Q2 2025 Concentra Group Holdings Parent Inc Earnings Call
Speaker #3: Good morning and thank you joining us today for Concentra Group Holdings Parent Incorporated Earning Conference Call to discuss the second 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.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: Sir, you may begin.
Speaker #4: Thanks, Operator. Good morning, everyone. Welcome to Concentra's second quarter 2025 earnings call. We are pleased to report on a strong second quarter sustaining the momentum we had in the first quarter of 2025.
Speaker #4: In Q2, we saw accelerated growth in visits across both workers' comp and employer services, even after excluding impact of the visits in the centers acquired in the Nova transaction.
Speaker #4: We had another quarter of mid-single-digit year-over-year rate increases. With this strong growth on both volume and rate, we had a high single-digit revenue growth, excluding Nova.
Speaker #4: In addition, we successfully completed the integration and rebranding of our acquired Nova occupational health centers. We opened an additional occupational health center at the Novo site in Chattanooga, Tennessee, bringing us to four de Novos open so far this year, with two to three additional centers anticipated by the end of the year.
Speaker #4: We closed on the pivot on-site health clinic acquisition on June 1st, which doubles the size of our on-site health clinic segment and brings Concentra to over 1,000 combined occupational health center and on-site health clinic locations across the country.
Speaker #4: The integration of Pivot is well underway and on track. Additionally, we expanded our board directors and added two new directors, Bridget Bonner and Vipin Gopal, effective July 1st.
Speaker #4: Bridget and Vipin bring a wealth of experience across the customer experience, digital transformation, data analytics, and AI spectrums, and we're thrilled to gain access to their unique skill sets and knowledge base.
Speaker #4: With their decades of experience at companies like Eli Lilly, Walgreens, United Health, and IBM, we expect them to contribute meaningfully to our future success.
Speaker #4: I'll touch on some of the key financial highlights the quarter, and then we will get into more details. As with the last quarter, we will continue to report certain metrics, both including and excluding the impact of our larger M&A, so that people have a good sense on how the core business is trending.
Speaker #4: I would note here at the outset that we had the same number of revenue days in Q2 2025 as Q2 2024, so there is no need to adjust the prior comparisons for days.
Speaker #4: Total company revenue was $550.8 million, compared to $477.9 million in the prior year, representing a 15.2% growth year over year. Excluding contributions from Nova, revenue was $599.4 million, resulting in an $8.7% increase over the prior year.
Speaker #4: Total patient visits increased 9.5% in the quarter to approximately 55,000 patient visits per day. Our workers compensation visits per day increased 9.3%, and employer services visit volume increased 10.3% relative to the prior year.
Speaker #4: Excluding the impact from the acquisition of Nova, total visits per day increased 2.4%. Workers compensation visits increased 3.2%, a notable acceleration over Q1 growth.
Speaker #4: And employer services visits increased 2%, also better than Q1 results. A solid quarter across the board from a volume standpoint is work comp volumes rebounded from a softer Q1 and employer service visits continued the reversal and a positive growth territory we have seen since the beginning of the year, as we move to more normalized levels.
Speaker #4: We had another strong rate quarter with an approximately 4.4% increase in revenue per visit this quarter versus the same quarter prior year. This growth was driven by a 5.4% increase in workers compensation and a 3.1% increase in employer services revenue per visit.
Speaker #4: Adjusted EBITDA was 115 million in the quarter versus 101.6 million in the same quarter prior year, or a 13.2% increase. Adjusted EBITDA margin decreased from 21.3% in Q2 2024 to 20.9% in Q2 2025, primarily due to some favorable items impacting cost of services in the prior year, also some one-time Nova transition costs this quarter.
Speaker #4: Along with incremental Nova G&A expense that wasn't synergized through the full quarter, and other G&A cost increases in the current year that Matt will touch on shortly.
Speaker #4: Overall, we are pleased with the company performance and our continued growth. Adjusted net income attributable to the company was $47.7 million, and adjusted earnings per share was $37.00 for the second quarter 2025.
Speaker #4: As with the last few quarters, net income was lower than the same quarter prior year, primarily due to an increase in interest expense resulting from the IPO recapitalization.
Speaker #4: Adjusted EBITDA and adjusted net income reflect the add-back of transaction expenses related to our acquisition activity, as well as one-time costs related to our separation from Select Medical.
Speaker #4: Now, before I turn it over to Matt for additional information, I'd like to briefly comment on the significant progress we've made during the second quarter, as it relates to our Q1 Nova occupational health center acquisition and the related integration efforts.
Speaker #4: The June 1st pivot on-site health clinics acquisition and our continued Select Medical separation efforts. We're incredibly proud of our team's efforts to manage these major initiatives and continue to achieve our goals on the timelines we established.
