# Concentra Group Holdings Parent, Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Concentra Group Holdings Parent, Inc.](/companies/con.md) (CIK 2014596)
- Form: 10-Q
- Filed: 2024-11-06
- Accepted by EDGAR: Nov 6, 2024, 11:59 ET
- Period: 2024-09-30
- Accession: 0001628280-24-045543
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/2014596/000162828024045543/cghp-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/2014596/000162828024045543/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $489.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $1.44bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $86.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | $245.7m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $16.4m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $49.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $44.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $145.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.37 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $1.32 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.37 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $1.32 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 120,765,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 109,691,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $181.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $47.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-30 | $136.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $410.0m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $2.48bn | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $269.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $2.18bn | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-30 | $277.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 39,894 characters.

*You should read this discussion together with our unaudited condensed consolidated financial statements and accompanying notes.*

### Forward-Looking Statements

This report on Form 10-Q contains forward-looking statements, which do not relate strictly to historical or current facts and which reflect management’s assumptions, views, plans, objectives and projections about the future. Forward-looking statements may be identified by the use of words such as “plans,” “expects,” “will,” “anticipates,” “estimates” and other words of similar meaning in conjunction with, among other things: discussions of future operations; expected operating results and financial performance; impact of planned acquisitions and dispositions; our strategy for growth; product development activities; regulatory approvals; market position; market size and opportunity; expenditures; and the effects of the separation and the distribution, if pursued, on our business.

Because forward-looking statements are based on current beliefs, expectations and assumptions regarding future events, they are subject to risks, uncertainties and changes that are difficult to predict and many of which are outside of our control. You should realize that if underlying assumptions prove inaccurate, or known or unknown risks or uncertainties materialize, our actual results and financial condition could vary materially from expectations and projections expressed or implied in our forward-looking statements. You are therefore cautioned not to rely on these forward-looking statements. Risks and uncertainties include:

- The frequency of work-related injuries and illnesses;
- The adverse changes to our relationships with employer customers, third-party payors, workers’ compensation provider networks or employer services networks;
- Changes to regulations, new interpretations of existing regulations, or violations of regulations;
- State fee schedule changes undertaken by state workers’ compensation boards or commissions and other third-party payors;
- Our ability to realize reimbursement increases at rates sufficient to keep pace with the inflation of our costs;
- Labor shortages, increased employee turnover or costs, and union activity could significantly increase our operating costs;
- Our ability to compete effectively with other occupational health centers, onsite health clinics at employer worksites, and healthcare providers;
- A security breach of our, or our third-party vendors’, information technology systems which may cause a violation of HIPAA and subject us to potential legal and reputational harm;
- Negative publicity which can result in increased governmental and regulatory scrutiny and possibly adverse regulatory changes;
- Litigation and other legal and regulatory proceedings in the course of our business that could adversely affect our business and financial statements and the effects of claims asserted against us could subject us to substantial uninsured liabilities;
- Acquisitions may use significant resources, may be unsuccessful, and could expose us to unforeseen liabilities;
- Our exposure to additional risk due to our reliance on third parties in many aspects of our business;
- Compliance with applicable laws regarding the corporate practice of medicine and therapy and fee-splitting;
- Our facilities are subject to extensive federal and state laws and regulations relating to the privacy of individually identifiable information;
- Compliance with applicable data interoperability and information blocking rule;
- Facility licensure requirements in some states are costly and time-consuming, limiting or delaying our operations;
- Our ability to adequately protect and enforce our intellectual property and other proprietary rights;
- Adverse economic conditions in the U.S. or globally;
- Any negative impact on the global economy and capital markets resulting from other geopolitical tensions;
- Our ability to maintain satisfactory credit ratings;
- The inability to execute on the separation from Select Medical;
- The risk of disruption or unanticipated costs in connection with the separation;
- Our ability to succeed as a standalone publicly traded entity;
- Restrictions on our business, potential tax and indemnification liabilities and substantial charges in connection with the separation, the distribution and related transactions;
- The negative impact of public threats such as a global pandemic or widespread outbreak of an infectious disease similar to the COVID-19 pandemic;
- The loss of key members of our management team and our ability to attract and retain talented, highly skilled employees and a diverse workforce, and on the succession of our senior management; and
- Changes in tax laws or exposures to additional tax liabilities.

