Concentra Group Holdings Parent, Inc. (CON) Earnings Call Transcript

Good morning and thank you for joining us today for Concentra Group Holdings Parent, Inc. Earnings Conference Call to discuss the second quarter 2026 results. Speaking today are the company's Chief Executive Officer, Keith Newton; and the company's President and Chief Financial Officer, Matt DeCanio. 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. You are hereby cautioned that these forward-looking statements may be affected by the important factors, among others, set forth in Concentra's earnings release and in reports that are filed or furnished to the SEC. Consequently, actual operations and results may differ materially from those discussed in the forward-looking statements. 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.

Good morning, and thank you for joining us today. Before we comment on our second quarter results, I would like to share my perspective on the announcement that was made yesterday afternoon in our press release. After more than a decade as Concentra's Chief Executive Officer and a relationship with a company that has spanned over 30 years, I have decided effective November 1 of this year to transition from the CEO role into a new role at Concentra as its Executive Chairman of the Board. At that time, Matt Dicanio, our President and Chief Financial Officer, will become Concentra's President and Chief Executive Officer. Bob Ortenzio, our current Chairman, will continue to serve on our Board as a Director. Many thanks to Bob for his leadership and guidance over the last 11 years, especially over the last couple of years as a public company. Leading this organization and its more than 13,000 colleagues has been the privilege of my career. I cannot be prouder of what we have accomplished together at Concentra. Today, we stand as the clear leader in occupational health, powered by a best-in-class team that remains focused every day on our mission of improving the health of America's workforce. The company has experienced tremendous growth, particularly over the last decade, driven by the dedication and execution of our teams. Together, we have reached significant milestones throughout our journey, including the successful completion of our IPO in 2024. This transition is the result of a multi-year succession plan that we have worked on with our Board of Directors, and there is no better time to turn the role over to Matt. The business is performing exceptionally well. Our strategy is delivering, and Matt has been central to both. Over more than a decade working side by side, he has shaped nearly every dimension of Concentra, leading our de novo and acquisition growth engine and integration efforts, developing and executing strategies that support our operating model, running the IPO process and leading our public company efforts since the IPO. He knows this business, he knows our customers and he knows our people as well as anyone. Importantly, Matt will assume this role supported by one of the most experienced leadership teams in our industry. The members of our executive and senior leadership team across the country have an average tenure with Concentra of approximately 20 years, reflecting a deep understanding of our business, a strong commitment to our culture and a proven ability to execute through changing market environments. As Executive Chairman, I plan to remain actively engaged with the Board, Matt and his executive leadership team, and I have complete confidence that Concentra will continue to prosper in its next chapter in his hands. So with that, I will turn it over to Matt to talk about the quarter where you will see we continue to have great momentum with the business. Matt?

