Q4 2024 Concentra Group Holdings Parent Inc Earnings Call and Nova Medical Centers Acquisition

Speaker Change: Good morning and thank you for joining us today for Consenture Group Holdings Parent Incorporated's January Investor Conference call to discuss important company updates.

Speaker Change: Speaking today are the company's Chief Executive Officer, Keith Newton, and the company's President and Chief Financial Officer, Matt DiCanio.

Speaker Change: Management will provide commentary to cover the company's announcement from yesterday.

Speaker Change: There will be no Q&A session today, but additional opportunities will be available in the near future.

Speaker Change: Before we get started, we would like to remind you that this conference call may contain forward-looking statements.

Speaker Change: regarding future events or the future financial performance of the company.

Speaker Change: including, without limitation, statements regarding operating results, growth opportunities and other statements that refer to concentric plans, expectations, strategies, intentions and beliefs.

Speaker Change: 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.

Speaker Change: In addition, financial results related to Q4 2024 and full year 2024 are preliminary and unaudited.

Speaker Change: At this time, I will turn the conference over to Mr. Keith Newton. Please go ahead.

Keith Newton: Thanks, Operator. Good morning, everyone, and thank you for joining this special investor call today, especially on short notice. We're looking forward to sharing some exciting updates. As you may have seen, we made some important announcements yesterday after the close of business.

Keith Newton: We announced our preliminary and unaudited Q4 and full year 2024 financial results.

Keith Newton: We announced the signing of a purchase agreement to acquire Nova Medical Centers And we provided initial financial guidance for 2025 take into account this acquisition

Keith Newton: and gave a fireside chat presentation with JPM's Equity Analyst Team, which is available on our Investor Relations website.

Keith Newton: We had previously made comments about potentially providing 2025 guidance at this conference or on our Q4 earnings call, which is scheduled for early March.

Keith Newton: Given the announcement of the NOVA acquisition, we decided it was most appropriate and helpful to include everything in one announcement in order to tell a complete story.

Keith Newton: That is what we would like to go over today. We will touch on financial results and outlook, but also want to share additional commentary about the pending acquisition as we are excited about this news and NOVA's complimentary footprint.

Keith Newton: With that introduction, I will turn it over to Matt to make some brief remarks about our preliminary and unaudited Q4 and full year 2024 results, and then we'll spend some time discussing NOVA and our 2025 guidance.

Matt DiCanio: Thanks, Keith, and good morning, everyone. As Keith mentioned, we thought it was important to start this call and our announcement with an update on how we finished out 2024.

Matt DiCanio: I am happy to report that we had a strong fourth quarter, an end to the year, which included the completion of Select Medical Holding Corporation's spin-off of Concentra in November.

Matt DiCanio: I will keep it relatively high level today, but we will have more detail to share on our scheduled earnings call in early March.

Matt DiCanio: Important note, these are preliminary and unaudited results and are subject to our normal end-of-quarter and end-of-year audit process.

Matt DiCanio: First, I'll talk about the quarter, which slightly exceeded our expectations.

Matt DiCanio: We ended the quarter with 552 occupational health centers and 157 on-site health clinics for a total of 709 locations, which is 15 more than the same time prior year.

Matt DiCanio: Three DeNovo centers were opened during the fourth quarter in Orlando, Florida, DeSoto, Texas, which is in the Dallas-Fort Worth metro area, and a center in Knoxville, Tennessee, a new area for Consentra.

Matt DiCanio: In the quarter, revenue was $465 million, representing approximately 6% growth year-over-year. Adjusted EBITDA was $77.5 million in the quarter, versus $68.2 million in the same quarter prior year, for a 14% increase.

Matt DiCanio: Adjusted EBITDA margin was 16.7% compared to 15.5% prior year. Net income is estimated at $20.6 to $22.6 million as we are finalizing our end-of-year tax provision.

Matt DiCanio: Patient visits per day were down 2.1%, driven by a 4.8% decline in employer services visits, but offset by a 1.1% increase in workers' compensation visits.

Matt DiCanio: Revenue per visit was $145, an increase of 5.8% over the same quarter prior year.

Matt DiCanio: Now switching to the full year 2024 results. Revenue was $1.9 billion, representing 3.4% growth year-over-year.

Matt DiCanio: Adjusted EBITDA was $376.9 million versus $361.3 million in the prior year, for a 4.3% increase.

Matt DiCanio: Adjusted EBITDA margin was 19.8% compared to 19.7% prior year. Net income is estimated at $169.7 to $171.7 million.

Matt DiCanio: Patient visits per day were down 2.0 percent, driven by a 4.8 percent decline in employer services visits, but offset by a 1.4 percent increase in workers' compensation volume.

Matt DiCanio: Revenue per visit was $141, an increase of 4.5% over prior year.

Matt DiCanio: Capital expenditures for the year were $65.7 million. Finally, we ended the year with a cash balance of approximately $183 million and a net leverage ratio of 3.5 times.

Matt DiCanio: Looking back at the guidance we shared in our third quarter earnings call and release, we met or exceeded on all financial metrics.

Matt DiCanio: We have previously guided to $1.9 billion in revenue, $370 to $375 million in adjusted EBITDA, $65 to $70 million in CapEx, and $3.5 to $3.6 times net leverage.

Matt DiCanio: Overall a strong end to the year and we are proud of what our team's accomplished. We will share more information at our full year 2024 earnings call in March.