Speaker #4: Matt will share more details, but everything is on track, and we are pleased about where we will be when all three are completed. Now, I'll hand it over to Matt to provide additional details on our financial results, capital allocation strategies, and growth efforts.
Speaker #5: Thanks, Keith, good morning, everyone. I'll start by going through some more details on our results in our three operating segments. In our occupational health center operating segment, total revenue of $560.1 million in Q2 2025, was $14.4% higher than the same quarter prior year.
Speaker #5: Workers compensation revenue of $332.2 million in Q2 2025 was $15.2% higher than prior year. As Keith mentioned, work comp visits per day increased 9.3% from prior year, and work comp revenue per visit increased 5.4% versus prior year.
Speaker #5: Work comp revenue per visit was $209.00, similar to our work comp rate last quarter. Within Employer Services, revenue of $174.3 million increased 13.7% from the prior year.
Speaker #5: Employer services visits per day increased 10.3% from prior year, and employer services revenue per visit increased 3.1% versus prior year. To help isolate from our Q1 acquisition of Nova, here are the same stats excluding the impact of Nova.
Speaker #5: Total revenue within the occupational health center operating segment was $484.8 million, a 7.4% increase over the prior year. Total visits per day increased 2.4% over the same quarter prior year.
Speaker #5: Revenue per visit increased 4.9% from $140.00 in Q2 2024 to $147.00 in Q2 2025. Workers compensation revenue of $344.0 million in Q2 2025 was $8.9% higher than prior year.
Speaker #5: Workers' compensation visits per day were 3.2% higher than the prior year, and workers' compensation revenue per visit was 5.5% higher than the prior year. Within employer services, revenue of $161.8 million increased 5.5% from the prior year.
Speaker #5: Employer services visits per day were 2% higher than prior year and employer services revenue per visit was 3.4%. Higher than prior year. The most notable takeaway from the quarter was our solid volume growth, both compared to Q1 and also compared to Q2 of last year.
Speaker #5: Excluding Nova, year-over-year visit growth for work comp accelerated from 0.2% in Q1 to 3.2% in Q2, and employer services went from 0.9% in Q1 to 2% in Q2.
Speaker #5: We had spoken before about the softer work comp volume number in Q1, and we did, in fact, see a much stronger number in Q2.
Speaker #5: We are also pleased to see the continued positive growth trend in slight acceleration for employer services. Work comp and employer services visits can bounce around a little bit, but growth tends to be in the low single digits over time.
Speaker #5: We'll add more commentary later on our remarks, but we think our Q2 visit trends are a pretty od indicator of the broader economy. We are not seeing any slowdown based on the data we look at every day that covers employers of all sizes and industries and geographies.
Speaker #5: Moving on from our occupational health centers, our on-site health clinic segment reported revenue of $22.6 million in Q2 2025, a 45.2% increase from the same quarter prior year.
Speaker #5: Excluding the one-month impact from the pivot on-site acquisition, that closed on June 1st, on-site segment revenue grew 9.9% year over year. So overall, a nice quarter as it relates to our core on-site performance and obviously a major milestone adding the pivot on-sites to our portfolio.
Speaker #5: A quick reminder for everyone, we do not report visit metrics for our on-site business, given the nature of the revenue model. And finally, other businesses generated revenue of $12.1 million and $8.5% increase against the same quarter prior year.
Speaker #5: Now, switching to expenses. Cost of services was $389.3 million or $70.7% of revenue in Q2 2025. Down from $71.0% of revenue for the same quarter prior year.
Speaker #5: We realized a nice decrease here, primarily driven by better staffing efficiencies in conjunction with the strong revenue growth. This improvement would have been even better if not for approximately $750,000 of one-time costs related to the Nova and Pivot transitions that are not adjusted out of adjusted EBITDA.
Speaker #5: As well as several favorable adjustments in the prior year. Overall, our labor costs continue to be stable, trending approximately 3% higher than prior year, which is a consistent theme for us over the years.
Speaker #5: Our teams are doing a great job managing staffing to the visit volumes, and we have made good progress filling open positions. We want to emphasize this point, as labor dynamics have not historically been an issue for this business model.
Speaker #5: Our total general and administrative expenses were $52.9 million or $9.6% of revenue in Q2 2025, compared to $7.7% of revenue in the same quarter prior year.
Speaker #5: This comparison is not apples to apples, though, as we have expenses in Q2 of this year that we did not have in the prior year before we were a company and separated from Select Medical.
Speaker #5: And we also have some acquisition-related expenses here related to Nova and Pivot. Excluding items that are added back for the purposes of calculating adjusted EBITDA, including equity, compensation expense, one-time Select separation costs and M&A transaction costs, G&A expense was $46.6 million for the quarter or $8.5% of revenue compared to $7.8% of revenue in the same quarter prior year.