Thank you, Keith. Before turning to the quarter, I would like to say what an honor it is to be selected by the Board of Directors as Concentra's next President and Chief Executive Officer. Keith, on behalf of all of our colleagues, thank you for your leadership. Over the 11 years we've worked together, you've taught me what it means to lead this company, making sure the right people are in place, enabling teams to do what they do best and supporting the culture we have built. And I'm grateful that I'll continue to benefit from your partnership and counsel as Executive Chairman. To our shareholders, my message is simple. This transition reflects continuity. The strategy we've articulated since our IPO, delivering on our strong customer value proposition, expanding access through de novo development and disciplined acquisitions and driving operating leverage across the platform is working, and it will not change on November 1. Just as importantly, I have the privilege of working alongside an exceptional tenured executive and senior leadership team. Their experience, institutional knowledge and commitment to our mission provides tremendous stability and positions us well for our next phase of growth. So with that, let's turn to our second quarter results. Total company revenue was $606 million in Q2 2026 compared to $550.8 million in Q2 of the prior year, representing 10% growth year-over-year. Excluding contributions from the Pivot acquisition in both the current and prior year where applicable, revenue was $589.1 million this quarter, resulting in an 8% increase over the prior year, representing one of our strongest core revenue growth quarters in some time. Total occupational health center patient visits increased 2.6% to an average of more than 56,000 visits per day in the second quarter. Our work comp visits per day increased 3.7% and our employer services visit volume increased 1.8% relative to prior year. As we expected, work comp visit growth rates were lower relative to the first quarter, but visits remained strong and above long-term growth averages. We believe that this reflects both the resilient blue-collar labor market where we generally operate as well as market share gains. Importantly, the growth in visit volume has been nicely distributed across industries and geographies. While it's still a little early to definitively point towards reshoring as a key driver of the recent uptick in visit growth, we are seeing indications of improved activity in the manufacturing and construction sectors. and in particular, some encouraging activities in markets proximate to data center development. With respect to market share, as mentioned last quarter, we are continuing to deploy new tactics and technologies to help us target and efficiently communicate with prospective customers, which we think is having a positive impact. Those efforts, combined with customer satisfaction and retention metrics remaining at or near all-time highs are likely contributing to our market share gains. In sum, there are solid secular tailwinds supporting a growing market in the near and long term, and we are actively investing and utilizing all available levers to increase our share. We'd also like to highlight the acceleration in Employer Services growth this quarter, which we view as an indicator of relatively resilient hiring trends across the economy. On the occupational health center rate front, revenue per visit grew 4.6% during the second quarter relative to prior year. This growth was driven by a 4.9% increase in work comp and a 3.2% increase in Employer Services revenue per visit. We had expected rate bumps in the state of California and Tennessee on March 1 and April 1, respectively, helping drive the increase in the work comp rate. Additionally, we had some mix dynamics at play with higher reimbursement initial injury visits comprising a larger percentage of total work comp visits this quarter. We expect rate growth over the remainder of the year to fall closer to 3%. Adjusted EBITDA was $140.9 million this quarter versus $115 million in the same quarter of the prior year, an increase of 22.5% -- adjusted EBITDA margin increased nearly 240 basis points from 20.9% in Q2 2025 to 23.3% this quarter, reflecting strong rate and volume growth, coupled with good execution and operational efficiencies across the business. Additionally, Q2 2025 included just under $4 million of estimated Nova acquisition-related costs tied to onetime integration activities or expenses that have since been eliminated through synergies, creating an incremental tailwind for year-over-year earnings growth. Both our Pivot and Nova acquisitions continue to perform very well and are ahead of underwriting. Adjusted net income attributable to the company was $66.7 million and adjusted earnings per share was $0.52 for the second quarter of 2026, representing approximately 40% growth over prior year adjusted net income of $47.7 million and adjusted earnings per share of $0.37. Next, to provide a little more detail in our Occupational Health operating segment. Total revenue of $553.5 million this quarter was 7.2% higher than the same quarter of prior year. Work comp specific revenue of $361.2 million this quarter was 8.7% higher than prior year and Employer Services specific revenue of $183.2 million increased 5.1% in Q2 2026 versus prior year. Our Onsite Health clinics operating segment had yet another strong quarter with reported revenue of $38.8 million, a 72.1% increase from the same quarter of the prior year. Excluding the impact from the Pivot acquisition in June of last year, the On-site Health clinics operating segment revenue grew 27.9% year-over-year during this quarter. As mentioned last quarter, we continue to be encouraged by both the realized growth in this business as well as the pipeline of new opportunities that the team is building. While mid- to high 20s organic growth percentage may not be sustainable long term, we see a lot of opportunity here and do expect this segment to continue to grow at a faster clip than the core business. Finally, other businesses, including telemed, our pharmacy operations and other OcHealth-related service businesses generated revenue of $13.7 million in the quarter, a 13.3% increase compared to the same quarter of prior year. Moving on to expenses. Cost of services was $413.9 million or 68.3% of revenue in Q2 2026, an improvement from 70.7% of revenue for the same quarter of the prior year. We continue to do well with our staffing efficiencies, which has precipitated nice flow-through from our visit and rate growth. Additionally, as previously noted, Q2 2025 included onetime expenses related to Nova integration activities and other costs within cost of services that have since been eliminated through synergy realization. Our total general and administrative expenses were $56.7 million or 9.4% of revenue in the quarter compared to 9.6% of revenue in the same quarter of the prior year. Excluding items that are added back for the purposes of calculating adjusted EBITDA, including equity comp expense, onetime Select separation costs and M&A transaction costs, G&A expense was $51.1 million for the quarter or 8.4% of revenue compared to 8.5% of revenue in the same quarter of the prior year. As with cost of services, we had Nova expenses in Q2 2025 that have been synergized, offsetting expected year-over-year increases in personnel and systems-related overhead related to our separation from Select Medical. Now to touch on cash flows. In the quarter, we generated $135.2 million in operating cash flow. This compares to $88.4 million in the second quarter of last year, with the year-over-year increase largely resulting from higher earnings and year-over-year variances and timing associated with payments of current liabilities. Investing activities used $14.2 million of cash in the second quarter and was driven by additional investments in de novo centers, relocations, renovations and maintenance as well as IT investments. On the de novo front, we opened one center near Phoenix in Q2 and subsequent to quarter end, we opened 2 additional centers in Boise and Kansas City. The Boise Center is our first location in Idaho, which represents our 42nd state with an occupational health center, a great milestone for our company. We are still targeting a total of 8 to 10 de novo centers this year and have a nice development pipeline that we expect to potentially support double-digit new sites in 2027 and beyond. We are also continuing to work our bolt-on M&A pipeline and anticipate additional announcements on that front over the remainder of the year. Free cash flow or cash flow from operations less cash flow from investing activity, excluding business combinations, totaled $121 million, an increase from prior year second quarter free cash flow of $63.2 million. This was driven by a combination of higher cash flow from operations and lower capital spend in Q2 2026 relative to Q2 2025. Finally, financing activities during the quarter resulted in net cash outflows of $24.7 million as we repurchased approximately 424,000 shares totaling $11 million and paid $8 million in dividends. At the end of the second quarter, we had approximately $54 million remaining under the original $100 million repurchase program authorized by our Board of Directors. We ended the quarter with a total debt balance of $1.57 billion and a cash balance of $158 million. Our net leverage ratio per our credit agreement at the end of June was just under 3x, down from 3.4x at the end of the first quarter. We made significant headway this quarter on both the numerator with strong free cash flow generation as well as on the denominator given our growth in adjusted EBITDA. We have reached this leverage milestone well ahead of schedule. And absent opportunistic M&A and share repurchases, we'll continue to work towards our long-term leverage target of near 2.5x. One additional note here, we expect the interest rate spread on our Term Loan B to step down 25 basis points to 175 basis points now that we are below 3.25x leverage, meaning that we should see a nice reduction in interest expense going forward. Finally, we are pleased to announce the continuation of our dividend this quarter with Concentra's Board of Directors declaring a cash dividend of $0.0625 per share on August 5, 2026. The dividend will be payable on or about August 28, 2026, to stockholders of record as of the close of business on August 20, 2026. Now I'll turn it back to Keith to close this out with some comments on separation activity as well as our updated guidance.

