Healthcare Services Group, Inc. (NASDAQ:HCSG) (the “Company”)
reported for the three months ended June 30, 2019 revenue of $462
million and net income of $18.2 million or $0.24 per basic and
diluted common share.
Second Quarter Results
Revenue for the quarter was $462 million, down $14 million
sequentially, primarily due to the Company exiting facilities in
conjunction with operator transitions, including those related to
the previously announced Chapter 11 reorganization of Senior Care
Centers. Approximately one half of that revenue step down is
reflected in the current quarter. Dining & nutrition and
housekeeping & laundry segment revenues were reported at $233
million and $229 million, respectively.
Direct cost of services was reported at $400 million, or 86.7%,
and included approximately $4 million of elevated payroll costs
primarily due to the facility transitions of account managers
related to the aforementioned operator changes as well as the
Company’s ongoing investment in its training and development
ramp-up.
Selling, general and administrative (“SG&A”) was reported at
8.4%, but after adjusting for the change in deferred compensation,
actual SG&A was $37 million, or 8%. During the quarter,
SG&A was also impacted by approximately $2 million of legal and
professional fees related to the previously announced SEC
matter.
The Company reported an effective tax rate of 23% in the second
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 $3 million,
inclusive of the $21 million decrease in accrued payroll. DSO for
the quarter was reported at 68 days.
CEO Comments
Ted Wahl, Chief Executive Officer, stated, “Over the past few
months, we continued to make progress on our near-term priorities
of systems adherence, customer payment frequency and management
development in what is still a tough environment for the
industry.”
Mr. Wahl added, “We worked through hundreds of facility operator
changes, sometimes under difficult circumstances, and there was an
unusually high number of new facility operators with whom we were
unable to come to agreeable terms and ultimately exited. We saw
that reflected in the revenue step down this past quarter.
Additionally, the high number of facility operator changes also
impacted some of the new business activity, as our field-based
leaders focused their attention on facility operator transitions
and retention, as opposed to new business opportunities.”
Mr. Wahl concluded, “Looking ahead, the Patient Driven Payment
Model and 2.5% increase in Medicare reimbursement, both starting in
October, along with improving occupancy trends, will go a long way
in strengthening the industry heading into 2020. For the rest of
the year, we will continue to focus on the customer experience and
our other near-term priorities to ensure we are well positioned for
the long-term growth opportunity that awaits, which is
compelling.”
Other Recent Developments and
Highlights
During the second quarter, the Company continued to make
progress on its near-term priorities:
- 2Q19 normalized cost of services were below 86% and
housekeeping & laundry and dining & nutrition segment
margins, which were impacted by the elevated payroll cost noted
above, were reported at 10.8% and 4.2%, respectively.
- Cash collections exceeded billings for the quarter, as the
Company has successfully transitioned over 55% of its customers to
an accelerated payment model.
- Increased the quality and quantity of management candidates
during the quarter, in both segments and across the majority of
divisions.
Dividend
The Company’s Board of Directors declared a quarterly cash
dividend of $0.19875 per common share, payable on September 27,
2019 to shareholders of record at the close of business on August
23, 2019. This represents the 65th consecutive quarterly cash
dividend payment, as well as the 64th consecutive increase since
the initiation of quarterly cash dividend payments in 2003.
Other Matters
The Company announced it further expanded the role and
responsibilities of Andrew W. Kush, Executive Vice President &
Chief Administrative Officer (“CAO”), to include oversight of the
Company’s field-based operations. Mr. Kush will be focused on
ensuring the Company is optimizing its talent, expertise and
leadership across its customer service delivery-related functions.
Prior to his appointment to CAO, Mr. Kush served as Senior Vice
President of Human Resources & Risk Management. Mr. Kush also
serves as President of HCSG Insurance Corp.
The Company also announced that David Hurlock, Chief Operating
Officer, will be leaving the Company at the end of the month.
Conference Call and Upcoming
Events
The Company will host a conference call on Wednesday, July 24,
2019, at 8:30 a.m. Eastern Time to discuss its results for the
three months ended June 30, 2019. The call may be accessed via
phone at 877-395-7164. 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 our website
for one year following the date of the earnings call.
The Company also announced that it will be attending and
presenting at CL King’s 17th Annual Best Ideas Conference at the
Omni Berkshire Place Hotel in New York on September 19, 2019.
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
six months ended June 30, 2019; credit and collection risks
associated with the healthcare industry; risks associated with the
ongoing Securities and Exchange Commission investigation into our
earnings per share calculation practices and related litigation;
our claims experience related to workers’ compensation and general
liability insurance; 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; continued realization of tax benefits arising from our
corporate reorganization and self-funded health insurance program;
risks associated with the reorganization of our corporate
structure; realization of our expectations regarding the impact of
the Tax Cuts and Jobs Act on our tax rates and financial results;
and the risk factors described in Part I of our Form 10-K for the
fiscal year ended December 31, 2018 under “Government Regulation of
Clients,” “Competition” and “Service Agreements and Collections,”
and under Item IA. “Risk Factors” in such Form 10-K.
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.
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,
2019
2018
2019
2018
Revenues
$
462,101
$
501,587
$
938,212
$
1,002,149
Operating costs and expenses:
Cost of services provided
400,485
436,287
827,750
905,283
Selling, general and administrative
38,609
34,118
79,710
67,895
Income from operations
23,007
31,182
30,752
28,971
Other income, net:
Investment and other income 1
610
2,134
4,757
2,950
Income before income taxes
23,617
33,316
35,509
31,921
Income tax expense
5,431
7,502
8,167
6,035
Net income
$
18,186
$
25,814
$
27,342
$
25,886
Basic earnings per common share
$
0.24
$
0.35
$
0.37
$
0.35
Diluted earnings per common share
$
0.24
$
0.35
$
0.37
$
0.35
Cash dividends declared per common
share
$
0.19875
$
0.19375
$
0.39625
$
0.38625
Basic weighted average number of common
shares outstanding
74,352
73,982
74,327
73,947
Diluted weighted average number of common
shares outstanding
74,619
74,487
74,669
74,606
- 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 which were reclassified
for prior period numbers when 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
(Unaudited)
(in thousands)
June 30, 2019
December 31, 2018
Cash and cash equivalents
$
16,156
$
26,025
Marketable securities, at fair value
79,533
76,362
Accounts and notes receivable, net
346,765
341,838
Other current assets
66,549
63,911
Total current assets
509,003
508,136
Property and equipment, net
29,603
12,900
Notes receivable - long-term
41,956
43,043
Goodwill
51,084
51,084
Other intangible assets, net
24,435
26,518
Deferred compensation funding
34,065
29,113
Other assets
19,985
21,809
Total Assets
$
710,131
$
692,603
Accrued insurance claims - current
$
22,385
$
20,696
Other current liabilities
129,006
142,695
Total current liabilities
151,391
163,391
Accrued insurance claims - long-term
62,815
58,904
Deferred compensation liability
34,193
29,528
Lease liability - long-term portion
12,084
—
Stockholders' equity
449,648
440,780
Total Liabilities and Stockholders'
Equity
$
710,131
$
692,603
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190723005941/en/
Theodore Wahl President and Chief Executive Officer
Matthew J. McKee Chief Communications Officer
215-639-4274 investor-relations@hcsgcorp.com
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