You should also carefully read the risk factors and assumptions underlying forward-looking statements described in sections of our Registration Statement, entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” for a description of certain risks that could, among other things, cause our actual results to differ materially from those expressed or implied in our forward-looking statements. You should understand that it is not possible to predict or identify all such factors and you should not consider the risks described above to be a complete statement of all potential risks and uncertainties. We do not undertake to publicly update any forward-looking statement that may be made from time to time, whether as a result of new information or future events or developments, except as required by law.

### 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 September 30, 2024, we operated 549 stand-alone occupational health centers in 41 states and 156 onsite health clinics at employer worksites in 36 states. We also have expanded our reach via our telemedicine program serving 43 states and the District of Columbia. In total, we deliver services across 45 states and the District of Columbia. 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: Our Occupational Health Centers operating segment encompasses the occupational health services we deliver at our 549 health center facilities across the United States. In this operating segment, we serve all types of employers, from Fortune 500 to small businesses. The occupational health services provided in this operating segment include Workers’ Compensation and Employer Services and we also provide Consumer Health services.
- 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 156 on-site locations. In this operating 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 operating segment, we serve all types of employers.

All three operating segments are aggregated into a single reportable segment in our condensed consolidated financial statements based on similar services provided, service delivery process involved, target customers, and similar economic characteristics. The percentage of revenue for each of the three and nine months ended September 30, 2024 and 2023, of our Occupational Health Centers, Onsite Health Clinics and Other Businesses segments are represented as follows:

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Occupational Health Centers | 95% | 95% | 95% | 95% |
| Onsite Health Clinics | 3% | 3% | 3% | 3% |
| Other Businesses | 2% | 2% | 2% | 2% |

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

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:

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Workers’ compensation services | 45% | 44% | 45% | 44% |
| Employer services | 53% | 54% | 53% | 54% |
| Consumer health services | 2% | 2% | 2% | 2% |

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:

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Workers’ compensation services | 65% | 64% | 64% | 63% |
| Employer services | 33% | 34% | 34% | 35% |
| Consumer health services | 2% | 2% | 2% | 2% |

### Initial Public Offering and Debt Transactions

On July 26, 2024, the Company completed an 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 Concentra credit facilities of $1,250.0 million and a private offering of $650.0 million aggregate principal amount of 6.875% Senior Notes due 2032. The Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Concentra and certain of its wholly-owned subsidiaries. The Concentra credit facilities consist of the Concentra term loan of $850.0 million and the Concentra revolving credit facility of $400.0 million. The Concentra revolving credit facility was undrawn at the closing of the IPO. The Concentra 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 Concentra 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 (“Select”) 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.

### Regulatory Changes

Our Registration Statement contains a detailed discussion of the regulations that affect our business in the “Government Regulations” section.

### Operating Metrics

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 Visits Per Day Volume

We monitor the number of patient visits per day (“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 a critical 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 operating 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:

