Concentra Group Holdings Parent - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue and EPS modestly beat consensus; management raised FY 2025 revenue and EBITDA guidance on stronger volumes, pricing, and M&A contributions. Revenue was $500.8M (+7.1% YoY), Adjusted EPS $0.32, and Adjusted EBITDA $102.7M (20.5% margin). Versus S&P consensus: revenue $496.1M*, EPS $0.316* (both beats).
• Visit growth inflected positively in Employer Services (+3.9% per day; +0.9% organic excluding Nova), while Workers’ Comp continued to grow (+2.4% per day), and revenue per visit rose 5.6% on broad fee schedule/pricing gains.
• FY 2025 guidance raised: revenue to $2.10–$2.15B (from ~$2.10B) and Adjusted EBITDA to $415–$430M (from $410–$425M); capex and net leverage outlook maintained (capex $80–$90M; net leverage ~3.5x).
• Strategic catalysts: Nova acquisition closed (Mar 1), Pivot Onsite Innovations signed (expected Q2 close), three de novos launched; quarterly dividend of $0.0625/share maintained.
• Net income declined YoY to $40.6M (from $50.3M) due to higher interest expense post-IPO recap; cash from operations was seasonally softer ($11.7M) on higher interest payments and typical Q1 timing.

What Went Well and What Went Wrong

• What Went Well

  • Employer Services volumes turned positive YoY (+3.9% per day; +0.9% organic), breaking a multi-quarter decline; management emphasized multi-channel sales/marketing and improving labor market dynamics as drivers.
  • Strong pricing/rate execution lifted revenue per visit +5.6% (Workers’ Comp +7.1%, Employer Services +3.9%), aided by fee schedule updates including Florida and annual employer pricing actions.
  • Corporate development momentum: closed Nova (+67 centers), signed Pivot (~200 clinics), launched 3 de novos, executed debt repricing/upsizing; management ahead on synergy capture and tracking above forecast at Nova.

• What Went Wrong

  • Net income fell YoY (to $40.6M from $50.3M) on higher interest expense from the IPO recapitalization; adjusted EPS also down YoY ($0.32 vs $0.49).
  • Cash from operations fell to $11.7M (vs $44.6M YoY) due to a ~$28.2M increase in interest payments and normal Q1 cash timing (bonus payouts, semiannual bond interest).
  • G&A as % of revenue rose YoY (9.3% vs 7.9%), partly due to prior-year favorable out-of-period reversal and added stand-alone public company support FTEs.

Transcript

Operator (participant)

Good morning, and thank you for joining us today for Concentra Group Holdings Parent Incorporated Earnings Conference Call to discuss the first quarter 2025 results. Speaking today are the company's Chief Executive Officer, Keith Newton, and the company's President and Chief Financial Officer, Matt DiCanio. Management will provide an overview and then open the call for questions. Before we get started, we would like to remind you that this conference call may contain forward-looking statements regarding future events or the future financial performance of the company, including, without limitation, statements regarding operating results, growth opportunities, and other statements that refer to Concentra's plans, expectations, strategies, intentions, and beliefs. These forward-looking statements are based on the information available to management of Concentra today, and the company assumes no obligation to update these statements as circumstances change. At this time, I will turn the conference over to Mr. Keith Newton.

Sir, the floor is yours.

Keith Newton (CEO)

Thanks, Operator. Good morning, everyone. Welcome to Concentra's First Quarter 2025 Earnings Call. We had a very successful first quarter to start the year. Today, we'll talk about three key trends we saw in our business. First, solid visit growth, including a positive reversal in our employer services visits. Secondly, strong rate growth. Finally, significant corporate development activity. We have always referred to these as our key growth drivers, and this quarter all were nicely trending together. One thing to note, given that the Nova Medical Centers acquisition closed on March 1, 2025, and thus we are only reflecting one month of its results in the first quarter, we will talk about some of our results this quarter with and without Nova so investors and analysts can understand both.

First, from a visit perspective, patient visits in Q1 2025 were up across all service lines year over year, with total visits per day increasing 3.2% to 50.9 thousand. Excluding the impact from the acquisition of Nova in early March, total visits per day increased 0.6% to 49.6 thousand. We continue to see year-over-year growth in workers' compensation volume, with total visits per day increasing 2.4% over the first quarter of 2024. Excluding Nova, daily workers' compensation visits increased 0.2%. Importantly, on the employer services side, we are pleased to report that we saw year-over-year daily visit growth for the quarter. Employer services volume increased 3.9% per day relative to the first quarter of 2024. Even when excluding Nova, employer services volume increased 0.9% per day.

This marks a pretty significant turnaround in our employer services visits following many consecutive quarters of year-over-year mid-single-digit declines coming out of the post-COVID normalization. From a rate standpoint, we had another strong quarter with a 5.6% increase in revenue per visit in Q1 2025 compared to the same quarter prior year. The growth was driven by increases in both workers' compensation and employer services revenue per visit. Lastly, I will let Matt talk more about our corporate development efforts, but it has been a highly successful few months with the closing of our Nova acquisition on March 1st, the addition of five new centers in Florida from our Physician Health Center acquisition on March 8th, the opening of three de novo sites in Q1, and the signing of the Pivot OnSite acquisition that we announced on April 21st.

