, trending towards the lower end due to approximately $10 million to $15 million in one-time Nova integration expenses. We also reiterate our leverage targets of less than or equal to 3.5 times by the end of 2025 and less than 3 times by the end of 2026. I'll now hand it back to Keith to conclude.

Keith Newton, CEO

Thanks, Matt. As you can see with our results, we put together 3 nice quarters to start the year and have solid momentum heading into the fourth quarter. The team is working hard and is motivated to finish out the year strong. Looking forward, in addition to the M&A and de novo growth backlog that Matt touched upon, we are evaluating and expect to invest over the coming year in new technological capabilities that should drive improvements in new customer capture, existing customer retention and general operating efficiencies with our internal systems. Historically, this has been an advantage for us from a value proposition standpoint. We believe that it's of paramount importance to continue to invest in technologies that improve patient and employer ecosystem partner experiences as well as our colleague efficiencies and help further differentiate ourselves from our competition. Technological initiatives include digital bilateral interconnectivity with customers, systems modernization, payment automation, patient scheduling capabilities and AI initiatives, among others, that we anticipate will all have a meaningful impact upon implementation. With respect to 2026, similar to this year, we expect to provide guidance early next year once we have further visibility into visit trends and updates on state fee schedules. On our last call, we touched on the expected rate tailwinds in California and a few other states. While this gave us some early visibility into 2026 rates for one of our larger states, many states don't finalize fee schedules until late this year or early next year, and we think it's important to have a little more information before issuing formal guidance. Lastly, I'd like to conclude by saying that I'm pleased with the progress we've made as a company since our IPO in July 2024. We outperformed the organic growth algorithm we originally communicated during the roadshow despite a choppy jobs market. We acquired and fully integrated a large player in the occupational health center space in Nova. We substantially bolstered our onsite platform through the acquisition and integration of Pivot Onsite. We've made substantial progress towards full separation from Select and wind down the transition services agreement, maintaining EBITDA margin even with the incremental G&A cost. We've continued to develop and execute on strong core M&A and de novo strategy. We've continued to delever on the timeline that we've been communicating throughout the year. We implemented a number of new technological initiatives and we continue to deliver best-in-class care for our patients and outstanding outcomes for our customers. We have obviously had a tremendous number of moving pieces over the past 12 months, but the team has remained focused and performed exceptionally throughout. Very proud of the efforts across the board. This 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 up the call for questions. Thank you.

Operator, Operator

Your first question for today is from Ann Hynes with Mizuho.

Ann Hynes, Analyst

Just heading into 2026. I know that you don't want to give guidance, but would there be any like major headwinds or tailwinds that you would call out while we finalize our models?

Keith Newton, CEO

No, I don't think so. The environment we've experienced has been somewhat choppy over the last year and a half, two years, and we've managed quite well through it. We'll continue to perform as we have in the current conditions. I don't really see any significant challenges or obstacles in our way at this point. I feel optimistic about next year and expect it to be a strong year.

Operator, Operator

Your next question is from Benjamin Rossi with JPMorgan.

Benjamin Rossi, Analyst

I guess just thinking about volume trend across your employer services segment this year, another good quarter. You have year-to-date volume growth increasing in that 1.5% to 2% range on a core basis. Can you just walk us through what's maybe driving some of the improvement this year on core and maybe what you're hearing from your employer clients? And then just looking into next year, how are you thinking about that core trend as we begin to lap some of this year's M&A benefit?

Keith Newton, CEO

I'll take it initially. This is Keith again. Yes, so we were coming out of some years as a result of COVID that had to be some resetting, so to speak, and that's happened. And now we are in a little bit more of a comparable year-over-year comparison as far as the core as we continue to grow that. So just taking those dynamics out, what are the things that we're doing to really add fuel to the fire. A lot of things in our sales and marketing from technology, people, how we're going to market, how we're getting better information, how we're identifying new leads, how we're account managing existing customers, how we're trying to get more pocket share out of those existing customers, how we're trying to eliminate leakage relative to any leakage we could be having out there. So pulling a lot of levers and using technology as a key component of that, I believe, is what's helping drive this so far. Matt, I don't know if you want to add anything.