| Number of patient visits | Three Months Ended September 30, 2024 |  | 2023 | % Change | Nine Months Ended September 30, 2024 | 2023 |  | % Change |
| --- | ---: | --- | ---: | ---: | ---: | ---: | --- | ---: |
| Workers’ Compensation | 1,476,486 |  | 1,451,115 | 1.7% | 4,364,824 | 4,276,717 |  | 2.1% |
| Employer Services | 1,728,720 |  | 1,775,181 | (2.6)% | 5,090,410 | 5,316,724 |  | (4.3)% |
| Consumer Health | 53,399 |  | 54,746 | (2.5)% | 173,281 | 173,440 |  | (0.1)% |
| Total | 3,258,605 |  | 3,281,042 | (0.7)% | 9,628,515 | 9,766,881 |  | (1.4)% |
| **VPD Volume** |  |  |  |  |  |  |  |  |
| Workers’ Compensation | 23,070 |  | 23,034 | 0.2% | 22,733 | 22,391 |  | 1.5% |
| Employer Services | 27,011 |  | 28,177 | (4.1)% | 26,513 | 27,836 |  | (4.8)% |
| Consumer Health | 834 |  | 869 | (4.0)% | 903 | 908 |  | (0.6)% |
| Total | 50,916 | (a) | 52,080 | (2.2)% | 50,149 | 51,136 | (a) | (1.9)% |
| **Revenue per visit** |  |  |  |  |  |  |  |  |
| Workers’ Compensation | $202.29 |  | $197.05 | 2.7% | $198.62 | $194.74 |  | 2.0% |
| Employer Services | 89.55 |  | 86.45 | 3.6% | 90.14 | 86.30 |  | 4.4% |
| Consumer Health | 137.30 |  | 130.82 | 5.0% | 134.62 | 133.47 |  | 0.9% |
| Total | $141.42 |  | $136.11 | 3.9% | $140.12 | $134.62 |  | 4.1% |
| Business Days | 64 |  | 63 |  | 192 | 191 |  |  |

(a) Does not total due to rounding.

### Facility Counts

The following table sets forth facility counts for our Occupational Health Centers and Onsite Health Clinics operating segments for the periods presented:

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Number of occupational health centers—start of period | 547 | 540 | 544 | 540 |
| Number of occupational health centers acquired | 1 | — | 3 | 1 |
| Number of occupational health centers de novos | 1 | — | 3 | — |
| Number of occupational health centers closed/sold | — | (1) | (1) | (2) |
| Number of occupational health centers—end of period | 549 | 539 | 549 | 539 |
| Number of onsite health clinics operated—end of period | 156 | 145 | 156 | 145 |

22

### Results of Operations

The following table sets forth our consolidated results of operations, including as a percentage of revenue, for the periods indicated (in thousands):

|  | Three Months Ended September 30, 2024 Amount | Percent | 2023 Amount | Percent |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $489,638 | 100.0% | $473,964 | 100.0% |
| Costs and expenses: |  |  |  |  |
| Cost of services, exclusive of depreciation and amortization | 351,103 | 71.7 | 336,812 | 71.1 |
| General and administrative, exclusive of depreciation and amortization | 37,088 | 7.6 | 38,245 | 8.1 |
| Depreciation and amortization | 15,213 | 3.1 | 17,959 | 3.7 |
| Total costs and expenses | 403,404 | 82.4 | 393,016 | 82.9 |
| Income from operations | 86,234 | 17.6 | 80,948 | 17.1 |
| Other income and expense: |  |  |  |  |
| Interest expense on related party debt | (2,691) | (0.5) | (11,255) | (2.4) |
| Interest expense | (21,369) | (4.4) | (64) | (0.0) |
| Income before income taxes | 62,174 | 12.7 | 69,629 | 14.7 |
| Income tax expense | 16,415 | 3.4 | 15,205 | 3.2 |
| Net income | 45,759 | 9.3 | 54,424 | 11.5 |
| Less: Net income attributable to non-controlling interests | 1,421 | 0.3 | 1,318 | 0.3 |
| Net income attributable to the Company | 44,338 | 9.1% | 53,106 | 11.2% |

