# Concentra Group Holdings Parent, Inc. (CON) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Concentra Group Holdings Parent, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/2014596/000201459625000011/cghp-20241231.htm
Accession: 0002014596-25-000011
Filing date: 2025-03-03
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/CON/
All MD&A years: /company/CON/mda/
Next year: /company/CON/mda/fy2025/ (FY 2025)

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read this discussion together with the consolidated financial statements and related notes included elsewhere in this Annual Report.

This section of the 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between those years. For discussion of our 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Form 10-K, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s registration statement on Form S-1, as amended (File No. 333-280242) (the “Registration Statement”), filed with the Securities and Exchange Commission on July 24, 2024.

Overview

We were founded in 1979 and have grown to be the largest provider of occupational health services in the United States by number of locations. Our national presence enables us to provide access to high-quality care that supports our mission to improve the health of America’s workforce. As of December 31, 2024, we operated 552 stand-alone occupational health centers in 41 states and 157 onsite health clinics at employer worksites in 36 states. We also have expanded our reach via our telemedicine program serving 44 states and the District of Columbia. In total, we deliver services across 45 states and the District of Columbia. We had approximately 11,000 colleagues and affiliated physicians and clinicians as of December 31, 2024 who supported the delivery of an extensive suite of services, including occupational and consumer health services and other direct-to-employer care to approximately 50,000 patients each business day on average during 2024. Our patients are generally employed by our main customers - employers across the United States.

Our business is organized into three operating segments based primarily on the type or location of occupational health services provided:

•    Occupational health centers: The occupational health centers operating segment encompasses the occupational health services we deliver at our 552 occupational health center facilities across the United States. In this segment, we serve all types of employers, from Fortune 500 to small businesses.

•    Onsite health clinics: Our onsite health clinics operating segment delivers occupational health services and/or employer-sponsored primary care services at an employer’s workplace, including mobile health services and episodic specialty testing services - we deliver our services at 157 permanent on-site locations and multiple other employer locations through our episodic services. In this segment, we serve medium to large-sized employers.

•    Other businesses: Our other businesses operating segment is comprised of several complementary services to our core occupational health services offering and includes Concentra Telemed, Concentra Pharmacy and Concentra Medical Compliance Administration. In this segment, we serve all types of employers.

All three operating segments are aggregated into a single reportable segment in our consolidated financial statements based on similar services provided, service delivery process involved, target customers, and similar economic characteristics.

The following table represents the percentage of revenue by our operating segments for the periods indicated:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023","","2022"],["Occupational health centers","95","%","","95","%","","95","%"],["Onsite health clinics","3","%","","3","%","","3","%"],["Other businesses","2","%","","2","%","","2","%"]]
[[/GREPCENT_TABLE]]

Across our operating segments, we offer a diverse and comprehensive array of occupational health services, including workers’ compensation, employer services and consumer health services:

•Workers’ compensation services: include the support of workers’ compensation injury, physical rehabilitation, and specialist care.

•Employer services: consist of drug and alcohol screenings, physical examinations and evaluations, clinical testing, and preventive care, as well as direct-to-employer services that include the services described above and advanced primary care at our onsite health clinics.

•Consumer health services: consist of the support of patient-directed urgent care treatment of injuries and illnesses.

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The following table sets forth the percentage of our overall visits per day (“VPD”) volume in our occupational health center operating segment by service offering, for the periods presented:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023","","2022"],["Workers\u2019 compensation services","46","%","","44","%","","42","%"],["Employer services","52","%","","54","%","","56","%"],["Consumer health services","2","%","","2","%","","2","%"]]
[[/GREPCENT_TABLE]]

The following table sets forth the percentage of visit-related revenue in our occupational health center operating segment by service offering, for the periods presented:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023","","2022"],["Workers\u2019 compensation services","64","%","","64","%","","62","%"],["Employer services","34","%","","34","%","","36","%"],["Consumer health services","2","%","","2","%","","2","%"]]
[[/GREPCENT_TABLE]]

Significant Events

Separation Announced

On January 3, 2024, Select Medical Holdings Corporation (“Select”), our former parent company, announced its intention to separate Concentra from its business. In connection with the Separation, we entered into the Separation Agreement, as further described in the section of this annual report on Form 10-K entitled “Certain Relationships and Related Person Transactions — Agreements to be Entered into in Connection with the Separation—Separation Agreement.” We entered into various other agreements with Select and its wholly-owned subsidiaries that, together with the Separation Agreement, provide for certain transactions and arrangements to effect the separation of our business from Select. We refer to these transactions, as further described in the section of this annual report on Form 10-K entitled “The Separation and Distribution Transactions — The Separation,” collectively as the “Separation.”