Speaker #5: The increase was largely driven by incremental Nova G&A expense that wasn't synergized through the full quarter, and planned increases in personnel costs related to becoming a public company in our ongoing separation from Select Medical.
Speaker #5: The overall adjusted EBITDA margin in Q2 2025 was $20.9%, compared $21.3% during the same quarter prior year. To reiterate, the primary drivers of this slightly lower margin are some favorable one-time cost of services items from prior year, certain one-time Nova and Pivot integration expenses totaling approximately $750,000, that are not adjusted out of adjusted EBITDA, incremental G&A expense from Nova that was not fully synergized through the entirety of the quarter, and the planned increase.
Speaker #5: It was a nice cash flow quarter for us, driven primarily by our financial performance, but also due to the timing of payroll and other payables at quarter-end.
Speaker #5: Investing activities used 79.5 million of cash in the second quarter, predominantly driven by the pivot acquisition closing on June 1st. Also included in this number is $25.2 million of CapEx.
Speaker #5: With approximately $18 million of that from our normal course capital program for upgrading and maintaining existing facilities, de Novos, and technology investments, and approximately $7 million of one-time CapEx associated with our Nova center integration and rebranding efforts.
Speaker #5: Financing activities resulted in net cash inflows of $12.9 million for the second quarter, primarily due to our Revolver draw of $35 million as part of the pivot acquisition.
Speaker #5: Partially offset by two quarterly dividend payments at both fell into Q2. We ended the quarter with a total debt balance of $1.67 billion and a cash balance of $74 million.
Speaker #5: Our net leverage ratio per our credit agreement at the end of June was 3.8 times. We found that some investors are not including the annualized impact from our recent acquisitions in their leverage calculations, especially if doing a quick screen on Bloomberg or other sources.
Speaker #5: So we felt it was important to call this out. For the remainder of this year, we will be focused on continuing our deleveraging path while we look to fully integrate Nova and Pivot, and continue to make progress with our separation from Select Medical.
Speaker #5: The second half of the year is our strongest cash flow period, especially Q4 with collections coming in from the highest volume months. Now, switching to our growth efforts.
Speaker #5: With respect to the integration of Nova, we are progressing well and now have all centers converted to Concentra systems, processes, and signage as of the end of July.
Speaker #5: We expect this to drive both increased top-line growth and operational efficiencies going forward. As we've mentioned, we incurred material conversion costs, which occurred May, June, and into July that impacted our cost of services and not added back to adjusted EBITDA.
Speaker #5: We expect to see these costs decline significantly going forward. Our teams are now focused on growing visits and adding additional services. We expect this will take some time, like other acquisitions in the past, but we are confident in the team's ability to do so.
Speaker #5: As it relates to our cost synergies, through the end of Q2, we estimate that we have captured just over 70% of our planned operational and back-office synergies, which is right on track with our original underwriting.
Speaker #5: The remaining 30% will be systematically executed through the remainder of 2025 and into Q1 2026. Overall, this acquisition is tracking well, but more work to do before we are fully integrated and closer to run rate performance.
Speaker #5: On the de novo front, we opened one location in Chattanooga, Tennessee, in Q2 2025 and have two or three more locations planned for the second half of this year, depending on some construction variables.
Speaker #5: With respect to 2026 activity, to date, we have executed or are close to executing five new leases and have a number of other active targets that are candidates for opening in 2026.
Speaker #5: In general, we continue to identify a lot of white space across the country with high workplace injury density. And little to no existing Concentra footprint, so we have a good opportunity to continue to accelerate our de Novo activity.
Speaker #5: We also have a pipeline of small bolt-on M&A deals that we intend to pursue in parallel with our de Novo strategy. I'd like to reiterate that both de Novos and bolt-on M&A are down the fairway for us, given our average run rate build and acquisition multiples of less than three times EBITDA over the past decade.
Speaker #5: We will continue to execute on this corporate development strategy in concert with reaching our leverage targets on our projected timeline. We do not expect any larger acquisitions for the remainder of this year.
Speaker #5: Lastly, on the growth front, we are excited about the closing of the pivot on-site acquisition on June 1st. Integration efforts are underway, but mostly focused on combining the two G&A teams.
Speaker #5: No changes at the on-site location level like we had with the Nova integration efforts. As previously stated, this is a deal that enhances our ability to compete in the broader on-site space, where we now view ourselves as a top five player in terms of scale.
Speaker #5: We've onboarded a number of new leaders that are going to be integral towards growing the business going forward, and we have a robust sales pipeline of both occupational health and advanced primary care opportunities that should set us up nicely for continued organic growth into next year.
Speaker #5: Longer term, we ect additional on-site acquisition opportunities to continue to arise including advanced primary care-focused platforms, as we look to meaningfully grow our on-site segment.
Speaker #5: Finally, last note on capital allocation. We are pleased to announce a continuation of our dividend this quarter, with Concentra's board of directors declaring a cash dividend of six and a arter cents per share on August 6th, 2025.