|  | Nine Months Ended September 30, 2024 Amount | Percent | 2023 Amount | Percent |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $1,435,151 | 100.0% | $1,397,341 | 100.0% |
| Costs and expenses: |  |  |  |  |
| Cost of services, exclusive of depreciation and amortization | 1,027,366 | 71.6 | 994,726 | 71.2 |
| General and administrative, exclusive of depreciation and amortization | 110,825 | 7.7 | 109,898 | 7.9 |
| Depreciation and amortization | 51,568 | 3.6 | 54,552 | 3.8 |
| Total costs and expenses | 1,189,759 | 82.9 | 1,159,176 | 82.9 |
| Other operating income | 284 | 0.0 | 151 | 0.0 |
| Income from operations | 245,676 | 17.1 | 238,316 | 17.1 |
| Other income and expense: |  |  |  |  |
| Equity in losses of unconsolidated subsidiaries | (3,676) | (0.3) | (526) | (0.0) |
| Interest expense on related party debt | (21,980) | (1.5) | (33,831) | (2.5) |
| Interest expense | (21,275) | (1.5) | (108) | (0.0) |
| Income before income taxes | 198,745 | 13.8 | 203,851 | 14.6 |
| Income tax expense | 49,648 | 3.4 | 47,964 | 3.4 |
| Net income | 149,097 | 10.4 | 155,887 | 11.2 |
| Less: Net income attributable to non-controlling interests | 4,066 | 0.3 | 3,775 | 0.3 |
| Net income attributable to the Company | 145,031 | 10.1% | 152,112 | 10.9% |

23

### Three Months Ended September 30, 2024, Compared to Three Months Ended September 30, 2023

### Revenue

Revenue increased 3.3% to $489.6 million for the three months ended September 30, 2024, compared to $474.0 million for the three months ended September 30, 2023, driven primarily by the increase in revenue per visit, as described below.

Our patient visits were 3,258,605 for the three months ended September 30, 2024, compared to 3,281,042 visits for the three months ended September 30, 2023. Total VPD volume was 50,916 for the three months ended September 30, 2024, compared to 52,080 for the three months ended September 30, 2023. Workers’ compensation VPD volume increased 0.2% to 23,070 from 23,034, employer services VPD volume decreased 4.1% to 27,011 from 28,177, and consumer health VPD volume decreased 4.0% to 834 from 869, for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Revenue per visit increased 3.9% to $141.42 for the three months ended September 30, 2024, compared to $136.11 for the three months ended September 30, 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, increases in our employer services rates, and a favorable mix of visit types by service line for the three months ended September 30, 2024. Revenue per visit for workers’ compensation visits increased 2.7% to $202.29 from $197.05, revenue per visit for employer services visits increased 3.6% to $89.55 from $86.45 and revenue per visit for consumer health visits increased by 5.0% to $137.30 from $130.82, for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

### Cost of Services, Exclusive of Depreciation and Amortization

Our cost of services expense includes all direct and indirect support costs related to providing services to our customers. Cost of services was $351.1 million, or 71.7% of revenue, for the three months ended September 30, 2024, compared to $336.8 million, or 71.1% of revenue, for the three months ended September 30, 2023.

### General and Administrative, Exclusive of Depreciation and Amortization

General and administrative expense includes corporate overhead such as finance, legal, human resources, marketing, facilities, and other administrative areas as well as executive compensation. Our general and administrative expenses were $37.1 million, or 7.6% of revenue, for the three months ended September 30, 2024, compared to $38.2 million, or 8.1% of revenue, for the three months ended September 30, 2023.

### Depreciation and Amortization

Depreciation and amortization expense was $15.2 million for the three months ended September 30, 2024, compared to $18.0 million for the three months ended September 30, 2023.

### Interest Expense on Related Party Debt

For the three months ended September 30, 2024, we had interest expense on our related party debt with Select of $2.7 million, compared to $11.3 million for the three months ended September 30, 2023. The decrease in interest expense is due to the payoff of the revolving promissory note with Select during the three months ended September 30, 2024, as discussed further in Note 1, *Organization.*

### Interest Expense

For the three months ended September 30, 2024, we had interest expense of $21.4 million, compared to $0.1 million for the three months ended September 30, 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 6, *Long-Term Debt.*

### Income Taxes

We recorded income tax expense of $16.4 million for the three months ended September 30, 2024, which represented an effective tax rate of 26.4%. We recorded income tax expense of $15.2 million for the three months ended September 30, 2023, which represented an effective tax rate of 21.8%. Our income tax expense is computed based on annual estimates which we allocate throughout the year based on our income. This intra-period tax allocation may cause our effective tax rate to reflect variances when compared to the prior year as estimates of our annual income and the components of our income tax expense change throughout the year.

