Concentra Group Holdings Parent, Inc.(CON) - 2025 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and related notes for Concentra Group Holdings Parent, Inc Item 1. Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements for Concentra Group Holdings Parent, Inc. as of June 30, 2025, and for the three and six-month periods then ended, including balance sheets, statements of operations, comprehensive income, changes in equity, and cash flows, along with accompanying notes Condensed Consolidated Balance Sheets The company's balance sheet shows increased assets and liabilities, primarily driven by goodwill from recent acquisitions and higher long-term debt Condensed Consolidated Balance Sheets (in thousands) | Balance Sheet Items | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Total Assets | $2,841,584 | $2,521,164 | | Total Current Assets | $395,167 | $437,207 | | Goodwill | $1,480,653 | $1,234,707 | | Total Liabilities | $2,474,204 | $2,222,440 | | Long-term debt, net | $1,652,003 | $1,468,917 | | Total Equity | $347,820 | $280,711 | - Total assets increased to $2.84 billion as of June 30, 2025, from $2.52 billion at year-end 2024, primarily driven by a significant increase in Goodwill from $1.23 billion to $1.48 billion, reflecting recent acquisitions[9] - Total liabilities rose to $2.47 billion, largely due to an increase in long-term debt to $1.65 billion from $1.47 billion at the end of 2024, used to finance acquisitions[9] Condensed Consolidated Statements of Operations Despite revenue growth, net income declined due to increased interest and general and administrative expenses Income Statement (Three Months Ended June 30, in thousands) | Income Statement | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | | Revenue | $550,785 | $477,915 | | Income from operations | $89,542 | $83,944 | | Net income attributable to the Company | $44,560 | $51,737 | | Basic and diluted EPS | $0.35 | $0.50 | Income Statement (Six Months Ended June 30, in thousands) | Income Statement | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | | Revenue | $1,051,537 | $945,513 | | Income from operations | $169,861 | $159,442 | | Net income attributable to the Company | $83,471 | $100,693 | | Basic and diluted EPS | $0.65 | $0.97 | - Despite a 15.2% YoY revenue increase for Q2 2025, net income attributable to the company decreased to $44.6 million from $51.7 million in Q2 2024, primarily due to higher interest expense and general & administrative costs[11] Condensed Consolidated Statements of Cash Flows Cash flow from investing activities significantly increased due to business combinations, largely funded by new debt Cash Flow Statement (Six Months Ended June 30, in thousands) | Cash Flow Statement | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $100,078 | $115,055 | | Net cash used in investing activities | ($374,257) | ($37,615) | | Net cash provided by (used in) financing activities | $164,796 | ($58,145) | | Net (decrease) increase in cash | ($109,383) | $19,295 | | Cash at end of period | $73,872 | $50,669 | - Cash used in investing activities significantly increased to $374.3 million in the first six months of 2025, up from $37.6 million in the prior year period, driven by $333.3 million spent on business combinations[23] - Financing activities provided $164.8 million in cash, primarily from new term loan proceeds ($948.8 million) and revolver borrowings ($85.0 million), which were used to pay down old term loans ($850.3 million) and fund acquisitions[23] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the accounting policies and specific financial items, covering long-term debt, revenue disaggregation, segment information, significant acquisitions, and derivative instruments Note 6. Long-Term Debt Total long-term debt increased to $1.666 billion as of June 30, 2025, primarily due to new term loans and revolving credit facility borrowings to fund acquisitions, with amended credit terms securing more favorable interest rates Debt Component (Principal Outstanding) | Debt Component | Principal Outstanding (June 30, 2025) | | :--- | :--- | | 6.875% senior notes | $650,000,000 | | Revolving Credit Facility | $85,000,000 | | Term Loan | $947,625,000 | | Total Debt | $1,689,661,000 | - In March 2025, the company amended its Credit Agreement to increase the Revolving Credit Facility by $50.0 million to $450.0 million and added a $102.1 million incremental term loan, bringing the total Term Loan to $950.0 million[53] - As of June 30, 2025, the company had $342.8 million of availability under its Revolving Credit Facility and its leverage ratio was 3.8x, well below the required maximum of 6.50 to 1.00[54] Note 