HCSG Healthcare Services Group Inc

Healthcare Services Group, Inc. (NASDAQ:HCSG) (the “Company”) reported for the three months ended September 30, 2022 revenue of $414.5 million and net income of $0.3 million. The Company’s Board of Directors declared a quarterly cash dividend of $0.215 per common share, the 77th consecutive increase since the initiation of dividend payments in 2003.

Ted Wahl, Chief Executive Officer, stated, “Our third quarter results reflect the ongoing and expected choppiness that we referenced during our second quarter call. And while we have conviction in our ability to manage the controllable components of our business, we are also realistic about the ongoing challenges that remain within our industry and the broader economy.”

Mr. Wahl continued, “During the quarter, we successfully executed on our strategy to more favorably position our customer partnerships and agreements. We are confident that this work will yield improved results in the fourth quarter and remain on track to meet our goal of exiting the year with cost of services in line with our historical target of 86%.”

Mr. Wahl concluded, “We will continue to adjust, adapt and aim to deliver optimal results for the Company, in a way that maintains the integrity of our existing partnerships, and opportunistically explores prospective new business additions.”

Revenue for the quarter was reported at $414.5 million, with housekeeping & laundry and dining & nutrition segment revenues of $196.9 million and $217.6 million, respectively. As previously disclosed, third quarter results were impacted by contract modification actions taken by the Company, resulting in one-time reductions of approximately $9.0 million in revenue (previously estimated at $17.0 million) and operating income.

Housekeeping & laundry and dining & nutrition segment margins were 8.9% and -0.2%, respectively. Segment margins were impacted by the aforementioned contract modification actions.

Direct cost of services was reported at $376.9 million, or 90.9%. Cost of services was impacted by a $7.6 million increase in AR reserves. The Company remains on track to meet its goal of exiting the year with cost of services in line with its historical target of 86%.

Selling, general and administrative (“SG&A”) was reported at $37.0 million; after adjusting for the $1.2 million decrease in deferred compensation, actual SG&A was $35.8 million, or 8.6%. The Company expects 2022 SG&A to approximate 8.5% to 9.5%.

Cash used in operations for the quarter was $9.9 million and was impacted by a $16.2 million increase in accounts receivable and a $15.7 million decrease in accrued payroll. DSO for the quarter was 76 days.

Dividend

The Company’s Board of Directors declared a quarterly cash dividend of $0.215 per common share, payable on December 22, 2022 to shareholders of record at the close of business on November 18, 2022. This represents the 78th consecutive quarterly cash dividend payment, as well as the 77th consecutive increase since the initiation of quarterly cash dividend payments in 2003.

Conference Call and Upcoming Events

The Company will host a conference call on Wednesday, October 19, 2022, at 8:30 a.m. Eastern Time to discuss its results for the three months ended September 30, 2022. The call may be accessed via phone at 1 (888) 330-3451, Conference ID: 4431380. The call will be simultaneously webcast under the “Events & Presentations” section of the Investor Relations page on the Company’s website, www.hcsg.com. A replay of the webcast will also be available on the website for one year following the date of the earnings call.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This release and any schedules incorporated by reference into it may contain forward-looking statements within the meaning of federal securities laws, which are not historical facts but rather are based on current expectations, estimates and projections about our business and industry, and our beliefs and assumptions. Words such as “believes,” “anticipates,” “plans,” “expects,” “estimates,” “will,” “goal,” and similar expressions are intended to identify forward-looking statements. The inclusion of forward-looking statements should not be regarded as a representation by us that any of our plans will be achieved. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Such forward-looking information is also subject to various risks and uncertainties. Such risks and uncertainties include, but are not limited to, risks arising from our providing services to the healthcare industry, primarily providers of long-term care; the impact of and future effects of the COVID-19 pandemic or other potential pandemics; having a significant portion of our consolidated revenues contributed by one customer during the nine months ended September 30, 2022; credit and collection risks associated with the healthcare industry; our claims experience related to workers’ compensation and general liability insurance (including any litigation claims, enforcement actions, regulatory actions and investigations arising from personal injury and loss of life related to COVID-19); the effects of changes in, or interpretations of laws and regulations governing the healthcare industry, our workforce and services provided, including state and local regulations pertaining to the taxability of our services and other labor-related matters such as minimum wage increases; the Company's expectations with respect to selling, general, and administrative expense; the impact of the concluded Securities and Exchange Commission investigation and related class action lawsuit; heightened volatility of commodity food prices partially due to constrained global production as a result of the Russia-Ukraine conflict and the risk factors described in Part I of our Form 10-K for the fiscal year ended December 31, 2021 under “Government Regulation of Customers,” “Service Agreements and Collections,” and “Competition” and under Item IA. “Risk Factors" in such Form 10K, and in Item 1A. "Risk Factors" of our Form 10-Q for the quarter ended June 30, 2022.