### Nine Months Ended September 30, 2024, Compared to Nine Months Ended September 30, 2023

### Revenue

Revenue increased 2.7% to $1,435.2 million for the nine months ended September 30, 2024, compared to $1,397.3 million for the nine months ended September 30, 2023, driven primarily by the increase in revenue per visit, as described below.

Our patient visits were 9,628,515 for the nine months ended September 30, 2024, compared to 9,766,881 visits for the nine months ended September 30, 2023. Total VPD volume was 50,149 for the nine months ended September 30, 2024, compared to 51,136 for the nine months ended September 30, 2023. Workers’ compensation VPD volume increased 1.5% to 22,733 from 22,391, employer services VPD volume decreased 4.8% to 26,513 from 27,836, and consumer health VPD volume decreased 0.6% to 903 from 908, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

Revenue per visit increased 4.1% to $140.12 for the nine months ended September 30, 2024, compared to $134.62 for the nine months ended September 30, 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, increases in our employer services rates, and a favorable mix of visit types by service line for the nine months ended September 30, 2024. Revenue per visit for workers’ compensation visits increased 2.0% to $198.62 from $194.74, revenue per visit for employer services visits increased 4.4% to $90.14 from $86.30 and revenue per visit for consumer health visits increased by 0.9% to $134.62 from $133.47, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

### Cost of Services, Exclusive of Depreciation and Amortization

Our cost of services expense includes all direct and indirect support costs related to providing services to our customers. Cost of services was $1,027.4 million, or 71.6% of revenue, for the nine months ended September 30, 2024, compared to $994.7 million, or 71.2% of revenue, for the nine months ended September 30, 2023.

### General and Administrative, Exclusive of Depreciation and Amortization

General and administrative expense includes corporate overhead such as finance, legal, human resources, marketing, facilities, and other administrative areas as well as executive compensation. Our general and administrative expenses were $110.8 million, or 7.7% of revenue, for the nine months ended September 30, 2024, compared to $109.9 million, or 7.9% of revenue, for the nine months ended September 30, 2023.

### Depreciation and Amortization

Depreciation and amortization expense was $51.6 million for the nine months ended September 30, 2024, compared to $54.6 million for the nine months ended September 30, 2023.

### Other Operating Income

For the nine months ended September 30, 2024, we had other operating income of $0.3 million, compared to $0.2 million for the nine months ended September 30, 2023.

### Equity in Losses of Unconsolidated Subsidiaries

For the nine months ended September 30, 2024, we had equity in losses of unconsolidated subsidiaries of $3.7 million, compared to $0.5 million for the nine months ended September 30, 2023. The increase in equity in losses is attributable to the impairment of an investment during the nine months ended September 30, 2024.

### Interest Expense on Related Party Debt

For the nine months ended September 30, 2024, we had interest expense on our related party debt with Select of $22.0 million, compared to $33.8 million for the nine months ended September 30, 2023. The decrease in interest expense is due to the payoff of the revolving promissory note with Select during the nine months ended September 30, 2024, as discussed further in Note 1, *Organization.*

### Interest Expense

For the nine months ended September 30, 2024, we had interest expense of $21.3 million, compared to $0.1 million for the nine months ended September 30, 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 6, *Long-Term Debt.*

### Income Taxes

We recorded income tax expense of $49.6 million for the nine months ended September 30, 2024, which represented an effective tax rate of 25.0%. We recorded income tax expense of $48.0 million for the nine months ended September 30, 2023, which represented an effective tax rate of 23.5%.