Speaker #5: The dividend will be payable on or about August 28th, 2025, to stockholders of record as of the close of business on August 21st, 2025.
Speaker #5: So now back to Keith to comment on a few important topics. Most of which are popular topics we are asked by investors and research analysts.
Speaker #3: Thanks, Matt. Overall, there are many positives to the quarter and a solid first half for 2025. We're pleased about the opportunities ahead in the second half of the year and 2026.
Speaker #3: As Matt mentioned, I want to take a few minutes and cover a couple of topics and questions that come up periodically. I'll start first on our visit trends, their correlation to economic indicators, and what we were seeing as it relates to the job market.
Speaker #3: As we discussed before, we track total employment and hiring and quit rates, but many variables are included in driving our visit volumes. Our work comp visit growth rates quarter by quarter.
Speaker #3: We'll move around a bit for a variety of reasons, but over time, we expect to see low single-digit growth rates. It was good to see a stronger quarter in Q2.
Speaker #3: Our employer services visit growth rates have now been positive for two quarters in a row. We believe this is a solid indicator of the health of the labor market and the broader economy.
Speaker #3: We are not seeing any indication of a slowdown for what we have been recently experiencing, as we monitor our visit trends on a daily basis.
Speaker #3: There are some shifts in industry mix, but no extended trend, either positive or negative, in any industry we serve. If anything, we're seeing more stability now than we have in more recent quarters.
Speaker #3: We've shown in the past that we can navigate well through any ups and downs in the broader economy. A recent example is how we grew EBITDA through many quarters of negative employer service visit declines.
Speaker #3: We want to emphasize this point as employment and hiring trends are important to us, but we have many other variables such as reimbursement increases and staffing controls that limit our exposure to economic swings.
Speaker #3: Secondly, we're getting some questions about how the recent legislation or the Big Beautiful Bill impacts us as a company. As we mentioned in the past, our industry is very unique in that workers compensation fee schedules are governed by each individual state and employer service pricing is set by us with market pricing adjustments each year.
Speaker #3: For workers comp, each state has its own fee schedule, and the calculation of that fee schedule varies from one state to the next. Each state sets the fee schedule for their particular state, but are not the entities making the payments to providers, so it does not impact or relate to their specific state budgets.
Speaker #3: Because of this, most of the time, we are not impacted by federal legislation. With the recent legislation, there is one item of note that will impact us in a favorable way in 2026.
Speaker #3: It's primarily tied to the two and a half percent DOC fix provision. There are four states, California, Ohio, North Carolina, and Tennessee, that utilize the conversion factor component of the Medicare Physician Fee Schedule as one component of their calculation each year, and adjusting their workers comp fee schedules.
Speaker #3: These four states will see that two and a half cent conversion factor increase as part of their fee schedule updates. We will benefit most from California as it is one of our largest states and also because California has an MEI inflationary adjustment as another component of its fee schedule calculation that will be incremental to the DOC fix increase.
Speaker #3: It's still early, but we're ecting another strong rate year in 2026. We'll continue to track other state changes and will likely have more information later this year on how 2026 is shaping up.
Speaker #3: Overall, we want to emphasize how unique our reimbursement environment is and how federal changes are unlikely to impact us, unlike other healthcare service companies.
Speaker #3: Lastly, this legislation includes some tax and depreciation regulation changes that, while not impacting our overall effective tax rate, will help us in a material way from a cash flow standpoint by over $15 million in 2025, and about a third of that in 2026.
Speaker #3: Last topic I wanted to comment on is our separation for Select Medical and how that is progressing. We're about eight months into the two-year project, and all teams are doing a great job to set us up for complete separation by November 2026.
Speaker #3: I credit both Concentra and Select colleagues and their collaborative approach. Concentra has hired almost 50% of the staff we project we will need, and we've started reducing the amount we pay Select for the services they have historically provided.
Speaker #3: Much more work to do, but our teams estimate that we are at approximately the midpoint in this separation process from a people contract and project standpoint.
Speaker #3: With that, I will hand it back to Matt to wrap up the call with our financial outlook update.
Speaker #5: Thanks, Keith. Okay, to round out the call today, with the previous comments as a general backdrop, we are raising our 2025 revenue guidance to $2.13 to $2.16 billion.
Speaker #5: From $2.1 billion to $2.15 billion. And the lower end of our adjusted EBITDA range is now $420 million, up from $415 million. The result is a new 2025 adjusted EBITDA range of $420 million to $430 million.
Speaker #5: And we remain on target for 80 to 90 million of CapEx, which includes significant one-time Nova spend. And a $3.5 times leverage ratio by year-end.
Speaker #5: Furthermore, we are on track for our leverage ratio to be below three times by the end of 2026. To wrap up, I'd like to reiterate the takeaways we'd like investors to leave with.
