Declares Quarterly Cash Dividend of $0.20125
Per Share, the 66th Consecutive Increase Since 2003
Announces Promotion of Andy Kush to Chief
Operating Officer
Healthcare Services Group, Inc. (NASDAQ:HCSG) (the “Company”)
reported for the three months ended December 31, 2019 revenue of
$447.0 million, net income of $18.9 million, or $0.25 per basic and
diluted common share, and cash flow from operations of $13.4
million. Additionally, the Company’s Board of Directors declared a
quarterly cash dividend of $0.20125 per common share, the 66th
consecutive increase since the initiation of dividend payments in
2003.
Ted Wahl, Chief Executive Officer, stated, “During the quarter,
we were focused on managing the base business and effectively
deploying our account managers to new opportunities. That focus
paid off, as we delivered solid facility-level results and made
progress on reassigning account managers to new facilities. While
our Q4 payroll costs remained temporarily higher as we continue to
have excess management capacity, we expect these costs to decrease
in the coming quarters.”
Mr. Wahl continued, “In 2020, we’ll continue to prioritize
managing the base business and ensuring that our managers are
assigned to exciting, new opportunities. We’ll also maintain a
disciplined view on growth and credit-related decisions, as the
industry continues to work its way through the latter stages of
this challenging cycle. We’re seeing industry fundamentals continue
to improve, with the positive impact of the Patient Driven Payment
Model and 2.4% Medicare increase, both of which took effect October
1 of last year, along with more favorable occupancy trends.”
Mr. Wahl concluded, “Our longer term growth outlook remains
positive, as we believe there is great opportunity for continued
expansion. The demand for our services remains strong, with
significant white space to drive long-term growth. We remain
committed to returning capital to shareholders, as evidenced by our
stable and growing dividend, and creating value for all
stakeholders.”
Fourth Quarter Results
Revenue for the quarter was $447.0 million, with dining &
nutrition and housekeeping & laundry segment revenues of $224.9
million and $222.1 million, respectively. During the quarter, new
business additions partially offset a previously reported $15
million revenue decrease from the Q3 facility exits, as the Company
maintained discipline in credit-related decisions.
Direct cost of services was reported at $386.7 million, or
86.5%. The temporary cost increase relates to approximately $4.0
million of payroll for account managers who have transitioned out
of facilities the Company no longer services, as well as costs
related to starting up new business during the quarter. The Company
expects this cost impact to decrease as account managers continue
to be assigned to new facilities at which they are budgeted and the
new business additions operate on budget. Direct cost also included
an approximately $2.0 million benefit primarily related to
favorable workers’ compensation loss development trends, as the
Company continues to successfully execute on its strategy of
reducing claim frequency, scope and severity. Overall, the
Company’s near-term goal is to manage Direct cost at 86%, excluding
the temporary investments in management capacity and any new
business start-up inefficiencies that may occur.
Selling, general and administrative (“SG&A”) was reported at
$36.8 million, or 8.2%; after adjusting for the $2.4 million change
in deferred compensation, actual SG&A was $34.4 million, or
7.7%. During the quarter, SG&A was also impacted by
approximately $1.5 million of legal and professional fees related
to the previously announced SEC matter. The Company expects
SG&A to approximate 7.5% in the year ahead, excluding any
SEC-related costs, with the ongoing opportunity to garner
additional efficiencies.
The Company reported an effective tax rate of 27.0% and 24.1%
for the fourth quarter and year, respectively. The Q4 and 2019 tax
rates were impacted by a reduction in Worker Opportunity Tax Credit
(“WOTC”) program credits, primarily due to the historically low
unemployment rate and resulting decrease in WOTC-eligible new
hires. The Company expects a 2020 tax rate of 24% to 26%.
Cash flow from operations for the quarter was $13.4 million,
inclusive of the $17.7 million decrease in accrued payroll, and
$93.6 million for the year. DSO for the quarter was reported at 70
days, consistent with the previous quarter.
Dividend
The Company’s Board of Directors declared a quarterly cash
dividend of $0.20125 per common share, payable on March 27, 2020 to
shareholders of record at the close of business on February 28,
2020. This represents the 67th consecutive quarterly cash dividend
payment, as well as the 66th consecutive increase since the
initiation of quarterly cash dividend payments in 2003.