### Non-GAAP Information

We believe that the presentation of Adjusted EBITDA and Adjusted EBITDA margin, as defined below, 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, 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.

*(in thousands, except for percentages)*

| Reconciliation of Adjusted EBITDA | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net income | $45,759 | $54,424 | $149,097 | $155,887 |
| Income tax expense | 16,415 | 15,205 | 49,648 | 47,964 |
| Interest expense | 21,369 | 64 | 21,275 | 108 |
| Interest expense on related party debt | 2,691 | 11,255 | 21,980 | 33,831 |
| Equity in losses of unconsolidated subsidiaries | — | — | 3,676 | 526 |
| Stock compensation expense | 168 | — | 500 | 178 |
| Depreciation and amortization | 15,213 | 17,959 | 51,568 | 54,552 |
| Separation transaction costs (a) | (44) | — | 1,569 | — |
| **Adjusted EBITDA** | $101,571 | $98,907 | $299,313 | $293,046 |
| Adjusted EBITDA margin | 20.7% | 20.9% | 20.9% | 21.0% |
| Net income margin | 9.3% | 11.5% | 10.4% | 11.2% |

(a) Separation transaction costs represent incremental consulting, legal, and audit-related fees incurred in connection with the Company’s planned separation into a new, publicly traded company and are included within general and administrative expenses on the Condensed Consolidated Statements of Operations.

### Liquidity and Capital Resources

### Cash Flows for the Nine Months Ended September 30, 2024 and Nine Months Ended September 30, 2023

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

*(in thousands)*

|  | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $180,963 | $158,138 |
| Net cash used in investing activities | (54,579) | (47,125) |
| Net cash used in financing activities | (20,936) | (124,990) |
| Net increase (decrease) in cash | 105,448 | (13,977) |
| Cash at beginning of period | 31,374 | 37,657 |
| Cash at end of period | $136,822 | $23,680 |

Operating activities provided $181.0 million and $158.1 million of cash flows during the nine months ended September 30, 2024 and 2023, respectively. The increase in cash flows from operating activities for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, resulted from increased collections on our accounts receivable.

Investing activities used $54.6 million and $47.1 million of cash flows for the nine months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024, the principal uses of cash were $47.6 million for purchases of property and equipment and $7.0 million for acquisitions of businesses. For the nine months ended September 30, 2023, the principal uses of cash were $41.3 million for purchases of property and equipment and $4.4 million for purchases of customer relationships.

Financing activities used $20.9 million and $125.0 million of cash flows for the nine months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024, the principal uses of cash were a $1,535.7 million dividend payment to Select and $470.0 million of net repayments on our related party revolving promissory note. 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 nine months ended September 30, 2023, the principal uses of cash were $120.0 million in payments on the related party revolving promissory note, principal payments on other debt of $5.8 million, and distributions to and purchases of non-controlling interests of $4.5 million, partially offset by $5.5 million in borrowings of other debt.

### Capital Resources

We had net working capital of $140.4 million at September 30, 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 increases in our cash and accounts receivable.

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, CHSI entered into the Concentra credit agreement that provides for an $850.0 million term loan, and a $400.0 million revolving credit facility, including a $75.0 million sublimit for the issuance of standby letters of credit.

Borrowings under the Concentra credit agreement bear interest at a rate equal to: (i) in the case of the Concentra 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 Concentra 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 Concentra credit agreement.

The Concentra term loan amortizes in equal quarterly installments in amounts equal to 0.25% of the aggregate original principal amount of the Concentra term loan commencing on December 31, 2024. The balance of the Concentra term loan will be payable on July 26, 2031. The Concentra revolving credit facility will mature on July 26, 2029.

The Concentra credit facilities require CHSI to maintain a leverage ratio (as defined in the Concentra credit agreement), which is tested quarterly and currently must not be greater than 6.50 to 1.00. Failure to comply with this covenant would result in an event of default under the Concentra revolving credit facility, absent a waiver or amendment from the lenders. CHSI will be required to prepay borrowings under the Concentra credit facilities upon cash proceeds from asset sales or dispositions, issuance of additional debt obligations, and excess cash flows, further outlined in the credit agreement.