Speaker #5: Solid organic visit growth this quarter, another strong rate quarter with a good early outlook on rate for next year, raised guidance, no major reimbursement risk, stable labor trends, positive momentum with strategic M&A integration efforts, tremendous white space available to us across all our service lines, a clear path to continued deleveraging with very strong cash flow, and continued solid EBITDA margins.
Speaker #5: With our unique reimbursement model and direct-to-employer relationships, we view ourselves as a B2B business services provider and a differentiated investment opportunity versus other healthcare services companies today.
Speaker #5: That concludes our prepared remarks. We thank everyone for the time today. We'd like to turn it back to the operator to open the call for questions.
Speaker #3: Thank you. At this time, we be conducting our question and answer session. If you would like to ask a question, please press star one on your telephone keypad.
Speaker #3: A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.
Speaker #3: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.
Speaker #3: Thank you. Our first question is coming from Benjamin Rossi, with JP Morgan. Your line is live.
Speaker #6: Good morning. Thanks for taking my question here. For the 2025 guidance update, could you just walk me through what's being contemplated in your changes to revenue and adjusted EBITDA from M&A contribution or aggregate improvements to either your core volumes and pricing across segments?
Speaker #6: And then just on cadence, I know last year you had some weather-related dragon-free queue. Are there any other year-over-year dynamics to consider or incremental M&A spend in this guide for the back half of the year?
Speaker #7: Sure. Hey, good morning, Ben. Thanks for the estion. I'll take the, first part and then, we can get to the second part after that.
Speaker #7: as far as the guidance, you know, we thought it was appropriate to raise guidance. We obviously had a strong quarter on both revenue and EBITDA.
Speaker #7: We had previously given guidance a few months back that included the M&A. So all of that’s factored in. And really, the way we’re thinking about guidance is pretty similar performance to what we've seen year-to-date.
Speaker #7: And obviously, we'll have the incremental Nova and Pivot performance that we didn't have before those deals closed earlier this year. So pretty much, run rate consistent performance through the remainder of this year.
Speaker #7: The second part of your question was around, some weather there was some weather last year, and it was primarily July. that we had called out previously.
Speaker #7: so that will be a factor in Q3, but there's no other material events that we want to point out for the remainder of the year.
Speaker #6: Got it. Okay. And I guess just as a follow-up, you ow, on the on-site total clinic count regarding your on-site health clinics, could you just help bridge to that 406 reported centers following the POI acquisition?
Speaker #6: I just recall when you gave us the al overview of the acquisition back in April, you described the combined entity being around 306B. centers all in with about 120 million in combined revenue.
Speaker #6: is that still is that revenue figure still applicable for 2025 under the bined setup? Thanks.
Speaker #7: Yes. Yeah. No change to the revenue, slight update to the count of on-sites. There are 240 total on-sites. The update there, I think we had previously said 200 plus, but there's a slight difference in how we count them versus how Pivot had counted for them.
Speaker #7: So, post-acquisition, we updated that to about 240 on-sites that were acquired.
Speaker #6: Great. Thanks for the arification.
Speaker #3: Thank you. Our next question is coming from Justin Bowers with Deutsche Bank. Your line is live.
Speaker #8: Hi. Good morning, everyone. So, one question for each of the of the main segments. nice to see workers comp. Accelerate. into two queue. So now that you've a chance to sort of do the do the look back, anything to explain, you ow, sort of the the softer trend in one queue, and then with respect to the guide, does the guide accommodate sort of like flattish to, you know, 3% same store workers comp visits, or just just help us think about the guide on workers comp?
Speaker #8: And then I'll follow up with employer services.
Speaker #7: Yeah, Justin. This is Keith. Yeah. I, I, you know, I think, and we've ioned it, that the quarters can vary a little bit for a lot of reasons.
Speaker #7: I 't really think there's a whole lot to the first quarter as far as the softness. You know, there's a lot of dynamics going on, in the, in the world today that can I think impact us, here and there employers seem to have been in a somewhat stable wait-and-see at times.
Speaker #7: But, you know, I, I think, you ow, it, it's, it's, it's the comps compared to last year, what happening then versus this year. we've continued to put our heads down, continued to do the things we're doing.
Speaker #7: And, you know, it's, it's, it's—I think the fruits of our labor are starting to bear as a result of that. I don't know if you have any comments on that.
Speaker #5: Yeah. And I'll add to that. I think the second part of your question was the remainder of the year. You know, just to add on to what Keith said, Q1 of 2024 was the toughest comp.
Speaker #5: for this year. Q2 of '24 as a comparison was kind of middle of the road. So versus this quarter. And what we're projecting in our guidance is really closer to an average of our Q1 and Q2 numbers for remainder of the year.