In total, these efforts will add 75 new occupational health centers and approximately 200 onsite health clinics. This is our most active stretch of M&A in quite some time. With the three growth drivers all moving in the same direction, and despite one less revenue day in the quarter versus prior year, we achieved strong financial results for Q1. Revenue was $500.8 million for the three months ended March 31, 2025, compared to $467.6 million for the three months ended March 31, 2024, representing 7.1% growth year-over-year. This represents a revenue growth rate of 8.9% year-over-year on a revenue per day basis. Adjusted EBITDA was $102.7 million in the first quarter of 2025 versus $96.1 million in the first quarter of 2024, or a 6.8% increase. Adjusted EBITDA margin decreased slightly from 20.6% in Q1 2024 to 20.5% in Q1 2025.

Matt will provide more details shortly, but once you normalize Q1 2024 for a favorable out-of-period expense reversal, we would have experienced positive year-over-year growth in adjusted EBITDA margin. Net income was $40.6 million, and adjusted earnings per share were $0.32 for the first quarter of 2025. Net income was lower than same quarter prior year, primarily due to an increase in interest expense resulting from the IPO recapitalization. We had some transaction expenses related to the Nova acquisition and related financing events that were accounted for as adjustments to earnings per share. Overall, the Nova acquisition contributed to our strong performance in the month of March, but our core business also performed very well. Just to reiterate, positive workers' compensation visit growth, positive employer services visit growth, strong rate growth for all visit types, and successful M&A. A nice recipe for success with our business.

Later in the call, we will discuss our revised financial outlook for 2025, which we are raising from our initial outlook provided in January of 2025. We'll also comment on the expected impact of potential tariffs on our business and why we think we are well-positioned as a company in the event of macroeconomic turbulence. Now, I'll turn it over to Matt to provide some more detail on our financial results and additional commentary on our corporate development efforts.

Matt DiCanio (President and CFO)

Thanks, Keith, and good morning, everyone. I'll start by adding some additional commentary on the financials, and then we'll talk more about the exciting growth efforts. In our occupational health center operating segment, the following numbers are inclusive of the Nova acquisition. Total revenue of $472.9 million in Q1 2025 was 7.2% higher than the same quarter prior year. With one less revenue day as compared to the prior year, this constitutes an 8.9% year-over-year increase on a revenue per day basis. Total visits per day increased 3.2% over the same quarter prior year, and revenue per visit increased 5.6% from $139 in Q1 2024 to $147 in Q1 2025. Workers' compensation revenue of $302.1 million in Q1 2025 was 8% higher than prior year. This constitutes a 9.7% increase on a revenue per day basis.

Work comp visits per day increased 2.4% from prior year, and work comp revenue per visit increased 7.1% versus prior year. Excluding the Florida work comp rate increase, our work comp revenue per visit would have increased by approximately 5%. Within employer services, revenue of $160.1 million in Q1 2025 increased 6.2% from prior year. This constitutes a 7.9% increase on a revenue per day basis. Employer services visits per day increased 3.9% from prior year, a welcome reversal of negative year-over-year trends in recent quarters. Employer services revenue per visit increased 3.9% versus prior year. Given the partial quarter contribution of Nova to the financial results, I'm also going to provide a few metrics excluding the impact of the Nova acquisition.

Excluding the impact of Nova, total revenue within the occupational health center operating segment, which excludes the onsite health clinics and other businesses, was $461.7 million, a 4.7% increase over the prior year. This constitutes a 6.3% year-over-year increase on a revenue per day basis. Total visits per day increased 0.6% over the same quarter prior year, and revenue per visit increased 5.8% from $139 in Q1 2024 to $147 in Q1 2025. Work comp visits per day were 0.2% higher than prior year, and work comp revenue per visit was 7% higher than prior year. Employer services visits per day were 0.9% higher than prior year, and employer services revenue per visit was 4% higher than prior year.

Moving on from our occupational health centers, our onsite health clinic segment reported revenue of $16.6 million in Q1 2025, a 4.4% increase from the same quarter prior year, and our other business segment generated revenue of $11.3 million, a 5.7% increase against same quarter prior year. Now to expenses. Our cost of services expense, excluding depreciation and amortization, a major component of which is personnel costs, includes all direct and indirect support costs related to providing services to our customers. Cost of services was $357.1 million, or 71.3% of revenue in Q1 2025, down from 72.1% of revenue for the same quarter prior year.

The percentage of revenue was overall lower, predominantly due to the nice increase we saw in revenue, including the rate gains, as well as operational efficiencies resulting from the replacement of contract clinicians with employed clinicians and general improvements in staffing efficiencies across both clinical and operation. General and administrative expense includes corporate overhead such as finance, legal, HR, marketing, corporate offices, and other administrative areas. Our G&A expense was $46.7 million, or 9.3% of revenue in Q1 2025, compared to 7.9% of revenue in the same quarter prior year. Excluding items that are added back for the purposes of calculating adjusted EBITDA, including equity compensation expense and certain transaction expenses, G&A expense was $41.2 million for the quarter, or 8.2% of revenue, compared to 7.4% of revenue in the same quarter prior year.

