Concentra Is Growing Very Slowly
Concentra Group Holdings Parent, Inc. (CON) has filed to raise $100 million in an IPO of its common stock, according to an SEC S-1 registration statement.
Concentra provides occupational health services to company employees in the United States.
CON's growth is slow and decelerating, an uninspiring story for an IPO.
I'll provide a final opinion when we learn more IPO details.
What Does Concentra Do?
Mechanicsburg, Pennsylvania-based Concentra Group Holdings Parent, Inc. was founded to deliver healthcare services through employer organizations to over 50,000 patients daily via its occupational health centers, onsite health clinics and telemedicine technologies.
The company is a wholly-owned group with parent firm Select Medical Holdings (SEM).
Management is headed by Chief Executive Officer William K. Newton, who has been with the firm since 1995 and was previously president and COO of DentalOne Partners and held various roles in other healthcare industry companies.
The company's primary offerings include the following:
Workers' compensation services
Employer services
Consumer health services
As of March 31, 2024, Concentra has booked fair market value investment of $482 million from parent firm Select Medical.
The company seeks employer clients in most U.S. states and currently delivers its services in 45 states and the District of Columbia.
The graphic below shows the company's current footprint for its occupational health centers and onsite health clinics:
General and Administrative expenses as a percentage of total revenue have fallen as revenues have increased, as the figures below indicate:
General and Administrative Expenses vs. Revenue Period Percentage Three Mos. Ended March 31, 2024 7.9% 2023 8.3% 2022 8.7%
(Source - SEC)
The General and Administrative efficiency multiple, which is how many dollars of additional new revenue are generated by each dollar of General and Administrative expense, has fallen to 0.3x in the most recent reporting period, as shown here:
General and Administrative Efficiency Rate Period Multiple Three Mos. Ended March 31, 2024 0.3 2023 0.7
(Source - SEC)
What Is Concentra's Market?
According to a 2024 market research report by Coherent Market Insights, the global occupational health market was an estimated $4.8 billion in 2023 and is forecasted to exceed $7.4 billion by 2030.
This represents a forecast CAGR (Compound Annual Growth Rate) of 6.5% from 2023 to 2030.
The main drivers for this expected growth are an aging workforce as the global population ages, increased safety regulations and the need for high productivity from an engaged workforce.
Also, the North American region accounted for nearly 40% of the global demand for occupational health services, as the chart shows here:
Major competitive or other industry participants include the following:
Nova Medical Centers
MBI Industrial Medicine
Akeso Occupational Health
Kaiser Permanente
Banner Health
American Family Urgent Care
CareNow Urgent Care
Others
The company also operates in the larger consumer health care markets in the U.S.
Concentra Group Holdings' Recent Financial Results
The company's recent financial results can be summarized as follows:
Slowly growing topline revenue
Slightly higher gross profit and dropping gross margin
Higher operating profit
Reduced cash flow from operations
Below are relevant financial results derived from the firm's registration statement:
Total Revenue Period Total Revenue % Variance vs. Prior Three Mos. Ended March 31, 2024 $467,598,000 2.5% 2023 $1,838,081,000 6.6% 2022 $1,724,359,000 Gross Profit (Loss) Period Gross Profit (Loss) % Variance vs. Prior Three Mos. Ended March 31, 2024 $130,608,000 1.9% 2023 $512,432,000 6.3% 2022 $481,860,000 Gross Margin Period Gross Margin % Variance vs. Prior Three Mos. Ended March 31, 2024 27.93% -0.2% 2023 27.88% -0.2% 2022 27.94% Operating Profit (Loss) Period Operating Profit (Loss) Operating Margin Three Mos. Ended March 31, 2024 $75,498,000 16.1% 2023 $287,632,000 15.6% 2022 $258,529,000 15.0% Net Income (Loss) Period Net Income (Loss) Net Margin Three Mos. Ended March 31, 2024 $48,956,000 10.5% 2023 $179,947,000 9.8% 2022 $166,727,000 9.7% Cash Flow From Operations Period Cash Flow From Operations Three Mos. Ended March 31, 2024 $44,622,000 2023 $234,316,000 2022 $274,337,000
(Source - SEC)
As of March 31, 2024, Concentra had $49.6 million in cash and $1.1 billion in total liabilities.
Free cash flow during the twelve months ended March 31, 2024, was $190.8 million.
Concentra Group's IPO Information
Concentra intends to raise $100 million in gross proceeds from an IPO of its common stock, although the final figure will likely be higher.
Immediately after the IPO, Concentra will be considered a 'controlled company' by NYSE's rules, and parent firm Select Medical will retain at least 80% ownership of Concentra.
Management says it will use the net proceeds from the IPO as follows:
to repay [an as-yet undetermined amount] of the intercompany note held by SMC; and
to repay [an as-yet undetermined amount] of the principal amount of a promissory note issued to SMC as a dividend in connection with the Debt Financing.
We will not use any of the net proceeds of this offering towards business operations and development as a result.
(Source - SEC)
Leadership's presentation of the IPO roadshow is not yet available online.
Regarding outstanding legal proceedings, management says the company is subject to various legal actions in the normal course of business but asserts that any such proceedings would not have a material adverse effect on its financial condition or operations as of the above-referenced SEC filing.
Also, the company, or its parent firm, Select Medical, is subject to various government requests for information and investigation actions.
Concentra has also been impacted by a data breach related to almost four million of its patient records and is subject to class action lawsuits, although management believes the 'data breach or the lawsuits will not have a material impact' on its operations or financial performance.
The listed bookrunners of the IPO are J.P. Morgan, Goldman Sachs, BofA Securities, Deutsche Bank Securities, Wells Fargo Securities, Mizuho, RBC Capital Markets, Truist Securities, Capital One Securities, Fifth Third Securities and PNC Capital Markets.
Commentary On Concentra's IPO
CON is seeking U.S. public market capital to begin separation from its parent firm and pay down intercompany debt.
The firm's financials have produced slow-growing topline revenue, barely higher gross profit and dropping gross margin, increasing operating profit but much lower cash flow from operations.
Free cash flow for the twelve months ended March 31, 2024, was $190.8 million.
General and Administrative expenses as a percentage of total revenue have dropped as revenue has grown; its General and Administrative efficiency multiple fell to 0.3x in the most recent reporting period.
The firm currently plans to pay dividends according to Board policy, which 'will be communicated to stockholders in the future.'
Concentra's recent capital spending results indicate it has spent materially on capital expenditures as a function of its operating cash flow.
The market opportunity for providing occupational health services is large and is expected to grow at a moderate rate of growth in the coming years.
Risks to the company's outlook as a public company include its continued control by parent firm Select Medical, the potential for legal liabilities, either directly or indirectly, and its exposure to regulatory changes within the states in which it operates.
Also, given its slow and decelerating topline revenue growth, Concentra makes a less-than-interesting growth story so important for a successful IPO and post-IPO price action.
I'll provide an update when we learn more IPO information from management.
Expected IPO Pricing Date: To be announced.
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