HCSG Healthcare Services Group Inc

Exceeds Earnings and Cash Flow Expectations, Revenue In-Line

• Revenue of $423.8 million; adjusted revenue(1) of $425.0 million, in-line with expectations.
• Net income and diluted EPS of $22.6 million and $0.31; adjusted net income(1) and adjusted diluted EPS(1) of $14.6 million and $0.20.
• Adjusted EBITDA(1) of $26.5 million, a 14.2% increase over Q4 2022.
• Cash flow from operations of $49.5 million; adjusted cash flow from operations(1) of $27.9 million, a 7.1% increase over Q4 2022.

Healthcare Services Group, Inc. (NASDAQ:HCSG) today reported results for the three months ended December 31, 2023.

Ted Wahl, Chief Executive Officer, stated, “Our team delivered strong fourth quarter results, building on our momentum throughout 2023. Against the backdrop of an ongoing industry recovery, we achieved 98% cash collections, managed adjusted cost of services under 86%, and exceeded our cash flow projections for the quarter and second half of 2023. We also continued to grow our new business and manager-in-training pipelines, and remain confident that we will deliver on our goal of year-over-year growth in 2024.”

Mr. Wahl continued, “Industry operating metrics continue to improve, and a stabilizing labor market and solid reimbursement environment have contributed to the steady occupancy recovery, which now sits at 79.2%, only 100 basis points below pre-pandemic levels. On the regulatory front, there remains uncertainty as to what a final minimum staffing rule may look like and when a decision will be published. We remain hopeful that CMS will fully consider the significant impact on operators before finalizing a rule, and if one is ultimately implemented, have confidence in our customers’ ability to manage in a prudent manner.”

Mr. Wahl concluded, “It’s an incredibly exciting time for the Company, as we’re rounding the turn of what has been a prolonged recovery for the industry. The challenges we navigated the past few years have further solidified our value proposition, the durability of our business model and market leading position. As we enter 2024, the Company’s underlying fundamentals are stronger than ever. With the industry at the beginning of a multi-decade demographic tailwind, we are favorably positioned to capitalize on the opportunities ahead and deliver meaningful, long-term shareholder value.”

Fourth Quarter Highlights

 

GAAP

Adjusted(1)

Revenue

$

423.8

$

425.0

Cost of services

$

350.4

$

362.6

Selling, general and administrative

$

46.2

$

42.2

Earnings per share

$

0.31

$

0.20

Cash flows provided by operating activities

$

49.5

$

27.9

• Revenue was $423.8 million; adjusted revenue was $425.0 million, in-line with the Company’s expectations of $420.0 million to $430.0 million. The Company estimates Q1 revenue in the range of $420.0 million to $430.0 million.
• Housekeeping & laundry and dining & nutrition segment revenues were $191.4 million and $232.4 million, respectively; adjusted housekeeping & laundry and dining & nutrition segment revenues were $191.7 million and $233.3 million, respectively.
• Housekeeping & laundry and dining & nutrition segment margins were 7.5% and 6.2%, respectively; adjusted housekeeping & laundry and dining & nutrition segment margins were 7.7% and 6.6%, respectively.
• Cost of services was $350.4 million; adjusted cost of services was $362.6 million, or 85.3%. The Company’s goal is to continue to manage adjusted cost of services in the 86% range.
• SG&A was $46.2 million; adjusted SG&A was $42.2 million, or 9.9%. The Company’s goal continues to be achieving adjusted SG&A in the 8.5% to 9.5% range.
• Diluted EPS was $0.31 per share; adjusted diluted EPS was $0.20 per share.

Balance Sheet and Liquidity

The Company’s primary sources of liquidity are cash and cash equivalents, its revolving credit facility, and cash flow from operating activities. As of the end of the fourth quarter, the Company had a current ratio of 2.6 to 1, cash and marketable securities of $147.5 million, and a $500.0 million credit facility, which expires in November 2027. Additionally, Q4 cash flow and adjusted cash flow from operations were $49.5 million and $27.9 million, respectively. During the second half of 2023, cash flow from operations was $52.4 million, exceeding the previously raised expected range of $35.0 million to $45.0 million.

The Company repurchased over one million shares, or $11.2 million, of its common stock during 2023, including over 0.5 million shares, or $5.0 million, of its common stock during the fourth quarter. The Company has 6.5 million shares remaining under its outstanding share repurchase authorization.