Prior year G&A expense was reduced by a favorable out-of-period legal expense reversal that was recorded during Q1 2024. This had a positive EBITDA impact. The year-over-year increase in G&A as a percentage of revenue is primarily driven by that reversal and the addition of new support FTEs as previously planned, as we separate from Select Medical and build out the team required to operate as a standalone public company. The overall result was adjusted EBITDA margin in Q1 2025 of 20.5%, a slight decrease from 20.6% during the same quarter prior year. Removing the impact of the favorable one-time legal expense reversal would have resulted in Q1 2024 adjusted EBITDA margin of 19.8%, demonstrating strong year-over-year margin growth on a run rate basis. In Q1 2025, we generated $11.7 million in operating cash flow.

I would note that Q1 is consistently one of our slowest cash quarters due to lower collections following seasonally lower fourth quarter volume, as well as other quarter-specific material cash outflows such as company-wide bonus payments related to prior year incentive plans and semi-annual interest payments on our unsecured bonds. Relative to Q1 2024, the drop in cash flow from operations was largely attributable to an increase in interest payments following the IPO-driven recapitalization last summer. Investing activities used $294.7 million of cash in the first quarter, predominantly driven by our previously announced acquisition activity. Also included in this number was $15.7 million of CapEx that covered our normal course capital program opening de novos and upgrading and maintaining existing facilities. Financing activities resulted in net cash inflows of $151.9 million for the first quarter.

As a reminder, in conjunction with funding the Nova acquisition in early March, we drew $50 million on a revolving credit facility, and we upsized our term loan B from approximately $848 million-$950 million. Additionally, we repriced our term loan B at SOFR plus 200, down from SOFR plus 225, with a 25 basis points step down at net leverage of less than 3.25 times. At the same time, we upsized our revolver capacity from $400 million-$450 million, and we repriced at SOFR plus 200, down from SOFR plus 250, with a 25 basis points step down at net leverage of less than 3.5 times. We ended the quarter with a total debt balance of $1.6 billion and a cash balance of $52 million.

At the end of March, our net leverage ratio per our credit agreement was 3.9 times, up from 3.5 times at year-end 2024 and approximately the same as our leverage ratio at the time of our IPO last July. The increase in leverage during the quarter was driven by our Nova acquisition and is in line with what we previously communicated at the time of the acquisition signing. In early March, we executed interest rate hedges on $600 million of notional value related to our floating rate term loan B. This, along with our fixed-rate bonds, now gives us protection from rising interest rates on over 75% of our currently outstanding debt while retaining solid exposure to potential rate decreases.

Switching gears, we're pleased to announce a continuation of our dividend this quarter, with Concentra's Board of Directors declaring a cash dividend of $0.0625 per share on May 6, 2025. The dividend will be payable on or about May 29, 2025, to stockholders of record as of the close of business on May 20, 2025. Now, before I turn it back to Keith, I want to add some more color on our corporate development updates. First, we are very excited about the last few months and what our collective teams have accomplished. We closed on a core and strategic acquisition of Nova Medical Centers. Our team is working hard on the integration efforts, and we're really pleased with the progress to date. We are ahead of schedule on synergy capture, and we are trending above forecasts with respect to patient visit volume in those centers.

Our new Concentra colleagues that came over from the Nova acquisition have hit the ground running and have done an excellent job adhering to best-in-class clinical and operational standards and maintaining customer relationships through the transition. We'll be converting all Nova centers over to Concentra systems, processes, and signage over the coming months, which we anticipate will further enhance top-line and cost efficiency. Our Physician Health Center acquisition in Florida and our three de novos opened in the quarter are a continuation of our core center growth strategy, and all eight centers are off to a great start. Lastly, with respect to Pivot OnSite Innovations, this is an acquisition we're really excited about and demonstrates our commitment to investing in and scaling our onsite health clinics business. This effectively doubles the revenue of that segment and brings an additional 700-plus colleagues into the Concentra family.

We see a lot of opportunity for both organic and inorganic growth within the onsite health space, with an estimated serviceable, addressable market of more than $17 billion across both occupational health and advanced primary care service offering. We announced the signing of this transaction on April 21, 2025, and posted a brief investor deck on our website. The purchase price is $55 million, and the expected acquired revenue will be approximately $60 million. The deal is immediately accretive from a value standpoint, and we expect to capture cost synergies over the first 12 months post-acquisition, resulting in a pro forma purchase multiple below nine times. We expect to close in Q2 2025, subject to certain closing conditions. Our teams will be highly focused on integrating growing employer relationships and continuing to scale the onsite health segment.

