Healthcare Services Group, Inc. (NASDAQ:HCSG) (the “Company”)
reported for the three months ended September 30, 2019 revenue of
$455 million, net income of $18.3 million or $0.25 per basic and
diluted common share and cash flow from operations of $60 million.
The Company declared a quarterly cash dividend of $0.20 per share,
its 66th consecutive quarterly cash dividend.
Third Quarter Results
Revenue for the quarter was $455 million, with dining &
nutrition and housekeeping & laundry segment revenues reported
at $230 million and $225 million, respectively. New business added
during the quarter was offset, in part, by the recent exit from
facilities affiliated with a New York-based ownership group, as the
Company maintains discipline in credit-related decisions. The
Company provided both services in the majority of the facilities
and expects an incremental revenue impact of $15 million in Q4.
Direct cost of services was reported at $398 million, or 87.4%.
The temporary cost increase related to payroll for account managers
who have either recently completed the management training program
or transitioned out of a facility that the Company is no longer
servicing. Additional costs were related to start-up inefficiencies
for new business added during the quarter. The Company expects a
decreasing impact from each, as account managers continue to be
assigned to new facilities at which they are budgeted and the new
business additions operate on budget.
Selling, general and administrative was reported at $33 million,
or 7.3%, with minimal impact from the change in deferred
compensation.
The Company reported an effective tax rate of approximately 23%
in the third quarter and expects a 2019 tax rate of 21% to 23%,
including the Worker Opportunity Tax Credit but excluding other
discrete items that impacted its 2018 rate.
Cash flow from operations was $60 million for the quarter,
primarily due to cash collections exceeding billings and a $24
million increase in accrued payroll. DSO was reported at 70 days,
up a day from Q2 due to the decrease in notes receivable previously
classified as long term, now due in less than 12 months and
included as part of current accounts and notes receivable.
CEO Comments
Ted Wahl, Chief Executive Officer, stated, “As the industry
works toward stabilization, we continue to take actions that
position the Company for long-term growth. Having management
capacity facilitated the new business adds we saw earlier in the
quarter, although that momentum was somewhat tempered by our recent
exit from a group of facilities, as we maintained discipline in
credit-related decisions.”
Mr. Wahl added, “While we continued our solid service execution
in the base business, Q3 payroll costs were temporarily higher, as
we still have management capacity from the strong recruiting and
training efforts over the previous 12 months and recent facility
exits. We aim to be as lean as possible, and we’re not looking to
carry additional personnel unnecessarily but investing in managers
is the most crucial element in our ability to operate and grow the
Company over the long term. We also had some additional temporary
payroll expenses, particularly early in the quarter, as we
inherited the inefficiencies within our new business adds, which
are now on budget.”
Mr. Wahl concluded, “For the balance of the year, we will have a
laser focus on managing the base business and selectively assigning
our managers to new opportunities. We will also continue with a
cautious view on growth as the industry works its way through the
latter stages of this challenging cycle and manages the transition
to the Patient Driven Payment Model. In the meantime, we remain
committed to making decisions that best position us to take
advantage of the growth opportunity that lies ahead and deliver
shareholder value over the long term.”
Dividend
The Company’s Board of Directors declared a quarterly cash
dividend of $0.20 per common share, payable on December 27, 2019 to
shareholders of record at the close of business on November 22,
2019. This represents the 66th consecutive quarterly cash dividend
payment, as well as the 65th 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, October
23, 2019, at 8:30 a.m. Eastern Time to discuss its results for the
three months ended September 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 Credit Suisse’s 28th Annual Healthcare Conference at
The Phoenician in Scottsdale, AZ on November 12, 2019 and the
Stephens Nashville Investment Conference at the Omni Nashville in
Nashville, TN on November 14, 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
nine months ended September 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 Nine Months
Ended
September 30,
September 30,
2019
2018
2019
2018
Revenues
$
455,606
$
505,500
$
1,393,818
$
1,507,649
Operating costs and expenses:
Cost of services provided
398,404
438,262
1,226,154
1,343,545
Selling, general and administrative
33,479
36,713
113,189
104,608
Income from operations
23,723
30,525
54,475
59,496
Other income, net:
Investment and other income 1
(7)
2,457
4,750
5,407
Income before income taxes
23,716
32,982
59,225
64,903
Income tax expense
5,372
6,896
13,539
12,931
Net income
$
18,344
$
26,086
$
45,686
$
51,972
Basic earnings per common share
$
0.25
$
0.35
$
0.61
$
0.70
Diluted earnings per common share
$
0.25
$
0.35
$
0.61
$
0.70
Cash dividends declared per common
share
$
0.20000
$
0.19500
$
0.59625
$
0.58125
Basic weighted average number of common
shares outstanding
74,387
74,019
74,347
73,972
Diluted weighted average number of common
shares outstanding
74,507
74,579
74,615
74,598
- 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)
September 30, 2019
December 31, 2018
Cash and cash equivalents
$
40,572
$
26,025
Marketable securities, at fair value
79,714
76,362
Accounts and notes receivable, net
349,654
341,838
Other current assets
61,972
63,911
Total current assets
531,912
508,136
Property and equipment, net
28,975
12,900
Notes receivable - long-term
36,883
43,043
Goodwill
51,084
51,084
Other intangible assets, net
23,394
26,518
Deferred compensation funding
34,385
29,113
Other assets
19,726
21,809
Total Assets
$
726,359
$
692,603
Accrued insurance claims - current
$
23,082
$
20,696
Other current liabilities
136,927
142,695
Total current liabilities
160,009
163,391
Accrued insurance claims - long-term
64,696
58,904
Deferred compensation liability
34,717
29,528
Lease liability - long-term portion
11,638
—
Stockholders' equity
455,299
440,780
Total Liabilities and Stockholders'
Equity
$
726,359
$
692,603
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191022006139/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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