Conference Call and Upcoming Events

The Company will be attending and participating in the Oppenheimer 34th Annual Healthcare MedTech & Services Conference, which will be conducted virtually on March 13, 2024.

The Company will host a conference call on Wednesday, February 14, 2024, at 8:30 a.m. Eastern Time to discuss its results for the three months ended December 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.

(1) Adjusted results are non-GAAP financial measures and exclude the impact of certain items. See the tables within "Reconciliations of Non-GAAP Financial Measures" for more information.

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 year ended December 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 Clients,” “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 have been, and would continue to 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 adjusted revenues, adjusted segment revenues, adjusted segment margins, adjusted costs of services provided, adjusted selling, general and administrative expense, adjusted net income, adjusted diluted earnings per share, adjusted cash flows provided by (used in) operations, earnings before interest, taxes, depreciation and amortization ("EBITDA"), and EBITDA excluding items impacting comparability ("Adjusted EBITDA"). We cannot provide a reconciliation of forward-looking non-GAAP 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

 

For the Year Ended

 

December 31,

 

December 31,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenues

$

423,840

 

$

424,020

 

$

1,671,389

 

$

1,690,176

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

350,383

 

 

366,810

 

 

1,456,643

 

 

1,496,865

 

Selling, general and administrative

 

46,249

 

 

39,524

 

 

166,772

 

 

140,344

 

Income from operations

 

27,208

 

 

17,686

 

 

47,974

 

 

52,967

 

Other income (expense), net:

 

3,833

 

 

2,372

 

 

5,082

 

 

(8,414

)

Income before income taxes

 

31,041

 

 

20,058

 

 

53,056

 

 

44,553

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

8,443

 

 

3,899

 

 

14,670

 

 

10,310

 

Net income

$

22,598

 

$

16,159

 

$

38,386

 

$

34,243

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

$

0.31

 

$

0.22

 

$

0.52

 

$

0.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

$

0.31

 

$

0.22

 

$

0.52

 

$

0.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average number of common shares outstanding

 

73,817

 

 

74,342

 

 

74,288

 

 

74,336

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average number of common shares outstanding

73,879

74,367

74,340

74,351

HEALTHCARE SERVICES GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

 

 

December 31, 2023

 

December 31, 2022

Cash and cash equivalents

$

54,330

 

$

26,279

Marketable securities, at fair value

 

93,131

 

 

95,200

Accounts and notes receivable, net

 

383,509

 

 

336,777

Other current assets

 

40,726

 

 

50,376

Total current assets

 

571,696

 

 

508,632

 

 

 

 

Property and equipment, net

 

28,774

 

 

22,975

Notes receivable — long-term, net

 

24,832

 

 

32,609

Goodwill

 

75,529

 

 

75,529

Other intangible assets, net

 

12,127

 

 

15,946

Deferred compensation funding

 

40,812

 

 

33,493

Other assets

 

36,882

 

 

31,652

Total Assets

$

790,652

 

$

720,836

 

 

 

 

Accrued insurance claims — current

$

22,681

 

$

23,166

Other current liabilities

 

194,247

 

 

165,848

Total current liabilities

 

216,928

 

 

189,014

 

 

 

 

Accrued insurance claims — long-term

 

61,697

 

 

65,541

Deferred compensation liability — long-term

 

41,186

 

 

33,764

Lease liability — long-term

 

11,235

 

 

8,097

Other long term liabilities

 

2,990

 

 

6,141

 

 

 

 

Stockholders' equity

 

456,616

 

 

418,279

Total liabilities and stockholders' equity

$

790,652

 

$

720,836

HEALTHCARE SERVICES GROUP, INC.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

(Unaudited)

Reconciliation of GAAP revenue to adjusted revenue (in thousands)

 

For the Three Months Ended

 

For the Twelve Months Ended

 

December 31,

 

December 31,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

GAAP revenue

 

$

423,840

 

$

424,020

 

$

1,671,389

 

$

1,690,176

Client restructurings1

 

 

1,159

 

 

—

 

 

13,788

 

 

10,000

Adjusted revenue

 

$

424,999

 

$

424,020

 

$

1,685,177

 

$

1,700,176

Reconciliation of GAAP costs of services to adjusted costs of services (in thousands)

 

For the Three Months Ended

 

For the Twelve Months Ended

 

December 31,

 

December 31,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

GAAP costs of services

 

$

350,383

 