These factors, in addition to delays in payments from customers and/or customers in bankruptcy, have resulted in, and could continue to result in, significant additional bad debts in the near future. Additionally, our operating results would be adversely affected by continued inflation particularly if increases in the costs of labor and labor-related costs, materials, supplies and equipment used in performing services (including the impact of potential tariffs and COVID-19) could not be passed on to our customers.

In addition, we believe that to improve our financial performance we must continue to obtain service agreements with new customers, retain and provide new services to existing customers, achieve modest price increases on current service agreements with existing customers and/or maintain internal cost reduction strategies at our various operational levels. Furthermore, we believe that our ability to sustain the internal development of managerial personnel is an important factor impacting future operating results and the successful execution of our projected growth strategies. There can be no assurance that we will be successful in that regard.

Healthcare Services Group, Inc. is the largest national provider of professional housekeeping, laundry and dietary services to long-term care and related health care facilities.

HEALTHCARE SERVICES GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in thousands, except per share data)

 

 

 

For the three months ended

 

For the nine months ended

 

 

September 30,

 

September 30,

 

 

2022

 

2021

 

2022

 

2021

Revenues

 

$

414,488

 

 

$

415,590

 

$

1,266,156

 

 

$

1,221,512

Operating costs and expenses:

 

 

 

 

 

 

 

 

Cost of services provided

 

 

376,894

 

 

 

364,822

 

 

1,129,526

 

 

 

1,037,852

Selling, general and administrative

 

 

35,803

 

 

 

38,780

 

 

100,820

 

 

 

128,818

Income from operations

 

 

1,791

 

 

 

11,988

 

 

35,810

 

 

 

54,842

Other (expense) income, net:

 

 

 

 

 

 

 

 

Investment and other (loss) income, net

 

 

(798

)

 

 

133

 

 

(10,786

)

 

 

5,294

Income before income taxes

 

 

993

 

 

 

12,121

 

 

25,024

 

 

 

60,136

Income tax expense

 

 

671

 

 

 

2,581

 

 

6,553

 

 

 

16,378

 

 

 

 

 

 

 

 

 

Net income

 

$

322

 

 

$

9,540

 

$

18,471

 

 

$

43,758

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.00

 

 

$

0.13

 

$

0.25

 

 

$

0.58

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

 

$

0.00

 

 

$

0.13

 

$

0.25

 

 

$

0.58

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.21500

 

 

$

0.21000

 

$

0.64125

 

 

$

0.62625

 

 

 

 

 

 

 

 

 

Basic weighted average number of common shares outstanding

 

 

74,340

 

 

 

74,943

 

 

74,334

 

 

 

74,983

 

 

 

 

 

 

 

 

 

Diluted weighted average number of common shares outstanding

 

 

74,348

 

 

 

75,076

 

 

74,346

 

 

 

75,170

HEALTHCARE SERVICES GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

 

September 30, 2022

 

December 31, 2021

Cash and cash equivalents

$

19,633

 

$

70,794

Marketable securities, at fair value

 

93,748

 

 

114,396

Accounts and notes receivable, net

 

347,494

 

 

293,388

Other current assets

 

51,818

 

 

67,804

Total current assets

 

512,693

 

 

546,382

 

 

 

 

Property and equipment, net

 

24,244

 

 

28,102

Notes receivable — long-term

 

26,854

 

 

29,259

Goodwill

 

75,529

 

 

74,755

Other intangible assets, net

 

17,154

 

 

20,805

Deferred compensation funding

 

31,627

 

 

46,691

Other assets

 

34,063

 

 

31,535

Total Assets

$

722,164

 

$

777,529

 

 

 

 

Accrued insurance claims — current

$

26,242

 

$

24,310

Other current liabilities

 

155,580

 

 

166,815

Total current liabilities

 

181,822

 

 

191,125

 

 

 

 

Accrued insurance claims — long-term

 

69,707

 

 

65,084

Deferred compensation liability — long-term

 

31,807

 

 

46,888

Lease liability — long-term

 

8,748

 

 

11,299

Other long term liabilities

 

8,004

 

 

10,456

Stockholders' equity

 

422,076

 

 

452,677

Total Liabilities and Stockholders' Equity

$

722,164

 

$

777,529

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20221019005336/en/

Theodore Wahl President and Chief Executive Officer

Matthew J. McKee Chief Communications Officer

215-639-4274 investor-relations@hcsgcorp.com