Initial Public Offering and Debt Transactions

On July 26, 2024, the Company completed an Initial Public Offering (“IPO”) of 22,500,000 shares of its common stock, par value $0.01 per share, at an initial public offering price of $23.50 per share for net proceeds of $499.7 million after deducting underwriting discounts and commission of $29.1 million. In addition, the underwriters exercised the option to purchase an additional 750,000 shares of the Company’s common stock for net proceeds of $16.7 million after deducting underwriting discounts and commission of $1.0 million. The Company’s shares began trading on the New York Stock Exchange under the symbol “CON” on July 25, 2024. In connection with the IPO, Concentra Health Services, Inc. (“CHSI”), entered into certain financing arrangements which include the credit facilities of $1,250.0 million (the “Credit Facilities”) and a private offering of $650.0 million aggregate principal amount of 6.875% Senior Notes due 2032 (the “Notes”). The Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Concentra and certain of its wholly-owned subsidiaries. The Credit Facilities consist of the term loan of $850.0 million (the “Term Loan”) and the revolving credit facility of $400.0 million. The Term Loan matures on July 26, 2031, and has an interest rate of Term SOFR plus 2.25%, subject to a leverage-based pricing grid. The revolving credit facility matures on July 26, 2029, and has an interest rate of Term SOFR plus 2.50%, subject to a leverage-based pricing grid.

The net proceeds of the IPO and the debt financing transactions, except for $34.7 million, were paid to Select Medical Corporation (“SMC”) through the issuance of a dividend, the repayment in full of the $420.0 million revolving promissory note outstanding, and the repayment in full of a new promissory note issued subsequent in contemplation of the IPO.

Spin-off

On November 25, 2024, Select completed the special stock distribution consisting of an aggregate 104,093,503 shares of Concentra to Select’s stockholders. As a result, Select no longer owns any shares of Concentra common stock.

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Nova Acquisition

Effective March 1, 2025, the Company acquired Nova Medical Centers. CHSI entered into an equity purchase agreement to acquire all of the outstanding membership interests for a purchase price of $265 million, subject to adjustment in accordance with the terms and conditions set forth in the purchase agreement. We financed the transaction using a combination of $102.1 million of new debt financing under the Credit Agreement, $50.0 million of available borrowing capacity under our existing revolving credit facility, and the remaining with cash on hand.

Nova Medical Centers operates 67 occupational health centers in five states, providing workers’ compensation injury care services, physical therapy, drug and alcohol screening, and pre-employment physicals as part of their full suite of occupational health services. The acquisition will enable the Company to expand to more than 775 occupational health centers and onsite health clinics at employer worksites in 42 states.

Debt Financing

In March 2025, the Company completed an amendment to the Credit Agreement to increase our revolving credit facility by $50.0 million from $400.0 million to $450.0 million. The interest rate for the revolving credit facility has been reduced from Term SOFR plus 2.50% to Term SOFR plus 2.00%, subject to a leverage-based pricing grid. In addition, the amendment to the Credit Agreement also added new debt through an incremental term loan of $102.1 million, which provides an updated Term Loan of $950.0 million. The Term Loan interest rate has been reduced from Term SOFR plus 2.25% down to Term SOFR plus 2.00%, subject to a leverage-based pricing grid including 25-basis point step down at a net leverage ratio of ≤3.25x.

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Operating Statistics

Management utilizes specific key operating metrics to monitor trends and performance in our business and therefore may be important to investors because management may assess our performance based in part on such metrics. Other healthcare providers may present similar measures; however, these measures are susceptible to varying definitions and our key metrics may not be comparable to other similarly titled measures of other companies.

Patient Visits and VPD Volume

We monitor number of patient visits and visits per day, or VPD volume for each of our major service lines in our Occupational Health Center operating segment — workers’ compensation services, employer services, and consumer health. Management believes that the number of patient visits is the single most important indicator of the volume of services being provided in our centers. VPD volume, which is calculated as total patient visits in a given period divided by total business days for such period, allows for comparability between time periods with different number of business days. Patient visits and VPD volume include only the patients seen in our occupational health centers segment and does not include our onsite health clinics or other businesses operating segments.

Revenue Per Visit

Management also measures reimbursement rates utilizing patient revenue per visit which is calculated as total patient revenue divided by total patient visits. Revenue per visit as reported includes only the revenue and patient visits in our occupational health centers operating segment and does not include our onsite health clinics or other businesses operating segments.