Thanks, Matt. I wanted to take a minute to congratulate both the Select Medical and Concentra teams on the great work they have done together to separate the companies for the last 24 months. There are still a few loose ends remaining related to projects that need to be wrapped up, but we are substantially complete with our efforts. We've hired all the new employees that we expect to hire and have largely finalized all process and technology implementations, including the conversion of our ERP system to our own instance in May of this year. Q2 was a big milestone in this regard, and we are pleased to have almost all of this activity behind us, which now allows us to focus our internal resources to work on higher-value projects and initiatives going forward. Our monthly spend on TSA services Select Medical, which at this point is largely immaterial and limited to knowledge transfer will continue to decrease each month and will be entirely eliminated by November when the agreement officially ends. I commend the teams on how they delivered on our plan. It's been impressive to say the least to watch this execution while also seeing our company continue to grow and expand margins despite such a heavy lift and complex process. With respect to our updated guidance, given the continued strength of the business, we are once again raising our 2026 guidance, including the low end of our target revenue range by $50 million, resulting in a new revenue range of $2.325 billion to $2.375 billion. The low end of our target adjusted EBITDA range by $25 million and the high end of our target adjusted EBITDA range by $15 million, resulting in a new adjusted EBITDA range of $485 million to $495 million and then both the low and the high end of our targeted free cash flow range by $5 million, resulting in a new free cash flow range of $220 million to $240 million. Our target CapEx range of $70 million to $80 million remains unchanged. Year-to-date performance has exceeded our initial expectations entering the year, driven by strong visit and rate growth, disciplined expense management, successful execution of our growth initiatives, favorable market tailwinds. We're in a great position to continue this as we look to finish strong in the second half of 2026 and position us for another great year in 2027. This concludes our prepared remarks, and we thank everybody for the time today. I'd like to turn it back over to the operator to open the call for questions.

[Operator Instructions] Your first question for today is from Ann Hynes with Mizuho Securities.

Congratulations, Matt, on your appointment. So it looks like, obviously, this is a great quarter. You beat consensus estimates by 13%, and you raised guidance by 4%. Maybe what was your -- what was the beat versus your internal expectations? And if you beat by a similar amount to Street consensus, are you just being conservative? Or is there something you're seeing in the market why you wouldn't raise guidance more? And then my second question is, obviously, workers' comp volumes are very strong. Thank you for the detail on the onshoring AI data information. But can you remind us what -- is it 2% to 3% we should assume like long-term growth in workers' visits? And then if this onshoring and data center actually happens, what do you think it could add to long-term growth over time?