9. Revenue Revenue is primarily generated from occupational health centers, with workers' compensation and employer services as the main service lines Revenue by Source (Three Months Ended June 30, in thousands) | Revenue by Source | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | | Workers' compensation | $332,191 | $288,405 | | Employer services | $174,318 | $153,305 | | Total occupational health center revenue | $516,138 | $451,240 | | Total revenue | $550,785 | $477,915 | Revenue by Source (Six Months Ended June 30, in thousands) | Revenue by Source | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | | Workers' compensation | $634,298 | $568,271 | | Employer services | $334,458 | $304,040 | | Total occupational health center revenue | $989,060 | $892,312 | | Total revenue | $1,051,537 | $945,513 | Note 12. Commitments and Contingencies The company is involved in various legal proceedings, including a California Department of Insurance investigation, class action lawsuits related to a third-party data breach, and a DOJ investigation into physical therapy billing practices - The company received a subpoena from the California Department of Insurance in February 2024 related to an investigation into billing and coding for physical therapy claims[72] - Concentra is a defendant in consolidated class action lawsuits following a data breach at its third-party medical transcription vendor, Perry Johnson & Associates, Inc. (PJ&A), which potentially affected nearly four million patients[73][74] - A DOJ investigation into potential False Claims Act violations related to physical therapy billing at former parent Select Medical is ongoing, with a related qui tam lawsuit unsealed, though the DOJ has not intervened[75] Note 14. Acquisitions In 2025, the company completed two significant acquisitions, Nova Medical Centers and Pivot Onsite Innovations, expanding its occupational health and onsite clinic footprint, funded by new debt and cash, resulting in substantial goodwill and intangible asset recognition - Acquired Nova Medical Centers for $265.0 million on March 1, 2025, adding 67 occupational health centers, with preliminary purchase price allocation including $207.0 million in goodwill and $38.8 million in customer relationships[84][85][92] - Acquired Pivot Onsite Innovations for $54.4 million on June 1, 2025, adding over 240 onsite health clinics, with preliminary allocation including $34.4 million in goodwill and $14.3 million in customer relationships[94][95][101] Pro Forma Results (Unaudited, Six Months Ended June 30, in thousands) | Pro Forma Results (Unaudited) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | | Total revenue | $1,098,450 | $1,041,382 | | Net income attributable to the Company | $90,829 | $103,762 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance for Q2 and H1 2025, highlighting strong revenue growth driven by acquisitions and organic volume, but a decline in net income due to higher costs and increased interest expense, along with liquidity and non-GAAP measures Operating Metrics The company's occupational health centers showed strong growth in the first half of 2025, with increases in total patient visits, visits per day, and revenue per visit across all service lines Key Metrics (Six Months Ended June 30) | Key Metrics (Six Months Ended June 30) | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Total Patient Visits | 6,724,688 | 6,369,910 | 5.6% | | Total VPD Volume | 52,950 | 49,765 | 6.4% | | Total Revenue per visit | $146.41 | $139.45 | 5.0% | - For the six months ended June 30, 2025, workers' compensation VPD volume increased by 5.9% and employer services VPD volume increased by 7.1% compared to the same period in 2024[138] Results of Operations For Q2 2025, revenue grew 15.2% YoY to $550.8 million, driven by acquisitions and a 9.5% increase in patient visit volume, but net income attributable to the company fell to $44.6 million from $51.7 million, impacted by higher G&A expenses and increased interest expense - Q2 2025 vs Q2 2024: Revenue increased 15.2% to $550.8 million, driven by acquisitions and a 9.5% increase in total patient visits, with revenue per visit increasing 4.4%[144][145][146] - H1 2025 vs H1 2024: Revenue increased 11.2% to $1.05 billion, driven by a 5.6% increase in patient visits and a 5.0% increase in revenue per visit[156][157][158] - General and administrative expenses rose to 9.6% of revenue in Q2 2025 from 7.7% in Q2 2024, due to acquisition costs, separation costs, and increased personnel to support operations as a standalone public company[149] - Interest expense was $28.2 million in Q2 2025, compared to interest income of $0.2 