Matthew DiCanio, CFO

Yes, Ben, you were asking specifically about employer services. Is that right?

Benjamin Rossi, Analyst

Yes.

Matthew DiCanio, CFO

Yes. As Keith mentioned, we had the rightsizing coming out of COVID that took quite a while post-COVID. And our employer services visits volume flipped positive in Q1 of this year. So this is our third quarter now in a row with positive visit growth there. And what we're seeing right now is stability in that service line. So 1.9% this quarter ex Nova. Last quarter, it was 2%. So almost exactly identical to the prior quarter. It's about half of our visit volume, but it's about 1/3 of our revenue. So obviously, our work comp business is important to the overall trajectory of the business.

Benjamin Rossi, Analyst

Got it. Okay. As a follow-up, regarding the workers' compensation space, on a year-to-date basis, you're slightly above the 2.5% year-over-year range for daily visits on a core basis. Considering that, are you gaining market share in that sector, or do you believe your growth is generally aligned with the broader market at that level?

Matthew DiCanio, CFO

Yes. So we've had couple strong quarters work comp visit growth rates. There's a lot of variables in there. There's a lot of different visit types, initial injuries, rechecks, physical therapy, specialty visits. So there's a lot of variables that make up that number. But obviously, we're pleased with the last couple of quarters of growth. And we believe we are taking share, but it's complicated to calculate and estimate. But we also had some prior year dynamics with a soft July of last year that helped us in the quarter. But even without that, we would have had a nice quarter. So we do believe we're taking market share.

Keith Newton, CEO

Yes. I would add that when looking at the factors driving workers' compensation, injuries are the initial driver. Following that, there are follow-up visits with physicians, physical therapy, and specialty visits. All of these are experiencing growth for several reasons. The severity of injuries appears to be slightly higher than in the past, possibly due to an aging workforce and comorbidities. This increases the duration of cases; instead of requiring five visits, it may now take six visits to get an individual back to full duty. We have implemented various technology-related initiatives to better capture follow-up visits, which has resulted in fewer missed appointments and more consistent care for injuries, ultimately helping individuals return to full duty. Overall, there are multiple components driving this growth, and we are actively managing several elements related to it.

Operator, Operator

Your next question for today is from Justin Bowers with Deutsche Bank.

Justin Bowers, Analyst

So Keith, I wanted to get a clearer understanding of your comments regarding the changes in the historical relationship between workers' compensation and the BLS data in relation to your visit volume. Could you elaborate on the specific period you're talking about and share any insights on the factors contributing to that change? Additionally, you mentioned investing in IT systems; I'm curious whether this is a proactive or reactive strategy. Our previous analyses suggest that your strong connections with employers are a significant competitive advantage.

Keith Newton, CEO

Yes. Over the past two years, we have noticed a disconnect between BLS data and our actual situation. Initially, we were puzzled by this trend, but later revisions to the data helped clarify some of the results we were observing. We aren't entirely sure what is causing this fluctuation, but it has been inconsistent compared to our results. Historically, there was a strong correlation between job growth and our employer services, but that has changed in recent years. Regarding technology, we are modernizing our legacy systems and implementing new technologies to strengthen our relationships with employers and payers. We aim to enhance our sales processes by engaging with data firms that help us identify potential prospects. We manage 250,000 employers nationwide, with about 30% experiencing annual turnover in decision-makers. Many of these are small employers that we don't interact with frequently. If a new decision-maker comes in and isn’t familiar with Concentra, they might turn to nearby urgent care instead. To address this, we're leveraging technology to reconnect with these employers proactively before any turnover occurs. I believe this strategy will improve our sales moving forward.

Operator, Operator

Your next question is from Stephen Baxter with Wells Fargo.

Stephen Baxter, Analyst

So good to see the volume acceleration in the quarter. And to your point, it doesn't seem like the macro is necessarily impacting you negatively on the demand side. I know this hasn't been as much of an issue for you as providers with greater reliance on nurse labor, but wondering if some of the softness in the broader economic picture is having potentially a positive impact on your ability to hire and retain your workforce and maybe put some moderate downward pressure on wage inflation that we've seen?

