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Healthcare Services Group, Inc. Reports Q2 2022 Results

07/20/2022

BENSALEM, Pa.--(BUSINESS WIRE)-- Healthcare Services Group, Inc. (NASDAQ:HCSG) (the “Company”) reported for the three months ended June 30, 2022 revenue of $424.9 million and net income of $6.8 million, or $0.09 per basic and diluted common share. The Company’s Board of Directors declared a quarterly cash dividend of $0.21375 per common share, the 76th consecutive increase since the initiation of dividend payments in 2003.

Ted Wahl, Chief Executive Officer, stated, “We have now either completed or are in the final stages of negotiation with our clients in modifying our service agreements, a goal we very aggressively pursued throughout the second quarter.”

Mr. Wahl continued, “As we continue to engage with our clients to capture recent and future inflation on a more real-time basis, several components of the partnership may be considered in the negotiations. Among those are restructuring our notes receivable with certain clients, altering the timing of collections with others, and even exercising our termination rights when we are unable to reach agreement.”

Mr. Wahl concluded, “While we recognize that some of these decisions have a temporary impact on our reported results, we remain confident that these service agreement modifications will further strengthen our client partnerships and position us to exit the year with cost of services in line with our historical target of 86%.”

Second Quarter Results

Revenue for the quarter was $424.9 million, with housekeeping & laundry and dining & nutrition segment revenues of $199.1 million and $225.8 million, respectively.

Direct cost of services was reported at $379.4 million, or 89.3%. Cost of services was impacted by a $7.0 million increase in AR reserves related to a client group placed into receivership. 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%.

Housekeeping & laundry and dining & nutrition segment margins were 9.0% and 4.5%, respectively.

Selling, general and administrative (“SG&A”) was reported at $29.3 million; after adjusting for the $6.4 million decrease in deferred compensation, actual SG&A was $35.7 million, or 8.4%. The Company expects 2022 SG&A to approximate 8.5% to 9.5%.

The Company reported an effective tax rate of 17.3% and expects a 2022 tax rate of 24% to 26%.

Cash flow from operations for the quarter was $9.0 million and was impacted by a $31.6 million increase in accounts receivable, primarily related to the timing of cash collections, offset, in part, by a $19.4 million increase in accrued payroll. DSO for the quarter was 71 days.

Dividend

The Company’s Board of Directors declared a quarterly cash dividend of $0.21375 per common share, payable on September 23, 2022 to shareholders of record at the close of business on August 19, 2022. This represents the 77th consecutive quarterly cash dividend payment, as well as the 76th 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, July 20, 2022, at 8:30 a.m. Eastern Time to discuss its results for the three months ended June 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 six months ended June 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 March 31, 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 six months ended

 

 

June 30,

 

June 30,

 

 

2022

 

2021

 

2022

 

2021

Revenues

 

$

424,857

 

$

398,171

 

$

851,668

 

$

805,922

Operating costs and expenses:

 

 

 

 

 

 

 

 

Cost of services provided

 

 

379,370

 

336,411

 

 

752,632

 

 

673,030

Selling, general and administrative

 

 

29,281

 

 

50,051

 

 

65,017

 

 

90,038

Income from operations

 

 

16,206

 

 

11,709

 

 

34,019

 

 

42,854

Other (expense) income, net:

 

 

 

 

 

 

 

 

Investment and other (loss) income, net

 

 

(7,956)

 

 

3,354

 

 

(9,988)

 

 

5,161

Income before income taxes

 

 

8,250

 

 

15,063

 

 

24,031

 

 

48,015

Income tax expense

 

 

1,430

 

 

5,498

 

 

5,882

 

 

13,797

 

 

 

 

 

 

 

 

 

Net income

 

$

6,820

 

$

9,565

 

$

18,149

 

$

34,218

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.09

 

$

0.13

 

$

0.24

 

$

0.46

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

 

$

0.09

 

$

0.13

 

$

0.24

 

$

0.45

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.21375

 

$

0.20875

 

$

0.42625

 

$

0.41625

 

 

 

 

 

 

 

 

 

Basic weighted average number of common shares outstanding

 

 

74,337

 

 

75,005

 

 

74,332

 

 

75,004

 

 

 

 

 

 

 

 

 

Diluted weighted average number of common shares outstanding

 

 

74,358

 

 

75,212

 

 

74,345

 

 

75,218

HEALTHCARE SERVICES GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

 

June 30, 2022

 

December 31, 2021

Cash and cash equivalents

$

31,681

 

$

70,794

Marketable securities, at fair value

 

97,488

 

 

114,396

Accounts and notes receivable, net

 

331,534

 

 

293,388

Other current assets

 

61,149

 

 

67,804

Total current assets

 

521,852

 

 

546,382

 

 

 

 

Property and equipment, net

 

25,632

 

 

28,102

Notes receivable — long-term

 

32,901

 

 

29,259

Goodwill

 

75,529

 

 

74,755

Other intangible assets, net

 

18,371

 

 

20,805

Deferred compensation funding

 

32,320

 

 

46,691

Other assets

 

33,453

 

 

31,535

Total Assets

$

740,058

 

$

777,529

 

 

 

 

Accrued insurance claims — current

$

26,378

 

$

24,310

Other current liabilities

 

157,551

 

 

166,815

Total current liabilities

 

183,929

 

 

191,125

 

 

 

 

Accrued insurance claims — long-term

 

69,233

 

 

65,084

Deferred compensation liability — long-term

 

32,789

 

 

46,888

Lease liability — long-term

 

9,856

 

 

11,299

Other long term liabilities

 

6,406

 

 

10,456

Stockholders' equity

 

437,845

 

 

452,677

Total Liabilities and Stockholders' Equity

$

740,058

 

$

777,529

 

Theodore Wahl
President and Chief Executive Officer

Matthew J. McKee
Chief Communications Officer

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

Source: Healthcare Services Group, Inc.

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