million in Q2 2024, due to new debt issued in July 2024 and March 2025 to fund operations and acquisitions[153] Liquidity and Capital Resources The company maintains a solid liquidity position with $73.9 million in cash and $342.8 million available under its revolving credit facility, despite a decrease in net working capital due to acquisition funding Cash Flow Summary (Six Months Ended June 30, in thousands) | Cash Flow Summary | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | | Net cash from operating activities | $100,078 | $115,055 | | Net cash used in investing activities | ($374,257) | ($37,615) | | Net cash from/(used in) financing activities | $164,796 | ($58,145) | - As of June 30, 2025, the company had $73.9 million in cash and $342.8 million of availability under its Revolving Credit Facility[187] - The company declared and paid two quarterly dividends of $0.0625 per share in 2025, totaling $16.0 million, with a further dividend declared on August 6, 2025[190] Non-GAAP Measures Management uses Adjusted EBITDA and Adjusted Net Income to evaluate performance, with Adjusted EBITDA increasing to $115.0 million in Q2 2025, despite a slight margin decrease, primarily due to adjustments for interest, taxes, D&A, stock compensation, and one-time separation and acquisition costs Adjusted EBITDA Reconciliation (Three Months Ended June 30, in thousands) | Adjusted EBITDA Reconciliation | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | | Net income | $46,194 | $53,059 | | Adjustments (Interest, Taxes, D&A, etc.) | $68,824 | $48,541 | | Adjusted EBITDA | $115,018 | $101,600 | | Adjusted EBITDA Margin | 20.9% | 21.3% | Adjusted Net Income Reconciliation (Three Months Ended June 30) | Adjusted Net Income Reconciliation | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net income attributable to the Company | $44,560 | $51,737 | | Adjustments (Separation/Acquisition costs, net of tax) | $3,157 | ($283) | | Adjusted Net Income | $47,717 | $51,454 | | Adjusted EPS | $0.37 | $0.49 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk from its variable-rate long-term debt, but mitigates this through derivative swap and collar contracts on $600 million of its term loan principal, with a 0.25% interest rate increase estimated to raise annual interest expense by $1.6 million on unhedged debt - The company has $947.6 million in term loan borrowings and $85.0 million in Revolving Credit Facility borrowings subject to variable interest rates indexed to Term SOFR[194][195] - To mitigate risk, the company uses derivative contracts to hedge $600 million of its term loan principal: a swap fixing the rate at 3.829% on $300 million, and a collar with a 4.500% cap and 3.001% floor on another $300 million[196][197] - Each 0.25% increase in market interest rates is estimated to increase the company's annual interest expense by $1.6 million on its variable rate debt[198] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the second quarter - The principal executive officer and principal financial officer concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective[200] - No changes occurred during the second quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[201] PART II OTHER INFORMATION This section provides additional information beyond the financial statements, including legal proceedings, risk factors, other disclosures, and a list of exhibits Item 1. Legal Proceedings This section refers to Note 12 of the financial statements for information on legal proceedings, including a California Department of Insurance investigation, lawsuits related to a third-party data breach, and a DOJ investigation into physical therapy billing - For details on legal proceedings, the report refers to the 'Litigation' section within Note 12 of the condensed consolidated financial statements[205] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 - The company reports no material changes from the risk factors previously disclosed in its 2024 Form 10-K and Q1 2025 Form 10-Q[206] Item 5. Other Information This section discloses that on May 28, 2025, trusts affiliated with Executive Chairman Robert Ortenzio entered into Rule 10b5-1 trading plans for the potential sale of up to 1.1 million shares of common stock through August 31, 2026 - On May 28, 2025, trusts affiliated with Executive Chairman Robert Ortenzio entered into Rule 10b5-1 trading plans for the potential sale of up to 1.1 million shares of common stock[210] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO as required by the Sarbanes-Oxley Act, and XBRL data files - The exhibits filed with this report include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[211]