The following table sets forth operating statistics for our occupational health centers operating segment for the periods presented:

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,","","% Change"],["","","2024","","2023","","2022","","2024 - 2023","","2023 - 2022"],["Number of patient visits"],["Workers\u2019 compensation","","5,794,168","","","5,668,042","","","5,312,802","","","2.2","%","","6.7","%"],["Employer services","","6,596,573","","","6,874,693","","","7,051,191","","","(4.0)","%","","(2.5)","%"],["Consumer health","","232,762","","","234,897","","","215,475","","","(0.9)","%","","9.0","%"],["Total","","12,623,503","","","12,777,632","","","12,579,468","","","(1.2)","%","","1.6","%"],["VPD Volume"],["Workers\u2019 compensation","","22,633","","","22,315","","","20,834","","","1.4","%","","7.1","%"],["Employer services","","25,768","","","27,066","","","27,652","","","(4.8)","%","","(2.1)","%"],["Consumer health","","909","","","925","","","845","","","(1.7)","%","","9.5","%"],["Total","","49,311","","","50,306","","","49,331","","","(2.0)","%","","2.0","%"],["Revenue per visit"],["Workers\u2019 compensation","","$","199.53","","","$","194.48","","","$","190.63","","","2.6","%","","2.0","%"],["Employer services","","90.36","","","86.44","","","79.78","","","4.5","%","","8.3","%"],["Consumer health","","135.41","","","132.80","","","127.68","","","2.0","%","","4.0","%"],["Total","","$","141.30","","","$","135.22","","","$","127.41","","","4.5","%","","6.1","%"],["Business days","","256","","","254","","","255"]]
[[/GREPCENT_TABLE]]

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Facility Counts

The following table sets forth facility counts for our occupational health centers and onsite health clinics operating segments for the periods presented:

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2024","","2023","","2022"],["Number of occupational health centers\u2014start of period","","544","","","540","","","518"],["Number of occupational health centers acquired","","3","","","4","","","21"],["Number of occupational health centers de novos","","6","","","3","","","4"],["Number of occupational health centers closed/sold","","(1)","","","(3)","","","(3)"],["Number of occupational health centers\u2014end of period","","552","","","544","","","540"],["Number of onsite health clinics operated\u2014end of period","","157","","","150","","","147"]]
[[/GREPCENT_TABLE]]

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Results of Operations

The following table outlines selected operating data as a percentage of revenue for the periods indicated:

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2024","","2023","","2022"],["(in thousands)","","Amount","","Percent","","Amount","","Percent","","Amount","","Percent"],["Revenue","","$","1,900,192","","","100.0","%","","$","1,838,081","","","100.0","%","","$","1,724,359","","","100.0","%"],["Costs and expenses:"],["Cost of services, exclusive of depreciation and amortization","","1,372,217","","","72.2","","","1,325,649","","","72.1","","","1,242,499","","","72.1"],["General and administrative, exclusive of depreciation and amortization","","156,318","","","8.2","","","151,999","","","8.3","","","149,976","","","8.7"],["Depreciation and amortization","","67,178","","","3.5","","","73,051","","","4.0","","","73,667","","","4.3"],["Total costs and expenses","","1,595,713","","","83.9","","","1,550,699","","","84.4","","","1,466,142","","","85.0"],["Other operating income","","284","","","\u2014","","","250","","","\u2014","","","312","","","\u2014"],["Income from operations","","304,763","","","16.0","","","287,632","","","15.6","","","258,529","","","15.0"],["Other income and expense:"],["Equity in losses of unconsolidated subsidiaries","","(3,676)","","","(0.2)","","","(526)","","","(\u2014)","","","(1,577)","","","(0.1)"],["Interest expense on related party debt","","(21,980)","","","(1.2)","","","(44,253)","","","(2.4)","","","(30,792)","","","(1.8)"],["Interest expense","","(47,714)","","","(2.5)","","","(221)","","","(\u2014)","","","(849)","","","(\u2014)"],["Other expense","","\u2014","","","\u2014","","","(2)","","","(\u2014)","","","(415)","","","(\u2014)"],["Income before income taxes","","231,393","","","12.2","","","242,630","","","13.2","","","224,896","","","13.0"],["Income tax expense","","59,496","","","3.1","","","57,887","","","3.1","","","52,653","","","3.1"],["Net income","","171,897","","","9.0","","","184,743","","","10.1","","","172,243","","","10.0"],["Less: net income attributable to non-controlling interests","","5,354","","","0.3","","","4,796","","","0.3","","","5,516","","","0.3"],["Net income attributable to the Company","","$","166,543","","","8.8","%","","$","179,947","","","9.8","%","","$","166,727","","","9.7","%"]]
[[/GREPCENT_TABLE]]

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

Revenue

Revenue increased 3.4% to $1,900.2 million for the year ended December 31, 2024, compared to $1,838.1 million for the year ended December 31, 2023, driven primarily by an increase in net revenue per visit, partially offset by a decrease in total patient VPD as described below.