Yes, thanks for the note. Appreciate it in the question. So on your first question on guidance. So yes, we've obviously had a really strong start to the year halfway through the year. Q1 and Q2 exceeded our expectations. And we've raised our guidance by more than our beat. So we continue to talk about the second half of the year similar to how we talk about our long-term algorithm, low single-digit visit growth, 3% rate growth. Cost of services, we expect we'll continue to see some improvement. Obviously, Q2 was our best efficiency quarter in quite some time. And G&A, we expect to be roughly flat quarter-over-quarter. So I think there's -- could potentially be a little conservatism in the outlook for the rest of the year. So it's definitely not something we're seeing. We continue to see strong visit growth and obviously had a great rate quarter as well. And with the cost side of the equation working, it's all kind of clicking together. So nothing that we're seeing and obviously raised the EBITDA guide by about $20 million to the midpoint.

Yes, I was going to add... Relative to the conservatism. We -- as Matt mentioned, so far, we continue to stay pretty consistent with what we have seen and -- but still several months left in the year, a lot of things going on out there and just wanted to make sure that we stuck a stake in the ground that we felt really good about.

Yes. And on your second question, Ann, I think it was around the long-term growth rate expectations for work comp. So we still point to the low single-digit visit growth rate as our expectation over a long period of time. Obviously, the last 3 quarters of last year were in the 3% to 4% range. We had an outsized Q1 at 6.2%, and we're back in the 3% to 4% range this quarter. So it's above our long-term algorithm. And as we noted in the prepared remarks, we are seeing some early signs of the manufacturing and construction reshoring efforts and the data center trend. So if those continue, and we're playing close attention to it, and I think we're positioned well with our geographic footprint to capture any gains there.

Your next question is from Joanna Gajuk with Bank of America.

So actually, in terms of the conservatism in a way for this year and the strength in this quarter, so I understand that the year-over-year comparison, but even when you just look on its own, the Q2 margins were very strong and now your guidance implies EBITDA margins of, call it, 20.9%, right, 20.8% to 9%, so fairly close to 21%. So the question is, how should we think about EBITDA margins going forward? Should we kind of look at this and say, hey, this is the new starting point and you can still grow from there? Because obviously, you will not have any separation costs, right? So there should be, I guess, sort of more of a tailwind in ' 27 versus '26. So help us understand how to think about margins. I know you're not ready maybe to give specific number, but just like philosophically in terms of the biggest tailwinds and headwinds when we think about margins going forward?

Yes, sure. Thanks for the question, Joanna. So keep in mind, Q2 and Q3 are the highest margin quarters. So you got to factor in seasonality when you look at the overall margin profile. But I think you're correct, when you look at the midpoint of our guide, we're anticipating roughly 21% margins this year. And as we've talked about in the past, we've had 4 or 5 years at about 20% and we've taken on public company costs and separation costs. So we do anticipate the margins to move up as we continue to grow visits, have rate increases, execute on our M&A strategy. And I think this quarter, you can really see the visit and rate strength and how that flows through the margin closer to the combined with the efficiencies that we had in the quarter.

Yes. I would agree. And we had probably the best quarter we've ever had in this company, and it's reflected in this quarter in those numbers. And I think as we look to the future, we feel pretty good about the direction we're heading. And with what Matt said about the margins and where they are right now, we think we can hold the line on those. But again, seasonality will take a little bit of the impact on the second half of the year.

Perfect. And if I may squeeze in a follow-up on something you said -- actually 2 quick ones. So one on the Tennessee increase. I don't -- I couldn't remember whether you told us what it was. I think California was a 5% increase. And then the second one on the pricing, similar driver when you mentioned the mix of injuries visit. So can you tell us what it was and like what drove that?

Yes, sure. So Tennessee went into place on April 1. And I believe that was roughly a 30% increase, depending on the visit type, just that's a blended number. And then your other question on the visit mix. So our work comp rate growth was 4.9%, which was above our expectations. We did have a lighter Q1, if you remember, and we expected California and Tennessee to kick in on March 1 and April 1. And so we did expect a decent increase in the year-over-year rate profile for work comp. Part of that was also -- part of the 4.9% was also driven by visit mix. We had higher initial injuries, which are higher rate per visit. And we also had some year-over-year comparisons to last year where we had 67 Nova centers where we're putting systems in and preparing for the separation or the integration process. So there's a little bit of noise just year-over-year. That's why we expect the work comp visit growth rate to come down a little bit in the next couple of quarters, although the revenue per visit, we expect to be roughly flat quarter-over-quarter going forward.

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

Matt, congrats on the appointment. And Keith, congratulations on the run. It's been several decades of great architecture here. So I want to talk about the strength in the workers' comp visit, and you are running above trend. But Matt, it doesn't sound like you're talking about a mean reversion anytime soon. It sounds like, if anything, there could be maybe a cyclical upturn with some of the data center activity and maybe you could run above the low single digit over the next year or so contingent upon whether that activity continues. Can you just elaborate or clarify on that? And then I have a follow-up.