Speaker #3: Thank you, Matt. That’s helpful. And then just on employer services, right? I mean, Keith, you talked about this in the prepared remarks. There was some noise around the economy, but it sounds like trends are pretty stable.
Speaker #3: So, you know, is that do you think the performance there for ou guys is more reflective of market or or, you know, individual initiatives or sort of a mix of both there?
Speaker #7: I I would put it as a mix of both. I mean, there's a lot of things that we're doing as far as, you know, from different levers from account management, sales activities, and those type things as far as penetrating further.
Speaker #7: reevaluating some of the organizational structure of the sales and how we're how we're aching things, both from the account management side and penetrating the employers and also incremental new business.
Speaker #7: you know, I, I, I, it seems that employers are still somewhat in a wait-and-see, you know, when all the numbers and indicators that come out, that seems to tell us that.
Speaker #7: we're hopeful that as, as we progress further down the, through the year, as, some of the there's better clarity relative to what's going to happen in future, whether it's tariffs, whether it's, you ow, all the other things happening right now that maybe employers start to become a little more activity-wise from a hiring standpoint, and then we start to pick up the benefit of that.
Speaker #7: I don't think we're really picking up, the benefit of anything there other than just a stable workforce. right now, and, just the activities that we're deploying.
Speaker #3: Appreciate . I'll jump back in queue. Thank you. Our next question is coming from Jamie Perce with Goldman Sachs. Your line is live.
Speaker #9: Thank you. Good morning. So, you've spoken a lot about the volume acceleration that you saw in the second quarter. As we think about the back half of the year, is the right way to think about volume growth for both of the businesses more like what you saw in the second quarter, or more like what you saw on a year-to-date basis?
Speaker #9: Just trying to put a finer point on volume expectations as we move through the back half of the year. And then just to push on this, this this macro topic for for a second.
Speaker #9: I, is pretty clear you are not seeing anything yet. You've said that several times. Are ou factoring anything into the guidance or any cushion broadly into the guidance, you ow, if if there were more of a slowdown in in hiring trends?
Speaker #7: Yeah. Good morning, Jamie. It's Matt. So, just to reiterate on the the back half of the year, the way we're thinking about it is is closer to year-to-date, performance.
Speaker #7: We have a little bit of a soft Q1, but obviously a stronger Q2. So, I think it's better to look at more of the average or the year-to-date numbers.
Speaker #7: As we move through the rest of this year, we are not factoring in significant changes to our visit volumes on the upside or downside through the remainder of this year.
Speaker #7: But, you ow, we're coming off a strong Q2, and, based on my comments on how we're thinking about the back half of the year, closer to the year-to-date averages, I think there's there's, you ow, hopefully that gives you some thoughts for the rest of the year.
Speaker #9: Yeah, that's helpful. and then just on on the P&L, can you spend a minute talking through some of the one-time items that were that were still included in the adjusted EBITDA you ioned?
Speaker #9: Some in cost of service. Just trying to better stand the the the the margin progression for for gross and operating margin. In the second quarter, you know, excluding some of these one-time items, and and if if that margin progression should continue, for the balance of the year.
Speaker #7: Yeah, sure. I could hit that. So there's a there's a few things going . So I'll I'll walk one at a time. Cost of services.
Speaker #7: We were better versus prior year from a percentage of revenue and it was primarily staffing efficiencies. We would have been even better if it wasn't for some prior year favorable reversals, that happened '24.
Speaker #7: And then also the Nova startup transition cost. There were some costs related to our system integration efforts that were over two, three-month period. Some of ose were adjusted out, but some of them were more normal kind of front-loaded startup costs for the business that were not adjusted out.
Speaker #7: So those burdened cost of services. So it would have, you ow, those we expect those will go away. Now that we've completed the transition efforts at the end of July, so August moving forward, those those expenses should go away.
Speaker #7: And that would have made the cost of services even better than it was versus the prior year. From a G&A standpoint, it was really two things.
Speaker #7: It was the Nova and Pivot synergies that had not been fully realized. The full or the full impact of those synergies, we closed the Nova transaction on March 1st.
Speaker #7: We closed the Pivot transaction on June 1st. And there was a period of time, before synergies and actions were taken. And there's still more synergies to be had.
Speaker #7: So we and we basically acquired that G&A and and were not able to fully synergize out, you know, in the first quarter. post post transaction, but we expect that to flow through, you know, in the coming months and coming quarters.
Speaker #7: And then obviously, we also had some some plan and expected, public company and separation costs. That are included in G&A were that were not there in the prior year.
Speaker #7: When we were not a public company, you know, when you factor in both of those, and look at our EBITDA margin, it was 40 basis points lower than last year. Our view is that factoring those in, we would have been flat or potentially even higher than the prior year. And that’s including the fact that we're now a public company and separating from Select Medical.