Revenue per visit increased 4.5% to $141.30 for the year ended December 31, 2024, compared to $135.22 for the year ended December 31, 2023. We experienced a higher revenue per visit principally due to increases in the reimbursement rates payable pursuant to certain state fee schedules for workers’ compensation visits, as well as increases in our employer services rates, during the year ended December 31, 2024. Revenue per visit for workers’ compensation visits increased 2.6% to $199.53 from $194.48, revenue per visit for employer services visits increased 4.5% to $90.36 from $86.44 and revenue per visit for consumer health visits increased 2.0% to $135.41 from $132.80, for the year ended December 31, 2024 as compared to the year ended December 31, 2023.

Our total patient visits decreased 1.2% to 12,623,503 for the year ended December 31, 2024, compared to 12,777,632 visits for the year ended December 31, 2023. Total VPD volume decreased 2.0% to 49,311 for the year ended December 31, 2024, compared to 50,306 visits per day for the year ended December 31, 2023, mainly due to a decrease in employer services visits resulting from low attrition rates. Employer services VPD volume decreased 4.8% to 25,768 from 27,066 and consumer health VPD volume decreased 1.7% to 909 from 925, partially offset by a 1.4% increase in workers’ compensation VPD volume to 22,633 from 22,315, for the year ended December 31, 2024 as compared to the year ended December 31, 2023.

Cost of Services

Our cost of services expense includes all direct and indirect support costs related to providing services to our customers. Cost of services was $1,372.2 million, or 72.2% of revenue, for the year ended December 31, 2024, compared to $1,325.6 million, or 72.1% of revenue, for the year ended December 31, 2023. Cost of services increased 3.5% for the year ended December 31, 2024, driven by the 3.4% increase in revenue during the period.

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General and administrative

General and administrative expense includes corporate overhead such as finance, legal, human resources, marketing, headquarters and other administrative areas as well as executive compensation. Beginning in 2024, general and administrative expense also includes separation transaction costs and Nova acquisition costs. Our general and administrative expenses were $156.3 million, or 8.2% of revenue, for the year ended December 31, 2024, compared to $152.0 million, or 8.3% of revenue, for the year ended December 31, 2023.

Depreciation and Amortization

Depreciation and amortization expense was $67.2 million for the year ended December 31, 2024, or 3.5% of revenue compared to $73.1 million for the year ended December 31, 2023, or 4.0% of revenue. The decrease was due to an intangible asset fully amortizing in June 2024.

Equity in Losses of Unconsolidated Subsidiaries

For the year ended December 31, 2024, we had equity in losses of unconsolidated subsidiaries of $3.7 million, compared to $0.5 million for the year ended December 31, 2023. The increase in equity in losses was attributable to the impairment of an investment during the year ended December 31, 2024.

Interest Expense on Related Party Debt

For the year ended December 31, 2024, we had interest expense on our related party debt with Select of $22.0 million, compared to $44.3 million for the year ended December 31, 2023. The decrease in interest expense was due to the payoff of the revolving promissory note with Select during the year ended December 31, 2024.

Interest Expense

For the year ended December 31, 2024, we had interest expense of $47.7 million, compared to $0.2 million for the year ended December 31, 2023. The increase in interest expense was due to the issuance of an $850.0 million term loan and $650.0 million senior notes in July 2024, as described in Note 9—“Long-Term Debt” of the notes to our consolidated financial statements.

Income Taxes

We recorded income tax expense of $59.5 million for the year ended December 31, 2024, which represented an effective tax rate of 25.7%. We recorded income tax expense of $57.9 million for the year ended December 31, 2023, which represented an effective tax rate of 23.9%. For the year ended December 31, 2024, the increase in effective tax rate was driven primarily by an unfavorable tax rate impact associated with stock compensation, an increase in non-deductible compensation of covered employees, and an increase in the state tax rate.

Refer to Note 16—“Income Taxes” of the notes to our consolidated financial statements included herein for the reconciliations of the federal statutory income tax rate to our effective income tax rate for the years ended December 31, 2024 and December 31, 2023.

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Critical Accounting Estimates

In preparing our consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”), we must use estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures and the reported amounts of revenue and expenses. In general, our estimates are based on historical experience and various other assumptions we believe are reasonable under the circumstances. We evaluate our estimates on an ongoing basis and make changes to the estimates and related disclosures as experience develops or new information becomes known. Actual results could differ from those estimates.

We consider our critical accounting policies to be those that involve significant judgments and uncertainties, and may potentially result in materially different results under different assumptions and conditions.

Revenue Recognition and Accounts Receivable

Our principal revenue sources come from providing healthcare services to patients in the form of workers’ compensation injury and illness care and related services, healthcare services related to employer needs or statutory requirements, and consumer health services. Patient revenues are recognized at an amount equal to the consideration we expect to be entitled to in exchange for providing healthcare services to our patients. In our occupational health centers, we generally recognize revenue as healthcare services are provided and our performance obligation is generally satisfied upon completion of the patient’s visit. For our onsite health clinic operations, the performance obligation is satisfied over the period of time in which we are engaged to provide services and revenue is recognized in amounts which are commensurate with the level of resources we have provided at the onsite location.