We look forward to updating you on the continued growth of our onsite business in future quarters. Given the recent pace of deal activity, I would like to take a moment to underscore our long-term commitment to deleveraging. As of quarter end, our leverage ratio is approximately 3.9 times, and we do not expect that to change materially because of the Pivot acquisition following the close of that deal later this quarter. We anticipate limited M&A activity over the remainder of this year, with our focus now on integration efforts. We intend to deploy free cash flow towards debt repayment and other organic growth initiatives and will continue to target a year-end 2025 leverage ratio of approximately 3.5 times and a 3.0 leverage ratio within the next 18 to 24 months.

Keith Newton (CEO)

Thanks, Matt. As you can see, we made great progress in the first quarter.

I'd like to take a few minutes to address the current macroeconomic landscape and outlook for Concentra from a qualitative perspective, and then Matt will review our updated 2025 financial outlook. Like everyone else, we are actively monitoring global fiscal, monetary, regulatory, and trade policy and are evaluating potential impacts to our business. There is obviously a fair amount of broader economic uncertainty right now, but I will note that we have not observed an impact to the visit volumes in our centers as of the date of this earnings call, which I think is an encouraging macro data point, especially given the breadth and diversity of our domestic customer base and our footprint.

Like everyone else, I wish we had a crystal ball with respect to the impact of the implementation and outcomes of these policies, but in the absence of that, we feel that we are positioned well here at Concentra to address any economic slowdown should it occur and have proven that in the past. What we can share anecdotally, at least, is how the administration's current policies could directly impact us over time. To the extent economic policy does result in an expansion of manufacturing through the reshoring of American industrial jobs over the long term, as the Trump administration hopes, that would serve as a tailwind for Concentra because we serve America's workforce.

To that end, there has been a flurry of recent announcements from domestic and international companies indicating plans to invest in incremental manufacturing capacity in the U.S., which would likely drive an increase in total employment and thus both visit growth at our centers as well as potential new employer onsite opportunities. If new policy leads to higher inflation, our rates would likely increase due to many of those states' workers' compensation fee schedules having built-in inflationary adjustments. Employer services rates have also generally grown in line with inflation in recent years, so higher inflation would likely result in higher revenue per visit, which was what we have experienced in the past.

From a supply chain standpoint, we expect minimal bottom-line impact from tariffs since medical supplies and pharmacies as a line item expense category constitute less than 3% of total revenue for us, which, based on our research, is one of the lowest percentages among comparable healthcare services companies. That said, we are certainly taking proactive steps to mitigate any potential exposure to trade-induced cost creep within our business. Lastly, in the event economic activity does slow over the near term, which, to be clear, we are not currently predicting nor seem to be experiencing in our visits, we are well positioned to weather the storm. Although we are a new standalone public company, we have a long history of nimbly managing our cost structure through down cycles in the economy.

During the global financial crisis in 2008 and 2009, and during COVID in 2020, we experienced a substantial drop in visits, but we limited the negative adjusted EBITDA impact. We have a highly experienced and capable operational team actively monitoring day-to-day volume and managing our cost trends throughout the country, and we are well positioned to react quickly in the event overall economic growth were to slow. Longer term, these policies could serve as tailwinds for our business if they result in material growth in U.S. jobs. With that, Matt can share thoughts on our updated financial guidance.

Matt DiCanio (President and CFO)

Great. Thanks. I think Keith summarized the uncertainty nicely in the way these policies could impact Concentra. While we are obviously tracking the broader macroeconomic landscape, we aren't seeing an impact to our business currently.

In fact, April volume across work comp and employer services was up year over year and into early May, even after excluding the impact of Nova. Given the strong financial start to the year and additional development activity that previously was not factored into our guidance, including the acquisitions of Physician Health Center and Pivot Onsite, we felt it was appropriate at this time to raise our view of some of the previously provided 2025 financial metrics. For 2025, Concentra now expects to deliver revenue in the range of $2.1 billion-$2.15 billion and adjusted EBITDA in the range of $415 million-$430 million. We are tracking well to the capital expenditures and net leverage ratio outlook guidance that we previously communicated, so there is no change there.

We intend to closely monitor potential macro impacts to our business over the next few months, as well as progress on integration of our recent acquisitions, and we may have additional updates with respect to full year 2025 guidance during our Q2 earnings call.

Keith Newton (CEO)

Thanks, Matt. Obviously, a lot of good news here for the quarter. As a management team, we're excited about the progress we've made as a standalone company post-IPO and are proud of the outstanding effort and execution from all of our colleagues across clinical, operational, support, and development functions. Our people and culture have served as the cornerstone of our company for over 45 years, and we are focused on maintaining our values and adhering to our mission of improving the health of America's workforce, one patient at a time, as we continue our growth.

We think we have a strong value proposition to offer healthcare investors, given our industry-leading market position as a provider of choice for over 215,000 employer customers due to our long history of clinical excellence, patient care, and our overall value proposition to help employers lower healthcare costs.