Yes. Justin, this is Keith. Yes, from a workers' comp perspective, we really had a strong year, probably one of the best years we've seen in 20 years so far. And we continue to see strength in those visits as we go forward. And a lot of it is what we've seen in the manufacturing and construction area. And that's evidenced with some of the things we're seeing on the employer services side as far as growth in those visits also, which ultimately would yield to the comp visits. So we -- which will actually yield to future comp visits. So we feel pretty good about what we're seeing. We think a lot of that is just a result of some of the dynamics that are happening and the tailwinds in the industry, combined with the market share gains and the things we've done internally over the last few years with technologies to get better at identifying potential customers and also retaining those customers. We've got much higher retention rates at this point in time from a company perspective than we historically have had from a customer perspective with some of the technologies we put into place to make use of our facilities a much easier process for them. So a lot of different levers we've been pulling that I think we're seeing the fruits of the labor pay off at this point in time.

And just one follow-up on that. It is clear that like you're taking market share out there. And one of the thoughts was how much runway is there even within the Fortune 500? Is there still opportunity to continue to consolidate that market? And then as you look beyond there, how much opportunity is there below that in that SMID cohort?

Well I think there's a lot of white space for us. We've done some analyses recently just looking at pin on the map, where we could be, what's out there. And it's a nice runway for us relative to that. And as far as continuing to penetrate deeper into existing customers. It seems every time we continue to add pins on the map, what that does, it makes it easier for those larger customers to use us more as far as more sites, and we've seen some transition as far as that. The large Fortune 500 companies, they drive visits to us. But as you know, we've got over 200,000 small customers out there, which drive a large majority of visits to us. So we continue to prospect those, identify them through technologies and continue to penetrate the market. And I think just with the stickiness we've done with technologies within our centers, providing information to the employer decision-makers on a quicker basis than others, upgrading the level of service, the patients you're experiencing, all those levers are what's yielding the results that we're seeing within the bricks and mortar right now.

Your next question is from Stephen Baxter with Wells Fargo.

I wanted to follow up on one of the Q2 drivers that you called out. I think you mentioned that within the workers' comp business, there was some favorability from mix related to higher, I guess, new first injury and assessment visits. Can you maybe help us understand why you think that's occurring? And then as you look back across the company's history, when this tends to occur, does it tend to be more transitory in nature? I guess I'm wondering why this wouldn't be something you think might not be a durable trend as you move into the back half.

Yes, sure, Stephen. So thanks for the question. Yes, initial injuries, we had one of our strongest quarters in quite some time. That number can fluctuate over a period of time. But I'd point back to a lot of what Keith was just going through about market share gains, a lot of the things that we're working on from a sales and marketing standpoint, technologies we put in place to make sure we're in front of customers and also all the great work that our teams are doing at the center level with the operating KPI metrics that we track are at all-time highs. And so the patient experience, the customer experience, is driving a higher retention percentage right now, which is already at a high level. But I think it's a combination of higher retention and overall market share gains and also some of the macro backdrop that we see. So hard to predict that number going forward into the future. But what we've seen over our history is it does fluctuate, but we like what we're seeing right now.

Got it. Okay. That's great. And then just with the progress that you've made on leverage, I guess, how should we think -- how should we be thinking about the deal pipeline, how do we think about the balance between what might interest you in kind of the core occupational health business or some of your other opportunities? And any thoughts generally kind of on the size of assets and how that might compare to some of the things you've done more recently?

Yes, I'll take that one. We've got a strong deal pipeline at this point in time, both from a bricks and mortar and an on-site perspective, prospecting them all, moving them all along the pathway. As far as anything the size of Nova, that's not going to happen. But several nice midsized ones that we think can get across the goal line in the coming months. And we don't think it will really impact our leverage at all. In fact, based on the cash flow over the next months and what's in the deal pipeline, we think we're going to be able to manage that very well and continue to handle the leverage and continue to bring that down. So we feel good about what's in the pipeline. We feel good about how we're going to handle the leverage simultaneous with that and nothing out there that of Nova type size at this point in time.

Yes. And I would just add a couple of points. Obviously, we did some M&A and de novos to start the year, but the back half of the year looks good, especially from a de novo standpoint. And also, we're incredibly pleased with the leverage getting below 3x. That was a goal of ours by the end of this year. We did it by the second quarter, obviously, because of the strong cash flow and also because of the EBITDA growth. But I think that's a great sign for some investors who target leverage ratios below that number.

Congrats to both of you on the new roles.