Revenue earned from these services is variable in nature and we are required to make judgments that impact the transaction price. For each patient visit, there is an implied arrangement between us and the patient; however, the healthcare services provided are primarily paid for by employer programs and third-party payors, including workers’ compensation programs, and commercial insurance companies, on the patient’s behalf under separate contractual arrangements.

We determine the transaction price for services provided to patients based on known payment terms or usual and customary amounts associated with the specific payor or based on the service provided. Workers’ compensation laws and regulations vary by state, so the specific details of coverage and reimbursement will differ based on the location of the workplace and the laws that govern workers’ compensation in that state and may also differ based on contractual terms with the payor, third-party administrator, or employer. Most states have fee schedules pursuant to which all healthcare providers are uniformly reimbursed. The fee schedules are determined by each state and generally prescribe the maximum amounts that may be reimbursed for services rendered. In the states without fee schedules, the transaction price is determined based on UCR fees charged in the particular state in which the services are rendered. The transaction price for healthcare services related to employer needs or statutory requirements is based on either current market rates or other agreed upon pricing with the employer. Provider reimbursement for consumer health services is dependent on fee schedules derived from individually negotiated contracts with group health payors on a national, regional, or local basis. Typically, national contracts include all states, whereas regional or local contracts are state-specific. The fee schedule is either a set fee for each service or a percentage of billed charges. The Company monitors historical reimbursement rates and compares them against the associated gross charges for the service provided. The percentage of historical reimbursed claims to gross charges is utilized to determine the amount of revenue to be recognized for services rendered.

Governmental reimbursement programs, and third-party payor contracts are often complex and typically have differing billing and documentation programs that can be open to interpretation. If a payor determines we have not complied with their billing and/or documentation requirements, we may not be paid for our services or our payment may be reduced. This can create variability in the transaction price for services provided to our patients and we are required to make judgments which impact the transaction price. Variable consideration included in the transaction price is inclusive of our estimates of implicit discounts and other adjustments, such as our interpretation of reimbursement under the applicable fee schedules and third-party payor contracts, medical necessity denials, documentation denials for timely filing or lack of prior authorization, and/or instances when a patient’s insurance coverage was not verified, which are estimated using our historical experience. Management includes in its estimates of the transaction price its expectations for these types of adjustments such that the amount of cumulative revenue recognized will not be subject to significant reversal in future periods. Historically, adjustments arising from a change in the transaction price have not been material.

Our accounts receivable is reported at an amount equal to the amount we expect to collect for providing healthcare services to our patients. Because our accounts receivable is primarily paid for by highly-solvent, creditworthy payors, such as workers’ compensation programs, employer programs, third-party administrators, commercial insurance companies, and federal and state governmental authorities, our credit losses are infrequent and insignificant in nature; as such, we generally do not recognize allowances for expected credit losses.

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Goodwill

We operate three reporting units which include the occupational health centers reporting unit, the onsite health clinics reporting unit, and the other businesses reporting unit. We assign goodwill to our reporting units based upon the specific nature of the business acquired, or when a business combination contains business components related to more than one reporting unit, goodwill is assigned to each reporting unit based upon an allocation determined by the relative fair values of the business acquired. When we dispose of a business, we allocate a portion of the reporting unit’s goodwill to that business based on the relative fair values of the portion of the reporting unit being disposed of and the portion of the reporting unit remaining. We evaluate our reporting units on an annual basis, and if our reporting units are reorganized, we reassign goodwill based on the relative fair values of the new reporting units.

We have elected to perform our annual goodwill impairment assessments as of October 1. We also test goodwill for impairment when events or conditions occur that might suggest a possible impairment. These events or conditions could include a significant change in the business environment, the regulatory environment, or legal factors; a current period operating or cash flow loss combined with a history of such losses or a projection of continuing losses; or a sale or disposition of a significant portion of a reporting unit.

When performing quantitative assessments, we consider both the income and market approaches in determining the fair value. Included in the income approach are assumptions regarding revenue growth rates, future Adjusted EBITDA margin estimates, future capital expenditure requirements, the industry’s weighted average cost of capital, and industry specific, market observable implied Adjusted EBITDA multiples. We also include estimated residual values at the end of the forecast period. In establishing our assumptions, we consider current industry and market conditions; historical financial performance, including our revenue, earnings, and operating cash flow growth trends; cost factors, including the effects of inflation and rising prices; and the regulatory environment. If any one of the above assumptions or judgments used to estimate the fair value of the reporting unit fails to materialize, the resulting decline in our estimated fair value could result in an impairment charge.