Also, our strong geographic, industry, customer, and service offering diversification, representative of 45 states, the attractive reimbursement model that mitigates stroke-of-the-pen risk due to less than 1% of our revenue having government-payer exposure, our flexible operating structure that allows us to quickly scale staffing and cost up and down from real-time volume trends, our history of successful execution on M&A and the white space that exists for those trends to continue, and our motivated and highly experienced management team that has a long track record of producing mid to high single-digit top-line growth, consistent 20% adjusted EBITDA margins, significant free cash flow, and low to mid-teens return on invested capital. We are excited to continue to share our story with the market and provide updates on our performance and growth initiatives over the coming quarters. That concludes our prepared remarks, and we thank everybody for the time today.

We'd like to turn it back over to the operator to open the call for questions.

Operator (participant)

Thank you. At this time, we'll be conducting our question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue, and you may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. One moment, please, while we pull for questions. Thank you. Our first question is coming from Benjamin Rossi with JP Morgan. Your line is live.

Benjamin Rossi (Equity Research Associate)

Great. Thanks for the question here.

On employer services volumes, with the strong performance here in Q1 coming in ahead of expectations, it seems as though we've potentially hit an inflection point on visit volume erosion in that segment. Can you just discuss your turnaround here organically and what are some of the factors that aided this turnaround? Looking ahead, how are you factoring volume trends here for the remainder of the year?

Keith Newton (CEO)

Yeah, I'll start with that, Matt. Feel free to chime in. I think, as we've talked about in the past, coming off some highs and lows from the COVID years of ramping up and the churn that took place and then the downturn that we subsequently saw that created year-over-year negative comps, I think we bottomed out. We talked about it last year that we felt that we were slowly starting to see some improvement there.

I think as we came into this year, there seemed to be a little more optimism we felt from the noise from the employer base. I think just the continued sales and marketing efforts that we've deployed through several channels within our sales and marketing group as far as continuing to gain market share in those markets has really helped us start to turn that needle and drive it back in the direction it's going. We've seen several of these if you go back years and years where there's a little bit peaks and valleys associated with what's going on from an economic standpoint.

I think we're starting to see some of the rewards of the hard work we put in over the last year, along with just some of the dynamics that are coming out of the COVID and the great hiring and the churn associated with that. We continue to see that, and we're cautiously optimistic. There's a lot of turbulence out there and projections of what could or could not happen from an economic standpoint, but so far, we've been pleased with what we're seeing.

Benjamin Rossi (Equity Research Associate)

Great. Appreciate the color there. Just as a follow-up, taking a step back, down to series of acquisitions, it makes you one of the most scaled platforms in occupational health across both your workers' comp and employer services segments.

Just with these transactions, could you take a step back and describe to us where you see Concentra going from here with these added capabilities and ultimately how this scaled platform helps you deliver upon your long-term growth goals?

Keith Newton (CEO)

Yeah, I'll take that one also. The bricks and mortar, we're going to continue to pick and axe down that pathway. There's still opportunities out there. The size we have also has created greater partnerships with the managed care ecosystem world, the work comp industry. We've got a lot of relationships that are helping drive additional volume from that standpoint. You know what I'm really excited about that we've talked about in the past many times is three legs on the stool here at Concentra, the largest by far, the bricks and mortar, the second being our employer onsites and the third being our other business lines, primarily medical and medicine.

Really excited with the opportunity that we have from an onsite perspective. As we mentioned on the call, we're doubling that segment from a revenue standpoint with the acquisition of Pivot. It still puts us on the smaller end of onsite companies. We're definitely in the top 10, but we think there's going to be tremendous growth there. We have other opportunities to look at in the future that are going to allow us to grow that business. We're in the process of scaling it. We think Pivot helps a lot. It's a very similar business to what we have from an occupational medicine standpoint. We have deployed our advanced primary care product and are starting to get a few wins relative to RFPs in that area. That is a big marketplace for us that we're going to prospect very hard as we push forward.

Now that we have a very good solid foundation built around that business with a Pivot acquisition and our own business, we feel very good about the growth from that perspective that that segment is going to help drive for us in the future. Yeah. Ben, the only thing I would add there too, I always talk about providing great access to our employer customers, and we do that through our location. Employers can send their employees to us at our occupational health clinics, but we can also go to them through our onsite business, and we do that episodically. We do that from a mobile standpoint and then full-time as well. The third one is our virtual telemedicine service offering.

So what we're trying to do is just continue to build out all three of those areas and provide a very comprehensive solution set for our employer customers.

Benjamin Rossi (Equity Research Associate)

Great. Thanks for the commentary.

Operator (participant)

Thank you. Our next question is coming from Jamie Peirce with Goldman Sachs. Your line is live.

Jamie Peirce (Analyst)

Hey, thanks. Good morning. Just starting on workers' comp, I think visits were up 2.4% per day. It sounds like that was 0.2% organic and 220 basis points from Nova. How would you contextualize the organic performance there? Slower than trends, and I think slower than the roughly 2% long-term framing you've provided for that business. What did you see in the quarter? Do you expect improvement from here? How should we get confidence in that kind of roughly 2% long-term outlook for that business?

Matt DiCanio (President and CFO)

Sure. I can take that. Hey, Jamie.