Matthew DiCanio, CFO

Stephen, it's Matt. I can take this one. I would say, overall, our labor force stats are very stable. We have had some recent success with hiring, but no material changes. Overall, we've seen stability. Our turnover at the total company level has actually come down slightly. And from a cost perspective, very stable throughout the years in that, call it, 3% range. So we have seen some positive movement lately, but I would generalize it as a stable environment.

Stephen Baxter, Analyst

Got it. And then just a question on the deal pipeline. I appreciate the comments you made there. As we think about what might else be out there on the larger side of the spectrum, I guess, is there any way to kind of use the Nova deal as maybe a benchmark? Like do you think there are other assets out there that are in the ballpark when it comes to size and whether you think that the valuation there was maybe a reasonable way to think about what might be left that you'd be willing to be active on?

Keith Newton, CEO

This is Keith. On the bricks-and-mortar side, there’s nothing of that scale or valuation that we are currently considering. Any potential opportunities we would look at would have lower valuations. The only possible transactions of that magnitude are in onsite health clinics, which we have identified as a key growth strategy. We acquired Pivot this year, which helped us double our revenue from about $60 million to $120 million. Pivot was synergistic with Concentra’s historical services, which were primarily Occupational Medicine, and they didn’t provide much advanced primary care. Our deployment of Epic as our electronic medical record has been instrumental in helping us grow this business organically. We are finding success even against major competitors. While we may be in the top 10, we are still relatively small compared to the leading onsite health companies that focus on advanced primary care. However, we are confident and are demonstrating success in winning new business from these companies. Many are currently in transaction discussions, but we are not aggressively pursuing anything at this time. Instead, we are focused on building our business. As Matt mentioned, deleveraging is a key priority for us this year following the two transactions we completed. We are committed to lowering our leverage quickly, and we have communicated our targets for the end of this year and next year, and we are on track to meet those goals.

Operator, Operator

Your next question is from Ben Hendrix with RBC.

Michael Murray, Analyst

It's Michael Murray on for Ben. While a weakening economy can impact your volumes, you've shown the ability to weather that in past downturns with a pretty stable EBITDA margin. I wanted to see if you can expand upon the company's ability to flex costs on a potential employment weakness.

Matthew DiCanio, CFO

Yes. Sure. We've talked about this in the past a lot when we get this question, and our teams are really good at flexing staffing to the visit volumes that we see every single day on a weekly basis, on a monthly basis. There's seasonality in our business, as you guys have hopefully seen over time period since we've been public, but also through Select's ownership when we were filing financials through Select. We have large part-time labor forces, both on the medical and the therapy side, and the teams can predict visit volumes based on historical trends very well. And so we do that in the normal course of our business. And if there is an uptick or a downturn in the economy, the teams can react very quickly. And we've shown that over a long period of time. The last major economic cycle was many, many years ago, but we performed very well through that time period.

Michael Murray, Analyst

That's helpful. And my next question, with the understanding that rates are still being finalized, could you just take a moment to talk about your expectations for 2026 at a high level? How much visibility do you have on rate growth on the workers' comp side? And then the same question on the employer services side, how are the rate conversations progressing with employers?

Matthew DiCanio, CFO

On the workers' compensation side, we know about several states, but we estimate that at least one-third, if not more, have yet to be finalized and will likely be announced later this year or early next year. For this reason, we prefer to receive all state fee schedule updates before providing guidance. However, as we noted in our last call, we have good visibility into California, which is expected to be a strong rate year for us and set a solid foundation for the next year in terms of workers' compensation. We anticipate a good rate year and possibly some upside as we receive more information from other states. Regarding employer services, that is a process we oversee, and we expect it to follow a pattern similar to this year and past years, where rate increases will align closely with inflation. We foresee a normal year for employer services rate increases. Historically, we have indicated a 3% increase, which reflects the average over 5, 10, 15, and 20 years across both service lines, and we expect that to be accurate for next year as well.

Keith Newton, CEO

Yes, that's exactly what I was going to say. You can probably plan on something similar to historical averages based on what we know at this point in time.

Operator, Operator

We have reached the end of the question-and-answer session, and I will now turn the call over to Keith Newton for closing remarks.

Keith Newton, CEO

I appreciate everybody being here today. Thank you for joining us, and we'll talk with you next quarter.

Operator, Operator

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.