When performing qualitative assessments, we apply judgement in determining the events and circumstances that most affect the fair value of the reporting unit and in evaluating the significance of those identified events and circumstances in order to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. As part of our qualitative assessments, we considered (i) the magnitude of the reporting unit’s excess fair value over its carrying amount from the most recent quantitative impairment test, (ii) industry and market conditions, including the impacts of the interest rate environment, (iii) historical financial performance, including our revenue, earnings, and operating cash flow growth trends, (iv) our forecasts of revenue, earnings, and operating cash flows, (v) cost factors, including the effects of inflation and rising prices, (vi) the regulatory environment, (vii) other factors specific to each reporting unit, such as a change in strategy, a change in management, or acquisitions and divestitures affecting the composition of the reporting unit and its future operating results, and (viii) consideration of changes in our market capitalization.

We have recorded total goodwill of $1,234.7 million at December 31, 2024, of which $1,146.8 million related to our centers reporting unit, $50.9 million related to our onsites reporting unit, and $36.9 million related to our other businesses reporting unit.

The Company completed impairment assessments as of October 1, 2024, October 1, 2023 and October 1, 2022, noting no impairment.

Insurance Risk Programs

Under a number of our insurance programs, which include our employee health insurance, workers’ compensation, and professional malpractice liability insurance programs, and certain employment-related matters, we are liable for a portion of our losses before we can attempt to recover from the applicable insurance carrier. For our occupational health center operations, we currently maintain insurance coverages under a combination of policies with a total annual aggregate limit of up to $29.0 million for professional malpractice liability and $29.0 million for general liability insurance. Our insurance for the professional liability coverage is written on a “claims-made” basis, and our commercial general liability coverage is maintained on an “occurrence” basis. These coverages apply after a self-insured retention limit of $3.0 million per medical incident or occurrence is exceeded. See “Risk Factors — Risks Related to Our Business, Industry and Operations — Significant legal actions could subject us to substantial uninsured liabilities.”

The estimate of losses includes actuarial loss projections of both known claims and incurred but not reported claims. These estimates are based on specific claim facts, claim frequency and severity, payment patterns for historical claims, and estimates of fees for outside counsel. In addition to the actuarial loss projections, insurance premiums and out-of-pocket expenses for the administration and analysis of claims are included in the estimate of losses accrued in a respective accounting period.

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We monitor these programs quarterly and revise our estimates as necessary to take into account additional information. We recorded a liability of $43.9 million and $51.9 million for our estimated losses under these insurance programs at December 31, 2024 and 2023, respectively. We also recorded insurance proceeds receivable of $2.1 million and $8.6 million at December 31, 2024 and 2023, respectively, for liabilities which exceed our deductibles and self-insured retention limits and are recoverable through our insurance policies.

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Non-GAAP Measure

We believe that the presentation of Adjusted EBITDA and Adjusted EBITDA margin, as defined herein, are important to investors because Adjusted EBITDA and Adjusted EBITDA margin are commonly used as an analytical indicator of performance by investors within the healthcare industry. Adjusted EBITDA and Adjusted EBITDA margin are used by management to evaluate financial performance of, and determine resource allocation for, each of our operating segments. However, Adjusted EBITDA and Adjusted EBITDA margin are not measures of financial performance under U.S. GAAP. Items excluded from Adjusted EBITDA and Adjusted EBITDA margin are significant components in understanding and assessing financial performance. Adjusted EBITDA and Adjusted EBITDA margin should not be considered in isolation, or as an alternative to, or substitute for, net income, net income margin, income from operations, cash flows generated by operations, investing or financing activities, or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Because Adjusted EBITDA and Adjusted EBITDA margin are not measurements determined in accordance with U.S. GAAP and are thus susceptible to varying definitions, Adjusted EBITDA and Adjusted EBITDA margin as presented may not be comparable to other similarly titled measures of other companies.

We define Adjusted EBITDA as earnings excluding interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, separation transaction costs, acquisition costs, gain (loss) on sale of businesses, and equity in earnings (losses) of unconsolidated subsidiaries. We define Adjusted EBITDA margin as Adjusted EBITDA divided by revenue. We will refer to Adjusted EBITDA and Adjusted EBITDA margin throughout the remainder of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following table reconciles net income to Adjusted EBITDA and net income margin to Adjusted EBITDA margin and should be referenced when we discuss Adjusted EBITDA, and Adjusted EBITDA margin.

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]
____________________________________________

(1)    Separation transaction costs represent incremental consulting, legal, audit-related fees, and non-recurring system implementation costs incurred in connection with the Company’s separation into a new, publicly traded company and are included within general and administrative expenses on the consolidated statements of operations.

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Liquidity and Capital Resources

Cash Flows for the Years Ended December 31, 2024, 2023, and 2022

In the following table and analysis, we discuss cash flows from operating activities, investing activities, and financing activities for the periods indicated.

