Healthcare Services Group, Inc. Reports Q4 2022 Results

About this update from Healthcare Services Group, Inc.

Achieves Direct Cost Target, Rebalances Capital Allocation Strategy BENSALEM, Pa. --(BUSINESS WIRE)-- Healthcare Services Group, Inc. (NASDAQ:HCSG) (the “Company”) reported for the three months ended December 31, 2022 revenue of $424.0 million , net income of $16.2 million , or $0.22 per basic and diluted common share, and cash flow from operations of $22.9 million . The Company also announced that, as part of a comprehensive rebalancing of its capital allocation strategy, its Board of Directors has suspended the quarterly cash dividend on its common stock and authorized the repurchase of up to 7.5 million shares of its common stock. Q4 Results Revenue for the quarter was reported at $424.0 million , with housekeeping & laundry and dining & nutrition segment revenues of $198.0 million and $226.0 million , respectively. Housekeeping & laundry and dining & nutrition segment margins were 8.7% and 4.3%, respectively. Direct cost of services was reported at $366.8 million , or 86.5%. Direct cost included a $9.8 million benefit related to favorable workers’ compensation loss development trends offset, in part, by an $8.6 million increase in AR reserves. Selling, general and administrative (“SG&A”) was reported at $39.5 million ; after adjusting for the $2.1 million increase in deferred compensation, actual SG&A was $37.4 million , or 8.8%. The effective tax rate was 19.4% for the fourth quarter and 23.2% for full year 2022. The Company expects a 2023 tax rate of 24% to 26%. Cash flow from operations for the quarter was $22.9 million and was impacted by a $3.1 million decrease in accrued payroll, including the impact of the second half, or $24.4 million , of the deferred FICA payment. DSO for the quarter was 72 days. Ted Wahl , Chief Executive Officer, stated, “I’m pleased with our fourth quarter results, which underscore the resilience of our business model and continued passion and perseverance of our people in a challenging operating environment. We achieved our 2022 goal of exiting the year with cost of services in line with our historical target of 86%, met our Q4 goal of ‘collecting what we bill,’ and have a growing pipeline of future client-partners as we head into 2023.” Mr. Wahl continued, “While the industry continues to face headwinds related to workforce availability, inflation and supply chain constraints, we are encouraged by the gradual but steadily improving facility census and labor market trends. We will continue to closely monitor industry dynamics, and we remain confident that the growth outlook for the Company remains strong given our market leadership, efficient operating model and the attractive demographics.” Capital Allocation The Company, as part of its disciplined and balanced approach to managing capital, is rebalancing its capital allocation strategy to enhance financial flexibility, invest in organic and inorganic opportunities and accelerate value creation. As such, the Board of Directors has suspended the quarterly cash dividend on its common stock and authorized the repurchase of up to 7.5 million shares of its common stock. Mr. Wahl stated, “The Board regularly reviews the Company’s capital allocation strategy to ensure it supports our goal of creating value for shareholders by delivering on our near-term operational objectives and our growth outlook. As we look at the current opportunities, we believe that rebalancing our approach to allocating capital - especially given the prolonged industry recovery, ongoing macroeconomic challenges and our strong liquidity position - will result in more proactive, impactful and enduring value creation in the coming years.” Conference Call and Upcoming Events The Company will host a conference call on Wednesday, February 15, 2023 , at 8:30 a.m. Eastern Time to discuss its results for the three months ended December 31, 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 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, 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; 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 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 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. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands, except per share data) For the Three Months Ended For the Year Ended December 31 , December 31 , 2022 2021 2022 2021 Revenues $ 424,020 $ 420,447 $ 1,690,176 $ 1,641,959 Operating costs and expenses: Cost of services provided 366,810 377,230 1,496,336 1,415,082 Selling, general and administrative 39,524 44,290 140,344 173,108 Income from operations 17,686 (1,073 ) 53,496 53,769 Other income, net: Investment and other income (expense), net 2,372 2,760 (8,414 ) 8,054 Income before income taxes 20,058 1,687 45,082 61,823 Income tax expense (benefit) 3,899 (418 ) 10,452 15,960 Net income $ 16,159 $ 2,105 $ 34,630 $ 45,863 Basic earnings per common share $ 0.22 $ 0.03 $ 0.47 $ 0.61 Diluted earnings per common share $ 0.22 $ 0.03 $ 0.47 $ 0.61 Basic weighted average number of common shares outstanding 74,342 74,318 74,336 74,816 Diluted weighted average number of common shares outstanding 74,367 74,342 74,351 74,962 HEALTHCARE SERVICES GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands) December 31, 2022 December 31, 2021 Cash and cash equivalents $ 26,279 $ 70,794 Marketable securities, at fair value 95,200 114,396 Accounts and notes receivable, net 336,777 293,388 Other current assets 50,376 67,804 Total current assets 508,632 546,382 Property and equipment, net 22,975 28,102 Notes receivable - long-term 32,609 29,259 Goodwill 75,529 74,755 Other intangible assets, net 15,946 20,805 Deferred compensation funding 33,493 46,691 Other assets 29,150 31,535 Total Assets $ 718,334 $ 777,529 Accrued insurance claims - current $ 23,166 $ 24,310 Other current liabilities 155,453 166,815 Total current liabilities 178,619 191,125 Accrued insurance claims - long-term 65,541 65,084 Deferred compensation liability 33,764 46,888 Other non-current liabilities 14,238 21,755 Stockholders' equity 426,172 452,677 Total Liabilities and Stockholders' Equity $ 718,334 $ 777,529 View source version on businesswire.com : https://www.businesswire.com/news/home/20230215005331/en/ Theodore Wahl President and Chief Executive Officer Matthew J. McKee Chief Communications Officer 215-639-4274 [email protected] Source: Healthcare Services Group, Inc.

View stock analysis, news, and events for Healthcare Services Group, Inc.