Speaker #7: Hopefully, that helps.
Speaker #9: Yeah, it does. Thank ou.
Speaker #3: Thank you. Our next question is coming from Ben Hendricks with RBC Capital Markets. Your line is live.
Speaker #10: Great. Thank you very much. I just wanted to follow up on a comment Keith made when discussing the employment and jobs macro data. I, you know, appreciate that it's, you ow, your platform has been very stable.
Speaker #10: you ow, amid some, some changing numbers that we've heard, but, you also, I ink, mentioned, that you saw some mixed dynamics. in our underlying business, perhaps with industries or or customers, I was wondering if you could expand on that and where you're kind of seeing a shift and, and, and, if that's, in any way, could in future, you know, create headwinds or, or, you ow, an anticipated, dynamics?
Speaker #10: Thanks.
Speaker #7: Hey, thanks, Ben. Actually, I think in our our prepared remarks, we said we have not seen shifts. within the diversification of the industries, you know, there's no no one industry that's more than 9 or 10 percent, of our business.
Speaker #7: And they've all, and there are several that fall kind of in that 8% range, whether it's manufacturing, healthcare, services, distribution—all of those.
Speaker #7: And we really haven't really haven't seen much of a shift in any of that. So it's been fairly stable. And I think what we've seen really from an employment standpoint, as everybody knows, is a is a ative slow, from a hiring perspective, out there.
Speaker #7: It's still, I ink, a wait-and-see, let's get better clarity on what's going to happen, relative to how employers but fortunately, what they've done is is kept a stable workforce.
Speaker #7: We haven't seen the layoffs that historically would start to drive a recessionary-type situation. So, that's why I believe our volumes have stayed relatively stable.
Speaker #7: The diversification amongst the employers is relatively stable. so really not seeing much of any any changes with a mix of what what's walking into our centers.
Speaker #7: Yeah. And Ben, I would just add to the discussion around the short term that we're really excited about the long term. You know, every day you hear about additional proposed investments back in the United States with all the reshoring efforts that are happening across the country.
Speaker #7: So, every time we see an update like that, it's it's exciting for our business, both our center business and our on-site and telemedicine segments.
Should you participate? We, uh, with the deployment of the advanced primary care product, uh, that we've talked about in the past is an additional service within our on-site. Uh, we're hoping it's gonna start to ramp our core growth rate on our on-site, uh, at a faster Pace than what we've historically seen, when just focused on Occupational Health. Uh, in the early returns we are seeing we are starting to win business. That historically, uh, we, uh, really did not go out and and bid on just because of the type of service it was. So, we're, uh, very bullish on what we think. Our on-site is going to be
Uh, doing from a core standpoint outside, uh, the potential for M&A activity. There's a lot of activity in that sector right now. Uh, but as it relates to what we're doing, just from a core delivery of the services, uh, with the addition of Advanced Primary Care, uh, we're starting to win some business that historically we did not win, so I would.
Anticipate, uh, a better growth rate than historically what we've seen over the last few years from a core.
Okay, thanks for that and follow up. Uh, so if I got to write, um, when when you were talking about the second half, right? So like employer Services volumes grew on average, I guess 1 and a half percent, first, half and workers comp also
So, sort of like you guiding us to assume similar growth in the second half, but is it sort of like a fair assumption for, I guess, long-term organic growth for these businesses when it comes to volumes?
Yeah, I would, I would reiterate what I what we said in the past about our growth algorithm and and how we think about volumes in the low single digit, uh, range, right in the plus, or minus 3%. Um, approximately over a long period of time and then our, um, our smaller core m&a and denovo efforts of, you know, 1 to 2% per year. So that's, that's really how we're thinking about it. Q1 as it as just to mention again, little soft Q2, obviously better. Uh, we're looking at, you know, in between those 2 numbers. Yeah, I think, once we start seeing quit rates, uh, start to increase job, openings, start to increase, uh, hiring starting to increase, then certainly, uh, we'll start to tweak up, uh, from a Employment, Services growth rate.
Great. Thank you. Thanks for that answer. Thank you.
Thank you.
Our next question is coming from Stephen Baxter with Wells Fargo. Your line is live.
Hi, thanks for the question. Uh, I just wanted to ask about, you know, the guidance revision. You know, it is kind of a small difference, but you're increasing the revenue by more than you're increasing the EBITDA on a percentage basis. I just wanted to know if there's anything kind of noteworthy there. Obviously, you called out, um, you know, sort of a lot of discrete cost items in the second quarter, but I wasn't sure if those cost items were.
Lead us in the comparisons or whether they were actually coming in, um, maybe a little bit above what you might have expected and then have a quick follow up to. Thank you.