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Operating activities provided $274.7 million and $234.3 million of cash flows during the years ended December 31, 2024 and 2023, respectively. The increase in cash flows from operating activities for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was principally due to an increase from the change in working capital, partially offset by a decrease in our operating income.

Investing activities used $71.3 million and $75.3 million of cash flows for the years ended December 31, 2024 and 2023, respectively. For the year ended December 31, 2024, the principal uses of cash were $64.3 million of capital expenditures for purchases of property and equipment and $7.0 million cash paid for acquisitions of businesses. For the year ended December 31, 2023, the principal uses of cash were $65.0 million for purchases of property and equipment, $6.0 million for acquisitions of businesses, and $4.4 million in acquired customer relationships.

Financing activities used $51.5 million and $165.3 million of cash flows for the years ended December 31, 2024 and 2023, respectively. For the year ended December 31, 2024, the principal uses of cash were a $1,535.7 million dividend payment to Select, $480.0 million of net repayments on our related party revolving promissory note, and $15.4 million repurchase of common stock from Select. The principal sources of cash were net proceeds from our term loans of $836.7 million, net proceeds from the issuance of our 6.875% senior notes of $637.3 million, and net proceeds from our initial public offering of $511.2 million. For the year ended December 31, 2023, the principal use of cash was $160.0 million for payments on the related party revolving promissory notes.

Capital Resources

We had net working capital of $130.0 million at December 31, 2024, compared to net working capital of $19.8 million at December 31, 2023. The increase in the net working capital surplus was principally due to an increase in our cash, which resulted from debt raised during the year and IPO proceeds we received. On March 1, 2025, we acquired Nova Medical Centers and financed the transaction using a combination of $102.1 million of new debt financing under the Credit Agreement, $50.0 million of available borrowing capacity under our existing revolving credit facility, and the remaining with cash on hand.

A significant component of our net working capital is our accounts receivable. Collection of these accounts receivable is our primary source of cash and is critical to our liquidity and capital resources. Because our accounts receivable is primarily paid for by highly-solvent, creditworthy payors, such as workers’ compensation programs, employer programs, third party administrators, commercial insurance companies, and federal and state governmental authorities, our credit losses have historically been infrequent and insignificant in nature, and we believe the possibility of credit default is remote.

Credit Facilities

On July 26, 2024, Concentra Health Services, Inc. (“CHSI”), a wholly-owned subsidiary of Concentra, entered into a senior secured credit agreement (the “Credit Agreement”) that provides for an $850.0 million term loan (the “Term Loan”), and a $400.0 million revolving credit facility, including a $75.0 million sublimit for the issuance of standby letters of credit (the “Revolving Credit Facility” and, together with the Term Loan, the “Credit Facilities”).

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Borrowings under the Credit Facilities are guaranteed by the Company and substantially all of the Company’s current domestic subsidiaries and will be guaranteed by CHSI’s future domestic subsidiaries and collateralized by substantially all of the Company’s existing and future property and assets and by a pledge of the Company’s capital stock, the capital stock of CHSI’s domestic subsidiaries and up to 65% of the capital stock of CHSI’s foreign subsidiaries held directly by CHSI or a domestic subsidiary.

Borrowings under the Credit Agreement bear interest at a rate equal to: (i) in the case of the Term Loan, Term SOFR plus a percentage ranging from 2.00% to 2.25%, or Alternate Base Rate plus a percentage ranging from 1.00% to 1.25%, in each case based on CHSI’s leverage ratio; and (ii) in the case of the Revolving Credit Facility, Term SOFR plus a percentage ranging from 2.25% to 2.75%, or Alternate Base Rate plus a percentage ranging from 1.25% to 1.75%, in each case on CHSI’s leverage ratio, as defined in the Credit Agreement. As of December 31, 2024, the Term Loan borrowings bear interest at 6.61%. The Company did not have any outstanding borrowings under its Revolving Credit Facility.

The Term Loan amortizes in equal quarterly installments in amounts equal to 0.25% of the aggregate original principal amount of the Term Loan commencing on December 31, 2024. The balance of the Term Loan will be payable on July 26, 2031. Similarly, the Revolving Credit Facility will be payable on July 26, 2029.

The Credit Facilities require CHSI to maintain a leverage ratio (as defined in the Credit Agreement), which is tested quarterly and currently must not be greater than 6.50 to 1.00. As of December 31, 2024, the Company’s leverage ratio was 3.46 to 1.00. Failure to comply with this covenant would result in an event of default under the Revolving Credit Facility and, absent a waiver or an amendment from the revolving lenders, preclude CHSI from making further borrowings under the Revolving Credit Facility and permit the revolving lenders to accelerate all outstanding borrowings under the Revolving Credit Facility. Upon termination of the commitments for the Revolving Credit Facility and acceleration of all outstanding borrowings thereunder, failure to comply with the covenant also would constitute an event of default with respect to the Term Loan.