Chief Operating Officer
Appointment
The Company also announced Andy Kush, Executive Vice President
& Chief Administrative Officer has been promoted to the role of
Executive Vice President & Chief Operating Officer, effective
immediately. Mr. Kush’s responsibilities will continue to include
oversight of the Company’s field-based operations, ensuring the
Company best optimizes its talent, expertise and leadership across
its customer service delivery-related functions. Prior to his
appointment as Chief Administrative Officer, Mr. Kush served as
Senior Vice President of Human Resources & Risk Management. Mr.
Kush also serves as President of HCSG Insurance Corp.
Mr. Wahl added, “I am delighted to announce Andy’s promotion to
Chief Operating Officer. This is a natural progression of Andy’s
leadership and will allow him to bring his discipline and
results-oriented approach to the field-based operations team. I
have tremendous confidence in Andy's ability to drive strategic
prioritization and accountability, with a laser-focus on
operational excellence.”
Current Expected Credit Loss
Adoption
Effective January 1, 2020, the Company implemented the Current
Expected Credit Loss (“CECL”) accounting guidance, as required by
the Financial Accounting Standards Board. The standard requires a
transition from an incurred loss methodology to an expected loss
model when evaluating potential credit loss, primarily relating to
the Company’s accounts and notes receivable. The implementation of
CECL is expected to result in an initial, one-time increase of 70%
to 80% to the Company’s allowance for doubtful accounts through a
reduction of stockholders' equity.
Conference Call and Upcoming
Events
The Company will host a conference call on Wednesday, February
12, 2020, at 8:30 a.m. Eastern Time to discuss its results for the
three months ended December 31, 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 presenting at
Oppenheimer’s 30th Annual Healthcare Conference at the
InterContinental New York Barclay Hotel in New York City on March
17, 2020.
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
year ended December 31, 2019; credit and collection risks
associated with the healthcare industry; 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 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 Year Ended
December 31,
December 31,
2019
2018
2019
2018
Revenues
$
446,960
$
494,952
$
1,840,778
$
2,002,601
Operating costs and expenses:
Cost of services provided
386,723
424,617
1,612,877
1,768,162
Selling, general and administrative
36,833
31,995
150,022
136,603
Income from operations
23,404
38,340
77,879
97,836
Other income (expense) :
Investment and other income, net1
2,467
(3,333
)
7,217
2,074
Income before income taxes
25,871
35,007
85,096
99,910
Income taxes
6,976
3,455
20,515
16,386
Net income
$
18,895
$
31,552
$
64,581
$
83,524
Basic earnings per common share
$
0.25
$
0.43
$
0.87
$
1.13
Diluted earnings per common share
$
0.25
$
0.42
$
0.87
$
1.12
Cash dividends declared per common
share
$
0.20125
$
0.19625
$
0.79750
$
0.77750
Basic weighted average number of common
shares outstanding
74,404
74,092
74,362
74,002
Diluted weighted average number of common
shares outstanding
74,514
74,653
74,590
74,612
- 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)
December 31, 2019
December 31, 2018
Cash and cash equivalents
$
27,329
$
26,025
Marketable securities, at fair value
90,711
76,362
Accounts and notes receivable, net
340,930
341,838
Other current assets
56,762
63,911
Total current assets
515,732
508,136
Property and equipment, net
28,820
12,900
Notes receivable - long term
46,992
43,043
Goodwill
51,084
51,084
Other intangible assets, net
22,353
26,518
Deferred compensation funding
37,247
29,113
Other assets
20,364
21,809
Total assets
$
722,592
$
692,603
Accrued insurance claims - current
$
23,256
$
20,696
Other current liabilities
125,395
142,695
Total current liabilities
148,651
163,391
Accrued insurance claims - long term
64,366
58,904
Deferred compensation liability
37,621
29,528
Lease liability - long-term portion
11,649
—
Stockholders' equity
$
460,305
$
440,780
Total liabilities and stockholders'
equity
$
722,592
$
692,603
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200211006058/en/
Company Contacts:
Theodore Wahl President and Chief Executive Officer
Matthew J. McKee Chief Communications Officer
215-639-4274 investor-relations@hcsgcorp.com
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