Yes, work comp from a core standpoint was a little lighter than prior quarter, but still positive overall. We continue to see total employment growth. There are obviously some changes within that category, practice patterns, and things like that. Overall, we expect to see positive work comp visit growth from a core perspective on a go-forward basis.

Jamie Peirce (Analyst)

Okay. On gross margins, I think you cited 150 basis points improvement from last year, excluding the reversal you had last year. How much of that was from the acquisition of Nova versus more underlying performance? Is that a sustainable level, just in for seasonality that we should think about as a starting point for the year, given the kind of potential improvement in volumes, the pricing you are getting, etc.? How should we think about gross margin progression this year? Thanks.

Matt DiCanio (President and CFO)

Sure.

Yeah, there's a lot of moving pieces in the margin profile. Obviously, we had strong rate performance. We had positive visit growth. We had the acquisitions. We also have some incremental hires as we're separating from Select Medical. We had the one-time out-of-period favorable item prior year. All of those are kind of contributing to where we presented. Fourth, fifth year here in a row with 20+% margins, we expect that's sustainable. With the continued M&A activity, we think there's upside from there as well. Yeah. I would add that Nova was only one month of the results, so it had very little impact this quarter. We feel pretty good with the synergies that we're executing on right now that it's going to contribute as we go forward. The rate has really been a nice driver this year.

Operator (participant)

Thank you.

Our next question is coming from Ben Hendrix with RBC Capital Markets. Your line is live. Great.

Ben Hendrix (Equity Research of Healthcare Services and Managed Care)

Thank you very much. The first question here for Keith is following up on your trade policy discussion. Just in that high inflation scenario, you noted that rate increases, which likely flow through. Just want to get any commentary on your views on the uniformity of that across your states. I know these states have different rate mechanisms. Are there any particular key areas or key markets where we could be at risk of rate updates lagging inflation more than others? Just want to get an idea of the uniformity across the footprint. Thanks.

Keith Newton (CEO)

Yeah. Typically, there are MEI. There's some sort of inflationary factor they use, and it could be CPI, could be MEI.

What historically we have seen is the implementation of the adjustments to their fee schedule typically within the first quarter of the year. They will look back at kind of what has happened in the last three to six months. It has been fairly reflective at the time that they go in as to what recently has happened relative to inflation. That is what we have seen historically. It has worked pretty well from that standpoint.

Ben Hendrix (Equity Research of Healthcare Services and Managed Care)

Great. Thank you for that. My other question for Matt, I just wanted to go back to the cost of service performance and the lower cost of service as a percent of revenue. You noticed some labor efficiency she captured in there.

Just wanted to kind of get a little more color around that, kind of what the, if there's more room to run in that regard and kind of how you see labor fleshing out for the long term as a percent of revenue, and if there's any change to that forecast. Thanks.

Matt DiCanio (President and CFO)

Sure. Yeah, I'll add a couple of comments there. Obviously, the revenue increase and the rate gains helped cost of services as a percentage of revenue go down. We also noted that we had some staffing efficiency gains at the center level across all disciplines and across the country. Our teams are doing a great job. The visit volumes are more stable than they have been in prior years. We have some technology initiatives that have helped with efficiencies.

We're really happy with some of the key metrics we look at, whether it's patient satisfaction or turnaround times and things like that. We'll continue to invest in technologies and other ways to make our colleagues at the centers more efficient in the future.

Ben Hendrix (Equity Research of Healthcare Services and Managed Care)

Thank you.

Operator (participant)

Thank you. Our next question is coming from Joanna Gajuk with Bank of America. Your line is live.

Joanna Gajuk (Equity Research Analyst)

Hi. Good morning. Thank you so much for taking the question. I guess a couple of follow-ups just to clarify on your guidance update where you say you raised the revenue and your EBITDA guidance was raised by $5 million. You said to reflect the Q1 and also the deal activity. To just make sure, do you include the Pivot acquisition, the knock-on index updated guidance?

Matt DiCanio (President and CFO)

Yes. I'll add a little commentary just to make sure that's very clear.

Our previous guidance included Nova and all of our de novos for this year. Subsequent to that, we closed on the small PHC deal in Florida, and then we announced the Pivot acquisition. Both PHC and Pivot are included in our revised guidance. Pivot is not closed yet, but we expect it to close here shortly.

Joanna Gajuk (Equity Research Analyst)

Okay. Expect to close shortly. That is why you are including it. Okay. Thank you for that. Another follow-up. Your workers' comp revenue per visit, even if you exclude the Florida rate, would still be pretty good at 5%. Is that a good number to kind of assume longer term?

Matt DiCanio (President and CFO)

Over a long period of time, the stat that we have always referenced is 3% is the long-term average on work comp rate increases.

You can look over a 5, 10, 15, 20-year period, and it's pretty much in line with that. Obviously, inflation has been higher in recent years, and I think that's what's reflected in our numbers this year. To Keith's comments earlier, if there is any sustained inflation, we expect it to be slightly higher than 3% in the near term.

Joanna Gajuk (Equity Research Analyst)

Anytime I want to follow up on workers' comp. So your comment was that, I guess, excluding Nova, the rents per day decelerated, and were only up 0.2% versus 1% in Q4. I wasn't quite sure whether you're trying to call out anything there or you just kind of sort of in the range of things that you would have expected. Thank you.