At September 30, 2024, the Company had outstanding borrowings under its term loan of $850.0 million (excluding unamortized original issue discounts and debt issuance costs of $13.0 million). The Company did not have any outstanding borrowings under its revolving facility. At September 30, 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, the Escrow Issuer, of $650.0 million aggregate principal amount of 6.875% senior notes due July 15, 2032. 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 Concentra 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 Concentra 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.

#### Use of Capital Resources

From time to time we intend to pursue continued organic growth within our existing occupational health centers and onsite health clinics at employer worksites and to take advantage of opportunities to continue to grow our footprint and base of customers via strategic acquisitions and the opening of new centers in key areas. Such strategic acquisitions may be funded from operating cash flows, borrowing capacity under our revolving credit facility or other sources.

### Liquidity

We believe our internally generated cash flows and borrowing capacity under our revolving facility will allow us to finance our operations in both the short and long term. As of September 30, 2024, we had cash of $136.8 million and $386.4 million of availability under the revolving facility after giving effect to $13.6 million of outstanding letters of credit.

During the third quarter of 2024, the net proceeds of the IPO and the debt financing transactions, except for $34.7 million, were paid to Select through the issuance of a dividend and the repayment of promissory notes.

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 October 28, 2024, the Company’s Board of Directors declared a cash dividend of $0.0625 per share. The dividend will be payable November 22, 2024, to stockholders of record as of the close of business on November 13, 2024.

There is no assurance that future dividends will be declared. The declaration and payment of dividends in the future are at the discretion of the Company’s Board of Directors after taking into account various factors, including, but not limited to, the Company’s financial condition, operating results, available cash and current and anticipated cash needs, the terms of the Company’s indebtedness, and other factors the Company’s Board of Directors may deem to be relevant.

### Recent Accounting Pronouncements

Refer to Note 2 – Accounting Policies of the notes to our condensed consolidated financial statements included herein for information regarding recent accounting pronouncements.

## Market risk

As filed, 1,659 characters.

### Inflation Risk

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. To help mitigate the inflationary pressures on our business, we have implemented compensation strategies, selective price increases in certain markets, supply chain optimization initiatives and carefully monitor labor costs in our day-to-day operations. However, if our costs continue to be subject to significant inflationary pressures, we may not be able to offset such higher costs through price increases, which could adversely affect our business, results of operations, or financial condition.

### Interest Rate Risk

We are subject to interest rate risk in connection with our variable rate long-term indebtedness. Our principal interest rate exposure relates to the loans outstanding under our credit facilities, which bear interest rates that are indexed against Term SOFR. At September 30, 2024, we had outstanding borrowings under our credit facilities consisting of an $850.0 million term loan (excluding unamortized original issue discounts and debt issuance costs of $13.0 million). We had no outstanding borrowings under our revolving facility.

At September 30, 2024, each 0.25% increase in market interest rates will impact the annual interest expense on our variable rate debt by $2.1 million per year.

## Controls and procedures

As filed, 1,931 characters.

### Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered in this report. Based on this evaluation, as of September 30, 2024, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures, including the accumulation and communication of disclosure to our principal executive officer and principal financial officer as appropriate to allow timely decisions regarding disclosure, are effective to provide reasonable assurance that material information required to be included in our periodic SEC reports is recorded, processed, summarized, and reported within the time periods specified in the relevant SEC rules and forms.

### Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) identified in connection with the evaluation required by Rule 13a-15(d) of the Securities Exchange Act of 1934 that occurred during the third quarter ended September 30, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

### Inherent Limitations on Effectiveness of Controls

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Filed Nov 6, 2024.
Source: SEC EDGAR, the filing index for accession 0001628280-24-045543. Last ingested by Listed: Nov 5, 2026, 20:57 ET. No prices; not investment advice.