Keith Newton: And with that, I'll turn it back to Keith to give some more color on the NOVA acquisition.

Keith Newton: Thanks, Matt. We are very excited about this announcement. NOVA is a pure-play occupational health services provider with 67 centers located in Texas, Georgia, Tennessee, Indiana, and Wisconsin.

Keith Newton: They have been in existence for more than 30 years and share many similarities with Concentra.

Keith Newton: NOVA offers the same services we provide at Concentra Occupational Health Centers including injury care, physical therapy, drug and alcohol screening, and pre-employment physicals.

Keith Newton: They share a very similar philosophy with a focus on return to work and improving the health of America's workforce. Their occupational health centers are roughly the same size as Concentra's, with a similar look and feel and a heavy focus on delivering a great patient experience.

Keith Newton: NOVA has more than 800 colleagues that we're looking forward to welcoming to our family.

Keith Newton: Overall, this transaction is core to what we do at Concentra.

Keith Newton: and in line with our history of growth investments. With a highly complimentary footprint, this acquisition will expand our access points for employers, patients, payers, and other ecosystem partners and will help accelerate our growth trajectory.

Keith Newton: We will do so with the addition of 46 locations in the state of Texas, a state with favorable demographic and industry trends, automatic annual workers compensation fee schedule updates, and one in which we have been targeting additional Occupational Health Center growth.

Keith Newton: NOVA has occupational health centers in South Texas, West Texas, East Texas and in major cities where we are also located such as DFW, Austin, Houston and San Antonio.

Keith Newton: This will now make Texas our largest state in terms of Occupational Health Center locations.

Keith Newton: In addition, we will be adding seven locations in Georgia, six locations in Wisconsin, and four each in Indiana and Tennessee, all strategically important states and very attractive for our growth strategy.

Keith Newton: Our team is highly experienced with acquisition integrations, and I'm confident we will bring the teams together with best practices from both organizations and be even stronger after the combination.

Keith Newton: I want to take a minute and acknowledge NOVA's founders and entire leadership team for building a great company with dedicated and talented people and a long history of success.

Keith Newton: The NOVA leadership team and all of its colleagues should be incredibly proud of what they built and accomplished and hopefully excited about this next chapter.

Speaker Change: Last comment before turning it back to Matt for additional commentary. This acquisition is another example of our team following through on what we discussed during our IPO process and subsequent earning calls.

Speaker Change: We have mentioned our strong growth pipeline and history of successful integration, execution, and the NOVA acquisition will be another great opportunity for our team.

Matt DiCanio: Thanks, Keith. I'm extremely excited about this opportunity as well. I want to add some additional high-level comments about the transaction, and then we'll wrap it up with our 2025 financial guidance. Here are some important details about the acquisition.

Matt DiCanio: The agreed upon purchase price is $265 million, subject to adjustment in accordance with the terms and conditions in the purchase agreement.

Matt DiCanio: Subject to closing conditions, the transaction is expected to close in the first quarter of 2025. The HSR waiting period has expired and we have satisfied all other regulatory process requirements.

Matt DiCanio: We currently expect to finance the transaction with a combination of cash, new debt financing, and our existing revolving credit facility.

Matt DiCanio: The transaction is expected to be immediately accretive in year one. In our investor presentation, you will see that LTM-adjusted EBITDA for NOVA, inclusive of year one run rate synergies, is approximately $28 million.

Matt DiCanio: Our pro forma net leverage will go from 3.5 times at December 31, 2024 to approximately 3.9 times at the time of the transaction, or the same level we were at at the time of our IPO recapitalization.

Matt DiCanio: We expect to de-lever to 3.5 times by year-end and will continue to target approximately 3.0 times within 18 to 24 months.

Matt DiCanio: Our liquidity with cash and revolver capacity is expected to remain at more than $400 million.

Matt DiCanio: We will be focused on working with NOVA to close the transaction. Expect we will have more information to share on our Q4 and full year 2024 earnings call in March.

Matt DiCanio: Now to round out the conference call today, we wanted to share our initial financial guidance for 2025. With our strong finish to 2024, we are well positioned for continued growth this year.

Inclusive of the NOVA acquisition, Concentra expects to deliver revenue.

Matt DiCanio: of approximately $2.1 billion, adjusted EBITDA in the range of $410 to $425 million, capital expenditures in the range of $80 to $90 million, which includes some one-time acquisition transition costs.

Matt DiCanio: and a net leverage ratio of approximately 3.5 times by year end. The guidance represents 10.5% revenue growth and approximately 11% EBITDA growth year over year assuming the midpoint of our range.

Guidance includes the impact of all known fee schedule changes.

Matt DiCanio: expenses associated with services provided to Concentra by Select Medical under our TSA agreement, as well as incremental separation costs we have planned for 2025.

Matt DiCanio: 2024 was a transformative year for Concentra with our IPO and the completion of our separation from Select Medical.

Matt DiCanio: The Concentra team is excited to continue our growth in 2025, which looks like it will be another year with important company milestones.

Matt DiCanio: With that, thank you everyone for taking the time to hear our additional commentary today.

We look forward to speaking with everyone again very soon.

Matt DiCanio: Thank you ladies and gentlemen. This does conclude today's call. You may disconnect your lines at this time and have a wonderful day and we thank you for your participation.