Matt DiCanio (President and CFO)

No, we're not trying to call out anything there other than we just felt it was really important to exclude the Nova visits so people can look at our core company performance this quarter, especially with the one month of Nova visits. Work comp was in line with expectations, maybe slightly softer than what we thought, but it always bounces around a little bit, and it's still positive. I think the big news for us really, as we spoke about, was the turning point with employer services visits. We're very happy about that.

Joanna Gajuk (Equity Research Analyst)

Yeah, for sure. Thank you so much.

Operator (participant)

Thank you. Our next question is coming from Stephen Baxter with Wells Fargo. Your line is live.

Stephen Baxter (Senior Equity Research Analyst of Healthcare Services)

Hi. Thanks. Just wanted to follow up a little bit on some of the moving parts on guidance.

Perhaps you could start by reminding us, I guess, when exactly you're expecting the Pivot deal to close and what the annual revenue contribution is there. I kind of thought that getting a couple of quarters of that deal would maybe explain the entirety of your guidance rate, maybe even more than that, potentially. Just trying to sort out the organic pieces versus how you're thinking about Pivot and how much revenue is in the guidance for Pivot. I guess also the smaller five-center deal that you closed as well. Thanks.

Matt DiCanio (President and CFO)

Sure. Thanks for the question, Steph. Pivot, we are expecting to close towards the end of Q2. There will be approximately half a year of impact on our financials. Obviously, with the PHC deal and Pivot, there will be some transition time and ramp and things like that.

PHC closed in mid-March and Pivot at the end of Q2.

Stephen Baxter (Senior Equity Research Analyst of Healthcare Services)

Okay. I believe Pivot was potentially a $60 million annual revenue business. Maybe the disclosures you gave, do we have that right? Or is there a different number for some reason that we should be thinking about for two quarters of that for the balance of the year?

Matt DiCanio (President and CFO)

No, that's correct. $60 million revenue on an annualized basis. Just to add a couple of comments, I think as you're getting to how we thought about guidance, obviously, there's a lot of moving pieces. We've got the M&A coming on board. We've got some uncertainty that Keith and I have both talked about.

We felt like at the end of Q1, with the strong Q1 performance and then a couple of additional deals, we felt like it was appropriate to increase the guidance by $50 million on the top end of the revenue range and $5 million on both ends of the EBITDA range. Really, just being very thoughtful about where we are in the year and the uncertainty that Keith talked about. Other than that, I think it likely could have been a higher or larger increase.

Keith Newton (CEO)

Yeah. I was going to add, in my comments, I mentioned we wish we all had a crystal ball. We feel really good about how we ended the first quarter and how we're going into the second quarter. Again, there is a lot of uncertainty and turbulence out there.

As an organization and what we say at this point in time, we want to remain cautious, especially in the early stages of being a public company as far as where we think we will end. We will update as we go forward each quarter as to what we are seeing in the business.

Stephen Baxter (Senior Equity Research Analyst of Healthcare Services)

Okay. Makes sense. Better Q1, but just maintaining a prudent stance on the rest of the business organically and folding in the deals. I think we can appreciate that then. I just wanted to follow up on some of the macro discussion. I think we do understand the workers' compensation side of the business and how there is often tie-ins to inflation benchmarking.

Can you talk a little bit about how employer services rates have held up when you've had previous economic cycles with more pressure, maybe more uncertainty, maybe more akin to the environment that we're in now? Thank you.

Keith Newton (CEO)

Yeah. Historically, our employer services rates have reflected the trend, very similar to kind of the inflationary environment out there. What we historically do around October and November each year is look back on the year, look at what's happening from that standpoint, and then identify what we feel is the right number to communicate to be effective on January 1. Typically, as long as we kind of use a guideline in inflation and what's happening from that perspective on how we handle our employer services pricing, it's been well received with minimal pushback at all. That's historically, year after year, how we've approached things.

Operator (participant)

Thank you.

Keith Newton (CEO)

Yeah.

To add to that, I think it's reflective of what's happening this year at our 3.9%. What we're seeing so far this year is right in line with what we targeted and what we communicated from an employer perspective in the fourth quarter.

Operator (participant)

Thank you. Our next question is coming from Justin Bowers with Deutsche Bank. Your line is live.

Justin Bowers (Equity Research Analyst)

Hi. Good morning, everyone. Just sticking with the rate topic, can you remind us sort of the seasonality of when you get the updates or when those kick in for the fee schedules on the workers' comp side? For example, is it 75% on January 1, 25% on October 1? Just trying to get a sense of phasing here.

Keith Newton (CEO)

I would say 80-90% we're going to see within the first quarter. A good majority are effective January 1.

Some states lag a little bit as far as updating their schedules, but it typically happens in the first quarter. You'll get the other 20% or so in the middle of the year, July. There are some updates. Then again, in October, there are a couple of states, I believe Arizona typically is an October update. The majority of what we're going to see each year happens within the first quarter.