 

$

366,810

 

 

$

1,456,643

 

 

$

1,496,865

 

Client restructurings1

 

 

—

 

 

 

—

 

 

 

9,093

 

 

 

—

 

Bad debt expense adjustments2

 

 

(347

)

 

 

(6,856

)

 

 

(15,069

)

 

 

(24,948

)

Self-insurance adjustments3

 

 

12,534

 

 

 

9,805

 

 

 

12,534

 

 

 

9,805

 

Adjusted costs of services

 

 

362,570

 

 

 

369,759

 

 

 

1,463,201

 

 

 

1,481,722

 

Adjusted costs of services as a percentage of Adjusted revenues

 

 

85.3

%

 

 

87.2

%

 

 

86.8

%

 

 

87.2

%

Reconciliation of GAAP selling, general and administrative ("SG&A") to adjusted SG&A (in thousands)

 

For the Three Months Ended

 

For the Twelve Months Ended

 

December 31,

 

December 31,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

GAAP SG&A

 

$

46,249

 

 

$

39,524

 

 

$

166,772

 

 

$

140,344

 

(Gain)/loss on deferred compensation in SG&A4

 

 

(4,055

)

 

 

(2,147

)

 

 

(6,685

)

 

 

9,177

 

Adjusted SG&A

 

$

42,194

 

 

$

37,377

 

 

$

160,087

 

 

$

149,521

 

Adjusted SG&A as a percentage of adjusted revenues

 

 

9.9

%

 

 

8.8

%

 

 

9.5

%

 

 

8.8

%

Reconciliation of GAAP net income to adjusted net income (in thousands) and earnings per share to adjusted diluted earnings per share

 

For the Three Months Ended

 

For the Twelve Months Ended

 

December 31,

 

December 31,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

GAAP net income

 

$

22,598

 

 

$

16,159

 

 

$

38,386

 

 

$

34,243

 

(Gain)/loss on deferred compensation, net

 

 

(27

)

 

 

(13

)

 

 

39

 

 

 

108

 

Client restructurings1

 

 

1,159

 

 

 

—

 

 

 

22,881

 

 

 

10,000

 

Bad debt expense adjustments2

 

 

347

 

 

 

6,856

 

 

 

15,069

 

 

 

24,948

 

Self-insurance adjustments3

 

 

(12,534

)

 

 

(9,805

)

 

 

(12,534

)

 

 

(9,805

)

Tax effect of adjustments5

 

 

3,007

 

 

 

576

 

 

 

(7,038

)

 

 

(5,853

)

Adjusted net income

 

$

14,550

 

 

$

13,773

 

 

$

56,803

 

 

$

53,641

 

Adjusted net income as a percentage of adjusted revenues

 

 

3.4

%

 

 

3.2

%

 

 

3.4

%

 

 

3.2

%

GAAP diluted earnings per share

 

$

0.31

 

 

$

0.22

 

 

$

0.52

 

 

$

0.46

 

Adjusted diluted earnings per share

 

$

0.20

 

 

$

0.19

 

 

$

0.76

 

 

$

0.72

 

Weighted-average shares outstanding - diluted

 

 

73,879

 

 

 

74,367

 

 

 

74,340

 

 

 

74,351

 

HEALTHCARE SERVICES GROUP, INC.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

(Unaudited)

 

Reconciliation of GAAP net income to EBITDA and adjusted EBITDA (in thousands)

 

For the Three Months Ended

 

For the Twelve Months Ended

 

December 31,

 

December 31,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

GAAP net income

 

$

22,598

 

 

$

16,159

 

 

$

38,386

 

 

$

34,243

 

Income tax provision

 

 

8,443

 

 

 

3,899

 

 

 

14,670

 

 

 

10,310

 

Interest, net

 

 

509

 

 

 

256

 

 

 

1,628

 

 

 

(1,131

)

Depreciation and amortization6

 

 

3,779

 

 

 

3,756

 

 

 

14,344

 

 

 

15,316

 

EBITDA

 

$

35,329

 

 

$

24,070

 

 

$

69,028

 

 

$

58,738

 

Share-based compensation

 

 

2,192

 

 

 

2,058

 

 

 

8,985

 

 

 

9,214

 

(Gain)/loss on deferred compensation, net

 

 

(27

)

 

 

(13

)

 

 

39

 

 

 

108

 

Self-insurance adjustments3

 

 

(12,534

)