No, you know, we saw some of the costs from the transition efforts in May, maybe the tail end of May, but mostly in June, and we expect those same, uh, similar numbers in July because we were converting the same number of centers in July and then potentially into early August. But then we expect those costs to go away. Um, so, you know, just being mindful of, um,
Do that. So we just wanted to be conservative with our approach to how we gave guidance from an era standpoint at this point in time if we get better visibility and clarity as we go through, Q3 will continue to sharpen the pencil on that.
Got it. Okay, thank you. And then, um, we appreciate the color, I guess I I didn't realize that you have uh, some linkages and some of your states to the doc fix. Um, if the doc fix gets, uh, done as part of, you know, closer to like year end send impact packages related to 2015. Do you expect that you would see a true up in this year's results? Or I guess, how would you expect that to to play out of something that ultimately gets done for this year?
Uh, I I would not expect anything most of the states, don't necessarily adopt it whenever these things happen, they're on their own timing. Uh, so it's not like it's it's uh if something like this were to happen we're going to immediately see it. So I would anticipate uh 2026 and we you know if we get further into this year we'll talk more about it and see it. But most of the time states are going to uh Implement their fee schedules, the majority of them. If there's any changes they're going to make or whatever reason I'd say, the majority of them uh are probably January of 26 when they do it others later in the year also, but they're all on their own schedules relative to when they do it.
Got it. Okay, and then, um, I guess one thing we've kind of observed with, you know, at least with regards to the on-site opportunity is we've had a couple years now just really high cost trends within the employer group business, uh, with all the managed care companies to discuss. I guess, how much do you feel like that is starting to influence the conversations that you have? And do you think that's really been a material driver of maybe increased interest in the model versus what you might have seen, you know, going back a couple years when things were a little bit more, uh, stable? Thank you.
Yeah, I I certainly, as well or reading, uh, it's anticipated that most companies are, are facing some, uh, pretty big, uh, employee benefits costs as we go into 2026. So, we're certain having those conversations, uh, more and more with employers, but I think more. So because we now have a product that's competitive, uh, with those employer with those, those on-site companies that kind of focused on the commercial side, or the group health side with these employers again. Historically, our Focus from an on-site perspective had been occupational health, so we weren't necessarily, you know, having these type of conversations with employers because we were doing more with safety and risk, uh, versus HR and benefits. Now we're at, is we have a seat at the table. Really, with both sides of a of a employer's, uh, house relative to benefits and, and safety and risks. And, and certainly, as I mentioned earlier, we're winning some deals now.
Uh, uh, relative to this, we're basically providing advanced primary care services to that employer and their employee base at the work site. Where historically, uh, we were not doing that.
Thank you. Our next question is coming from Anaheim with Missoula. Your line is live.
Great. Thank you. Um, in your preparing remarks, you made a comment that labor Dynamics is on issue for this business model. Can you remind us why? That is? And then secondly, um, I know you have a leverage Target goal of 3 times by the end of 2026. How do you balance that with um the m&a, potential and opportunity? Thanks.
Yeah, uh, labor dynamics, when you look at our model, uh, typically we've got doctors, physical therapists, and the individuals that are supporting those clinicians are medical assistants. We don't have RNs or LVNs. A lot of the labor pressures that health systems faced were, uh, with that type of discipline. Uh, so historically, there's a, you know, more of a base to draw from in terms of medical assistant hourly individuals. Uh, you know, so historically we did not build.
On the same pressures that, uh, the health systems faced over the last few years. Um,
From that perspective. So, that's that's really our model. Uh, and our model is based on, you know, visits per day per, uh, FTE within a center, those type metrics. So we're able to, uh, lever up lever down, uh, based on volumes for the most part, uh, and just accordingly. And so we, that's pretty much kind of how we have managed
On The Leverage question, you said? So we've, we've stated that we're targeting 3.5 Times by year, end and, uh, sub 3 times by the end of next year. And really, you know, we feel good about where we are because we're we're still working through the Nova and pivot Integrations. We're still working through, call it the second half of our, uh, select separation efforts. Our teams are very focused on executing on those successfully and we're going to naturally de-lever, especially in, in Q4, with the strongest cash flow quarter. We have, um,
Then looking at 26, you know, we'll have a lot of those 3 main work streams behind us for the most part. We'll continue to look at m&a. It, the our leverage targets and um strategy are not impacted by our core, denovos and smaller m&a. We'll continue doing that as we de-lever. Um and and I think it some point next year we'll continue to look at at uh more more sizable m&a efforts. But for right now we we're very focused on executing on what's in front of us.
Why?
Thank you, ladies and gentlemen.
We appear to have reached the end of our question and answer session, so I would like to hand the call back over to Mr. Newton, for any closing remarks
No, I just wanted to thank everybody for joining us today, and I appreciate it. Thank you very much.
Thank you, ladies and gentlemen. This does conclude today's call, and you may disconnect your lines at this time.
We hope you have a wonderful day, and we thank you for your participation.