Justin Bowers (Equity Research Analyst)

Okay. Thank you, Keith. Sticking with workers' comp, just the two-parter. One, was there any weather impact to call out in the first quarter? I know that and we're seeing that in other parts of services.

The second part is just you talked about share gains in employer services and just curious about consolidation opportunities or share gain opportunities with some of those Fortune 500 accounts and how you're thinking about that over the next, call it, two to three years.

Keith Newton (CEO)

Yeah. I'll comment on both if I understood the second part. As far as weather, yeah, we get impacted by weather just like everybody else. It's a walk-in, urgent care practices. If there's ice and snow, it can significantly impact us as far as when it initially hits. It also potentially helps us with slips and falls along with that weather. We have it every year. It's hard to really ascertain if there's really a more negative impact this year than last year.

That is why we did not really comment from that perspective relative to weather this year impacting us. As far as employers, we have built some of the larger ones. We get further and further integrated with them within workers' comp ecosystems and their other partners, their TPAs, their managed care entities that may support some of the programs that they have in place to where there is a true direction of care that occurs relative to trying to get patients to us versus somebody else because of the ease of business that we provide for them and their payers. A big part of what our value prop is about is velocity of information regarding patients, return to work, communication.

If they can use a provider that is technology advanced that can provide them information in a faster manner than others that can help return their workers to full functionality quicker than others, it's going to save tremendous cost, as we've shown in the past. Validation studies have shown 25%-30% cost of savings with us versus a non-Concentra facility. We feel good, especially with the size that we have, the footprint, the ability for an employer to come to us and have good penetration into their employee base across the country as far as using us. It just streamlines things to them. It's a great value prop that we have.

Justin Bowers (Equity Research Analyst)

Thank you. Appreciate that.

Thank you. Our next question is coming from Ed Kressler with TPG Angelo Gordon. Your line is live.

Ed Kressler (Managing Director)

Good morning. Thanks for having the call today. Much appreciated.

Thanks for the outlook on the macro. It's helpful. You did discuss the flexibility of your cost structure in the event of a macro downturn. Can you give a little bit more color on how variable your COGS is? Just looking at the Q, is it right to think that kind of low 70s % of your COGS is labor? Just curious how much of that is variable.

Matt DiCanio (President and CFO)

Yeah. I can take that. Thanks for the question. Most of our cost structure is labor. There's obviously a core staffing group for each individual center. The teams in the field that manage the centers and work in the centers every day are really good at staffing up and down to volume. We have large PRN pools across all functional areas.

The teams are used to the seasonality within the work week, within the month, and month by month throughout the year. We saw that as we navigate prior cycles. The teams can do a really nice job of managing the personnel to the appropriate visit volumes.

Ed Kressler (Managing Director)

Gotcha. Okay. Great. Last thing for me, just from the onsite side, obviously, you're doubling down there. Can you talk a little bit about experience in a macro downturn there? Have you seen, for example, in a great financial crisis, did you see employers dial back on providing these services? Or is that something that kind of once it's in, they stick with? Thank you.

Keith Newton (CEO)

I'll take that one. We were not that big into the onsite arena back in 2008 or 2009. We did not.

There's always some that may decide that that's a cost that may not be needed there or an investment maybe is a better way to say that. For the most part, we haven't felt that, whether it was during the COVID years or what I can remember, what we saw during the global financial crisis. I don't hear that, and I don't see that much from the competition out there relative to what they may have said relative to their experience. I think employers, I mean, they really look at it as an investment that they've made for their employee base that's there at their worksite. As long as a return on investment can be shown from that perspective, then those employers will keep that. Typically, in a downturn, even if they downsize, most of those sites, there are several hundred employees there at that site.

A small reduction in force at the worksite is not going to necessarily dictate an elimination of that worksite. We feel pretty optimistic that they'll weather the storm well if something were to happen from that perspective.

Matt DiCanio (President and CFO)

Yeah. The only thing I would add there too is we're thinking long-term about the business and everything going on with the current administration and reshoring of America jobs. We think that's going to be a really nice tailwind as companies continue to announce their investment back here in the U.S. with large labor forces. There's going to be an increased need for onsite long-term in our view.

Ed Kressler (Managing Director)

Gotcha. I lied. Last thing is just thinking about that on the onsite side. Should we think, I think you've characterized it as generally kind of cost-plus in the past.

Should we be thinking about that as volume-dependent as well? To the extent that an employer has an onsite location and they reduce staff, would that affect us? Or do we think of it as kind of cost-plus for the box and not volume-dependent? Thank you.

Matt DiCanio (President and CFO)

I would think of it as cost-plus.

Ed Kressler (Managing Director)

Great. Thanks for the help.

Operator (participant)

Thank you. As we have no further questions on the lines at this time, I would like to hand it back to Mr. Newton for any closing remarks.

Keith Newton (CEO)

We appreciate everybody's participation today. Thank you very much.

Operator (participant)

Thank you, ladies and gentlemen. This does conclude today's call. You may disconnect your lines at this time. We thank you for your participation.