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Healthcare Services Group, Inc. Reports Q1 Results, Cash Dividend Increase and 2019 Expectations
First Quarter Results
Revenue for the quarter was down
Direct cost of services was reported at
Selling, general and administrative (“SG&A”) was reported at
The Company reported an effective tax rate of 23% in the first quarter and expects its 2019 tax rate to approximate 21% to 23%, including the Worker Opportunity Tax Credit, but excluding other discrete items that impacted its 2018 rate.
Cash flow from operations for the quarter was
Mr. Wahl also noted that industry fundamentals are “showing early signs of improvement,” adding that in 2020, the Company “expects to return to its historical growth profile.”
Mr. Wahl concluded, “Our longer term outlook, over the next three to five years, is very positive, as the opportunity for continued expansion is as great as it’s ever been. The demand for our services remains strong and there’s plenty of white space to more than support the next decades worth of growth, with over 23,000 facilities in our target market, and presently less than 18% of those facilities outsourcing housekeeping and less than 8% outsourcing dining.”
Other Recent Developments and Highlights
During the first quarter, the Company continued to make progress on its near-term priorities of:
- Implementing and adhering to its facility level operating systems, highlighted by 1Q19 normalized cost of services returning to its historical levels of below 86% and segment margins in housekeeping & laundry and dining & nutrition of 11.4% and 6.3%, respectively.
- Strengthening customer payment terms and conditions, which includes increasing customer payment frequency from monthly to semimonthly or weekly. To date, the Company has successfully transitioned over 55% of its customers to an accelerated payment model, up from 40% at the end of December, and expects to further that trend in 2019.
- Growing the management pipeline, to ensure it is well prepared for future growth and expansion. The Company continued to increase the quality and quantity of management candidates, in both segments and across the majority of divisions.
Additionally, during the quarter, the Company successfully completed the implementation of its Workday® financial management module, a cloud-based financial & accounting ERP platform that is scalable for our future growth and allows for best in class finance and accounting processes, controls, as well as enhanced visibility into key operational areas like purchasing and procurement.
Expectations for Rest of Year
The Company will continue to prioritize building out its management pipeline over the next few months and expects modest sequential growth in the second half of the year, as it selectively adds new business and replaces some of the recent revenue stepdowns. Beginning in 2020 and longer term, the Company expects to return to its historical growth profile.
On the cost side, exclusive of any one time or non-recurring items, the Company expects its 2019 direct cost of services to be below 86%, SG&A to approximate 7% and its effective tax rate to be between 21-23%.
Additionally, with the continued success of the increased payment frequency initiative, the Company expects a stable, if not decreasing DSO trend for the remainder of the year.
The Company’s Board of Directors declared a quarterly cash dividend of
Conference Call and Upcoming Events
The Company will host a conference call on
The Company also announced that it will be attending and presenting at the
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 Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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,” “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 exclusively to the healthcare industry, primarily providers of long-term care; having a significant portion of our consolidated revenues contributed by one customer during the three months ended
These factors, in addition to delays in payments from clients and/or clients in bankruptcy or clients with which we are in litigation to collect payment, 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 if unexpected increases in the costs of labor and labor-related costs, materials, supplies and equipment used in performing services (including the impact of potential tariffs) could not be passed on to our clients.
In addition, we believe that to improve our financial performance we must continue to obtain service agreements with new clients, retain and provide new services to existing clients, achieve modest price increases on current service agreements with existing clients and 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.
|Theodore Wahl||Matthew J. McKee|
|President and Chief Executive Officer||Chief Communications Officer|
|HEALTHCARE SERVICES GROUP, INC.|
|CONSOLIDATED STATEMENTS OF INCOME|
|(in thousands, except per share data)|
|For the Three Months Ended|
|Operating costs and expenses:|
|Cost of services provided||427,265||469,252|
|Selling, general and administrative||41,101||33,777|
|Income (loss) from operations||7,745||(2,467||)|
|Other income, net:|
|Investment and other income 1||4,147||1,072|
|Income before income taxes||11,892||(1,395||)|
|Income tax expense (benefit)||2,736||(1,467||)|
|Basic earnings per common share||$||0.12||$||0.00|
|Diluted earnings per common share||$||0.12||$||0.00|
|Cash dividends declared per common share||$||0.19750||$||0.19250|
|Basic weighted average number of common shares outstanding||74,301||73,913|
|Diluted weighted average number of common shares outstanding||74,719||74,725|
- Includes the net impact of the premiums and costs related to the voluntary benefits program, administered by the Company's wholly-owned captive insurance subsidiary, for the periods ended
March 31, 2019and 2018 of $0.4 millionand $0.5 million, respectively. Historically, the premiums were recorded as revenues with the related costs included as part of cost of services provided.
|HEALTHCARE SERVICES GROUP, INC.|
|CONDENSED CONSOLIDATED BALANCE SHEETS|
|March 31, 2019||December 31, 2018|
|Cash and cash equivalents||$||28,362||$||26,025|
|Marketable securities, at fair value||78,508||76,362|
|Accounts and notes receivable, net||353,106||341,838|
|Other current assets||65,030||63,911|
|Total current assets||525,006||508,136|
|Property and equipment, net||30,077||12,900|
|Notes receivable - long-term||39,291||43,043|
|Other intangible assets, net||25,477||26,518|
|Deferred compensation funding||31,812||29,113|
|Accrued insurance claims - current||$||21,719
|Other current liabilities||153,763||142,695|
|Total current liabilities||175,482||163,391|
|Accrued insurance claims - long-term||60,680||58,904|
|Deferred compensation liability||31,909||29,528|
|Lease liability - long-term portion||12,304||—|
|Total Liabilities and Stockholders' Equity||$||722,924||$||692,603|
Source: Healthcare Services Group, Inc.