 

 

(9,805

)

 

 

(12,534

)

 

 

(9,805

)

Client restructurings1

 

 

1,159

 

 

 

—

 

 

 

22,881

 

 

 

10,000

 

Bad debt expense adjustments2

 

 

347

 

 

 

6,856

 

 

 

15,069

 

 

 

24,948

 

Adjusted EBITDA

 

$

26,466

 

 

$

23,166

 

 

$

103,468

 

 

$

93,203

 

Adjusted EBITDA as a percentage of adjusted revenue

 

 

6.2

%

 

 

5.5

%

 

 

6.2

%

 

 

5.5

%

Reconciliation of GAAP cash flows provided by (used in) operations to adjusted cash flows provided by (used in) operations (in thousands)

 

For the Three Months Ended

 

For the Twelve Months Ended

 

December 31,

 

December 31,

 

 

2023

 

 

 

2022

 

 

2023

 

 

 

2022

 

GAAP cash flows provided by (used in) operating activities

 

$

49,445

 

 

$

22,893

 

$

43,498

 

 

$

(8,167

)

Accrued payroll adjustments7

 

 

(21,563

)

 

 

3,148

 

 

(4,186

)

 

 

23,859

 

Adjusted cash flows provided by operating activities

 

$

27,882

 

 

$

26,041

 

$

39,312

 

 

$

15,692

 

HEALTHCARE SERVICES GROUP, INC.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

(Unaudited)

 

Reconciliation of GAAP segment margins to adjusted segment revenue and segment margins (in thousands)

 

For the Three Months Ended

 

For the Twelve Months Ended

 

December 31,

 

December 31,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

GAAP revenue - housekeeping

 

$

191,395

 

 

$

197,977

 

 

$

766,651

 

 

$

795,687

 

Client restructurings1 - housekeeping

 

 

349

 

 

 

—

 

 

 

4,065

 

 

 

2,289

 

Adjusted revenue - housekeeping

 

$

191,744

 

 

$

197,977

 

 

$

770,716

 

 

$

797,976

 

 

 

 

 

 

 

 

 

 

GAAP revenue - dietary

 

$

232,445

 

 

$

226,043

 

 

$

904,738

 

 

$

894,489

 

Client restructurings1 - dietary

 

 

810

 

 

 

—

 

 

 

9,723

 

 

 

7,711

 

Adjusted revenue - dietary

 

$

233,255

 

 

$

226,043

 

 

$

914,461

 

 

$

902,200

 

 

 

 

 

 

 

 

 

 

Segment margins:

 

 

 

 

 

 

 

 

GAAP housekeeping

 

 

7.5

%

 

 

8.7

%

 

 

8.0

%

 

 

9.2

%

GAAP dietary

 

 

6.2

%

 

 

4.3

%

 

 

4.8

%

 

 

3.2

%

Adjusted housekeeping

 

 

7.7

%

 

 

8.7

%

 

 

8.5

%

 

 

9.4

%

Adjusted dietary

 

 

6.6

%

 

 

4.3

%

 

 

5.8

%

 

 

4.1

%

1.

Client restructurings include changes to contracts with existing customers for which the Company has either recorded a reduction to revenue or an increase to bad debt expense due to clients entering bankruptcy, receivership, or out-of-court workouts.

2.

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

3.

Self-insurance adjustments reflect changes in the accrued insurance claims liability after considering our updated actuarial estimates for projected incurred losses on past claims.

4.

Gain/loss on deferred compensation, net represents the changes in fair market value on deferred compensation investments. The impact of offsetting investment portfolio gains are included in the “Other income (expense), net” caption on the Consolidated Statements of Income.

5.

The tax impact of adjustments is calculated using the Company’s effective tax rate for each period end.

6.

Depreciation and amortization includes right-of-use asset depreciation of $1.8 million and $6.4 million for the three and twelve months ended December 31, 2023, respectively, and $1.5 million and $6.1 million for the three and twelve months December 31, 2022, respectively.

7.

Accrued payroll adjustments reflect changes in accrued payroll for the three and twelve months ended December 31, 2023 and 2022. The Company processes payroll on set weekly and bi-weekly schedules, and the timing of payments may result in operating cash flow increases or decreases which are not indicative of the Company’s quarterly or annual cash flow performance.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240214158460/en/

Theodore Wahl President and Chief Executive Officer

Matthew J. McKee Chief Communications Officer

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