The Credit Facilities also contain a number of other affirmative and restrictive covenants, including limitations on mergers, consolidations and dissolutions; sales of assets; investments and acquisitions; indebtedness; liens; affiliate transactions; and dividends and restricted payments. The Credit Facilities contain events of default for non-payment of principal and interest when due, cross-default and cross-acceleration provisions and an event of default that would be triggered by a change of control. As of December 31, 2024, the Company was in compliance with all debt covenants.

At December 31, 2024, the Company had outstanding borrowings under its Credit Facilities consisting of a $847.9 million Term Loan (excluding unamortized original issue discounts and debt issuance costs of $12.5 million). The Company did not have any outstanding borrowings under its Revolving Credit Facility. At December 31, 2024, the Company had $386.4 million of availability under its Revolving Credit Facility after giving effect to $13.6 million of outstanding letters of credit.

6.875% Senior Notes

On July 11, 2024, the Company completed a private offering by its wholly-owned subsidiary, Concentra Escrow Issuer Corporation (the “Escrow Issuer”), of $650.0 million aggregate principal amount of 6.875% senior notes due July 15, 2032 (the “Senior Notes”). On July 26, 2024, Escrow Issuer merged with and into CHSI, with CHSI continuing as the surviving entity, and CHSI assumed all of the Escrow Issuer’s obligations under the Senior Notes. The Senior Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company and certain of its wholly-owned subsidiaries. Interest on the Senior Notes accrues at a rate of 6.875% per annum and is payable semi-annually in cash in arrears on January 15 and July 15 of each year, commencing on January 15, 2025.

At December 31, 2024, the Company had $650.0 million of 6.875% senior notes outstanding (excluding unamortized premium and debt issuance costs of $11.9 million).

Use of Capital Resources

We intend to grow through strategic acquisitions of existing health centers as well as building new de novo centers.

Liquidity

We believe our internally generated cash flows and borrowing capacity under our Revolving Credit Facility will allow us to finance our operations in both the short and long term. As of December 31, 2024, we had cash and cash equivalents of $183.3 million and $386.4 million of availability under our Revolving Credit Facility, after giving effect to $13.6 million of outstanding letters of credit.

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Our material cash requirements from known contractual and other obligations include:

i.Debt payments, including finance lease payments – Our expected principal payments total $1,503.4 million, with $10.1 million payable within the next twelve months. We intend to refinance our long-term indebtedness before it matures. Refer to Note 9—“Long-Term Debt” of the notes to our consolidated financial statements included herein for additional information.

ii.Interest payments – Our expected interest payments on the 6.875% senior notes and Term Loan total $713.9 million, with $100.5 million payable within the next twelve months.

Interest payments for the 6.875% senior notes were calculated using the stated interest rate, and interest payments on the Term Loan were calculated using the interest rate of 6.61% as of December 31, 2024.

iii.Operating lease payments – Our expected operating lease payments total $597.4 million, with $103.3 million payable within the next twelve months. Refer to Note 5—“Leases” of the notes to our consolidated financial statements included herein for additional information.

iv.Purchase, construction, and other commitments – Our expected payments related to purchase, construction, and other obligations total $114.7 million, with $40.1 million payable within the next twelve months. Our purchase obligations primarily relate to software licensing and support agreements which specify all significant contractual terms and are legally binding and enforceable. Our construction commitments are described further in Note 17—“Commitments and Contingencies”.

v.Insurance liabilities – Our expected payments related to our insurance liabilities, including those for workers’ compensation and professional malpractice liabilities, total $43.9 million, with $19.9 million payable within the next twelve months. The amounts payable within the next twelve months are recorded in accrued other in the consolidated balance sheet as of December 31, 2024. The remaining amounts are recorded in other non-current liabilities.

vi.Other current liabilities recorded in the consolidated balance sheet as of December 31, 2024, such as accounts payable and accrued expenses, which are not specifically identified above.

We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions, tender offers or otherwise. Such repurchases or exchanges, if any, may be funded from operating cash flows or other sources and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Dividend

On February 28, 2025, the Company’s Board of Directors declared a cash dividend of $0.0625 per share. The dividend will be payable on or about April 1, 2025, to stockholders of record as of the close of business on March 18, 2025.

Effects of Inflation

The healthcare industry is labor intensive and our largest expenses are labor related costs. Wage and other expenses increase during periods of inflation and when labor shortages occur in the marketplace. We have recently experienced higher labor costs related to the current inflationary environment and competitive labor market. In addition, suppliers have passed along rising costs to us in the form of higher prices. We cannot predict our ability to pass along cost increases to our customers.

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