HCSG Healthcare Services Group Inc

Continues Positive Business Momentum, Adjusted EBITDA up 18%

Healthcare Services Group, Inc. (NASDAQ:HCSG) (the “Company”) reported for the three months ended March 31, 2023 revenue of $417.2 million, GAAP net income of $12.7 million, or $0.17 per basic and diluted common share, and adjusted EBITDA of $27.5 million.

Q1 Results

• Revenue for the quarter was reported at $417.2 million, with housekeeping & laundry and dining & nutrition segment revenues of $193.5 million and $223.7 million, respectively.
• Housekeeping & laundry and dining & nutrition segment margins were 10.4% and 6.6%, respectively.
• Direct cost of services was reported at $361.0 million, or 86.5%. Direct cost included a $6.9 million increase in CECL AR reserves.
• Selling, general and administrative (“SG&A”) was reported at $40.0 million; after adjusting for the $1.5 million increase in deferred compensation, actual SG&A was $38.5 million, or 9.2%.
• The effective tax rate was 27.8%, which included discrete items specific to Q1. The Company expects a 2023 tax rate of 24% to 26%.
• Adjusted EBITDA was $27.5 million, an 18% increase over the prior year's corresponding quarter.
• Cash flow used in operations for the quarter was $16.3 million and was impacted by a $21.2 million decrease in accrued payroll and a $20.6 million increase in accounts receivable related to the timing of cash collections. DSO for the quarter was 76 days.

Ted Wahl, Chief Executive Officer, stated, “We delivered strong operating results and service execution during the quarter, as our relentless focus on customer experience, systems adherence and regulatory compliance led to high quality and consistent outcomes for our client-partners. We successfully managed cost of services in line with our target of 86% and showed marked improvement in Q1 cash collections year over year in what has historically been our most challenging cash collections quarter. We also successfully exited the final tranche of facilities related to the 2022 contract modification initiative, providing a solid foundation for us to grow in the future.”

Mr. Wahl concluded, “Industry fundamentals continue to improve, and a stabilizing labor market and stronger reimbursement environment, especially at the state level, contributed to what has been a gradual occupancy recovery. Looking ahead, we are focused on executing on our strategic priorities to drive growth, and we remain confident in our ability to deliver long-term value to our shareholders.”

Conference Call and Upcoming Events

The Company will host a conference call on Wednesday, April 26, 2023, at 8:30 a.m. Eastern Time to discuss its results for the three months ended March 31, 2023. 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 and 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 three months ended March 31, 2023; credit and collection risks associated with the healthcare industry; the impact of bank failures; 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; and the risk factors described in Part I of our Form 10-K for the fiscal year ended December 31, 2022 under “Government Regulation of Customers,” “Service Agreements and Collections,” and “Competition” and under Item 1A. “Risk Factors” in such Form 10-K.

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) cannot 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.

USE OF NON-GAAP FINANCIAL INFORMATION

To supplement HCSG’s consolidated financial information, which are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), the Company believes that certain non-GAAP financial measures are useful in evaluating operating performance and comparing such performance to other companies.

The Company is presenting earnings before interest, taxes, depreciation and amortization ("EBITDA"), and excluding items impacting comparability ("Adjusted EBITDA"). We cannot provide a reconciliation of forward-looking EBITDA and Adjusted EBITDA margin measures to GAAP due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation. The presentation of non-GAAP financial measures is not meant to be considered in isolation or as a substitute for financial statements prepared in accordance with GAAP.

HEALTHCARE SERVICES GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in thousands, except per share data)

 

 

 

For the Three Months Ended

 

 

March 31,

 

 

2023

 

2022

 

Revenues

 

$

417,230

 

$

426,811

 

Operating costs and expenses:

 

 

 

 

Costs of services provided

 

 

360,978

 

 

373,262

 

Selling, general and administrative

 

 

40,047

 

 

35,736

 

Income from operations

 

 

16,205

 

 

17,813

 

Other income (expense), net

 

 

1,351

 

 

(2,032

)

Income before income taxes

 

 

17,556

 

 

15,781

 

 

 

 

 

 

Income tax provision

 

 

4,872

 

 

4,452

 

Net income

 

$

12,684

 

$

11,329

 

 

 

 

 

 

Basic earnings per common share

 

$

0.17

 

$

0.15

 

 

 

 

 

 

Diluted earnings per common share

 

$

0.17

 

$

0.15

 

 

 

 

 

 

Basic weighted average number of common shares outstanding

 

 

74,497

 

 

74,326

 

 

 

 

 

 

Diluted weighted average number of common shares outstanding

 

 

74,518

 

 

74,333

 

HEALTHCARE SERVICES GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

 

 

March 31, 2023

 

December 31, 2022

Cash and cash equivalents

$

16,153

 

$

26,279

Marketable securities, at fair value

 

95,985

 

 

95,200

Accounts and notes receivable, net

 

350,784

 

 

336,777

Other current assets

 

47,165

 

 

50,376

Total current assets

 

510,087

 

 

508,632

 

 

 

 

Property and equipment, net

 

23,400

 

 

22,975

Notes receivable — long-term

 

32,327

 

 

32,609

Goodwill

 

75,529

 

 

75,529

Other intangible assets, net

 

14,743

 

 

15,946

Deferred compensation funding

 

34,312

 

 

33,493

Other assets

 

28,735

 

 

29,150

Total assets

$

719,133

 

$

718,334

 

 

 

 

Accrued insurance claims — current

$

23,974

 

$

23,166

Other current liabilities

 

138,190

 

 

155,453

Total current liabilities

 

162,164

 

 

178,619

 

 

 

 

Accrued insurance claims — long-term

 

67,100

 

 

65,541

Deferred compensation liability — long-term

 

34,263

 

 

33,764

Lease liability — long-term

 

8,586

 

 

8,097

Other long term liabilities

 

6,448

 

 

6,141

Stockholders' equity

 

440,572

 

 

426,172

Total liabilities and stockholders' equity

$

719,133

 

$

718,334

HEALTHCARE SERVICES GROUP, INC.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

(Unaudited)

(in thousands)

 

 

 

For the three months ended March 31,

 

 

 

 

2023

 

2022

 

Reconciliation of Net Income to EBITDA and Adjusted EBITDA

 

 

 

 

Net income

 

$

12,684

 

$

11,329

 

Income tax provision

 

 

4,872

 

 

4,452

 

Interest, net

 

 

102

 

 

(417

)

Depreciation & amortization

 

 

3,720

 

 

4,147

 

EBITDA

 

$

21,378

 

$

19,511

 

Share-based compensation

 

 

2,058

 

 

2,396

 

Gain/loss on deferred compensation, net

 

 

44

 

 

289

 

Bad debt expense adjustments(1)

 

 

4,035

 

 

1,108

 

Adjusted EBITDA

 

$

27,515

 

$

23,304

 

(1) The bad debt expense adjustment reflects the difference between GAAP bad debt expense (CECL) and historical write-offs as a percentage of revenues, both of which are based on the same seven year look-back period.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20230426005308/en/

Theodore Wahl President and Chief Executive Officer

Matthew J. McKee Chief Communications Officer

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