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Healthcare Services Group, Inc. Reports Results for the Three and Six Months Ended June 30, 2012 and Declares Increased Second Quarter 2012 Cash Dividend


BENSALEM, PA -- (Marketwire) -- 07/10/12 -- Healthcare Services Group, Inc. (NASDAQ: HCSG) reported that revenues for the three months ended June 30, 2012 increased over 26% to $267,108,000 compared to $211,507,000 for the same 2011 period. Net income for the three months ended June 30, 2012 increased 15% to $11,320,000 or $.17 per basic and per diluted common share, compared to the 2011 second quarter net income of $9,828,000 or $.15 per basic and per diluted common share.

Revenues for the six months ended June 30, 2012 increased over 25% to $527,715,000 compared to $419,897,000 for the same 2011 period. Net income for the six months ended June 30, 2012 increased 13% to $19,899,000 or $.30 per basic and $.29 per diluted common share, compared to the 2011 six month period net income of $17,595,000 or $.26 per basic and per diluted common share.

Additionally, our Board of Directors declared a regular quarterly cash dividend of $.16375 per common share, payable on August 24, 2012 to shareholders of record at the close of business on July 27, 2012. This represents the 37th consecutive regular quarterly cash dividend payment, as well as the 36th consecutive increase since our initiation of regular quarterly cash dividend payments in 2003.

The Company will host a conference call on Wednesday, July 11, 2012 at 8:30 AM Eastern Time to discuss its results for the three and six month period ended June 30, 2012. The call in number will be 888-378-4353. Passcode #9677754.

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 (the "Exchange Act"), as amended, which are not historical facts but rather are based on current expectations, estimates and projections about our business and industry, 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 health care industry, primarily providers of long-term care; credit and collection risks associated with this industry; from having several significant clients who each individually contributed at least 3% with one as high as 7% to our total consolidated revenues in the three and six month period ended June 30, 2012; our claims experience related to workers' compensation and general liability insurance; the effects of changes in, or interpretations of laws and regulations governing the industry, our workforce and services provided, including state and local regulations pertaining to the taxability of our services; and the risk factors described in our Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2011 in Part I thereof under "Government Regulation of Clients," "Competition" and "Service Agreements/Collections," and under Item IA "Risk Factors." Many of our clients' revenues are highly contingent on Medicare and Medicaid reimbursement funding rates, which Congress and related agencies have affected through the enactment of a number of major laws and regulations during the past decade, including the March 2010 enactment of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010. Most recently, on July 29, 2011, the United States Center for Medicare Services issued final rulings which, among other things, will reduce Medicare payments to nursing centers by 11.1% and change the reimbursement for the provision of group rehabilitation therapy services to Medicare beneficiaries. Currently, the U.S. Congress is considering further changes or revising legislation relating to health care in the United States which, among other initiatives, may impose cost containment measures impacting our clients. These laws and proposed laws and forthcoming regulations have significantly altered, or threaten to significantly alter, overall government reimbursement funding rates and mechanisms. The overall effect of these laws and trends in the long-term care industry has affected and could adversely affect the liquidity of our clients, resulting in their inability to make payments to us on agreed upon payment terms. These factors, in addition to delays in payments from clients, 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 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, 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 successfully executing projected growth strategies.

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.



                     For the Three Months Ended    For the Six Months Ended

                              June 30,                     June 30,

                    ---------------------------- ---------------------------

                         2012           2011          2012          2011

                    -------------  ------------- ------------- -------------

Revenues            $ 267,108,000  $ 211,507,000 $ 527,715,000 $ 419,897,000

Operating costs and


  Cost of services

   provided           230,206,000    181,742,000   457,701,000   361,727,000

  Selling, general


   administrative      18,524,000     15,511,000    39,506,000    32,291,000

                    -------------  ------------- ------------- -------------

Income from

 operations            18,378,000     14,254,000    30,508,000    25,879,000

Other income


  Investment and

   interest               (95,000)       463,000     1,558,000     1,177,000

                    -------------  ------------- ------------- -------------

Income before

 income taxes          18,283,000     14,717,000    32,066,000    27,056,000

Income taxes            6,963,000      4,889,000    12,167,000     9,461,000

                    -------------  ------------- ------------- -------------

Net income          $  11,320,000  $   9,828,000 $  19,899,000 $  17,595,000

                    =============  ============= ============= =============

Basic earnings per

 common share       $         .17  $         .15 $         .30 $         .26

                    =============  ============= ============= =============

Diluted earnings

 per common share   $         .17  $         .15 $         .29 $         .26

                    =============  ============= ============= =============

Cash dividends per

 common share       $         .16  $         .16 $         .32 $         .31

                    =============  ============= ============= =============

Basic weighted

 average number of

 common shares

 outstanding           67,296,000     66,517,000    67,189,000    66,459,000

                    =============  ============= ============= =============

Diluted weighted

 average number of

 common shares

 outstanding           68,228,000     67,545,000    68,155,000    67,499,000

                    =============  ============= ============= =============

                        HEALTHCARE SERVICES GROUP, INC.



                                           June 30, 2012   December 31, 2011

                                         ----------------- -----------------

Cash and cash equivalents                $      55,599,000 $      38,639,000

Marketable securities, at fair value            21,398,000        31,337,000

Accounts receivable, net                       135,795,000       130,744,000

Other current assets                            37,532,000        31,401,000

                                         ----------------- -----------------

  Total current assets                         250,324,000       232,121,000

Property and equipment, net                     10,132,000         9,763,000

Notes receivable- long term, net                 2,973,000         1,483,000

Goodwill, net                                   16,955,000        16,955,000

Other Intangible Assets, net                     6,288,000         7,372,000

Deferred compensation funding                   15,795,000        13,780,000

Other assets                                     9,957,000         8,221,000

                                         ----------------- -----------------

Total Assets                             $     312,424,000 $     289,695,000

                                         ================= =================

Accrued insurance claims- current        $       6,341,000 $       5,296,000

Other current liabilities                       53,097,000        40,091,000

                                         ----------------- -----------------

  Total current liabilities                     59,438,000        45,387,000

Accrued insurance claims- long term             14,797,000        12,358,000

Deferred compensation liability                 16,132,000        14,224,000

Stockholders' equity                           222,057,000       217,726,000

                                         ----------------- -----------------

Total Liabilities and Stockholders'

 Equity                                  $     312,424,000 $     289,695,000

                                         ================= =================

Company Contacts:

Daniel P. McCartney

Chairman and Chief Executive Officer


Theodore Wahl

President and Chief Operating Officer


Source: Healthcare Services Group, Inc.

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