Healthcare Services Group, Inc. (NASDAQ:HCSG) (the “Company”)
reported for the three months ended June 30, 2020 revenue of $452.0
million, net income of $23.1 million, or $0.31 per basic and
diluted common share, and cash flow from operations of $79.7
million. Additionally, the Company’s Board of Directors declared a
quarterly cash dividend of $0.20375 per common share, the 68th
consecutive increase since the initiation of dividend payments in
2003.
Ted Wahl, Chief Executive Officer, stated, “During the quarter
we continued our intensive operational focus on mitigating the
effects of COVID-19 and remained steadfast in our commitment to
support our customers in the care of their patients and residents.
In the face of unprecedented challenges, it has been beyond
inspiring to witness our HCSG heroes as they, alongside our
clients’ employees, positively and profoundly impact the lives of
America's most vulnerable each and every day.”
Mr. Wahl continued, “Prior to the onset of the pandemic, sector
fundamentals were improving on the heels of positive trends around
occupancy, reimbursement and lease costs. While COVID-19 has
presented the industry with its share of near-term challenges,
we’ve been encouraged by swift and decisive federal and state
agency actions in support of providers. As we continue to navigate
this crisis, we will continue to assess the impact of COVID-19 on
our business and our industry, including the trends we are seeing
with regard to lower census and increased costs.”
Second Quarter Results
Revenue for the quarter was $452.0 million, with housekeeping
& laundry and dining & nutrition segment revenues of $227.6
million and $224.4 million, respectively. Revenue included $17.2
million of COVID-19 supplemental billings, primarily related to
employee pay premiums passed through to customers, which were
offset by temporary decreases in recurring billings as a result of
census-driven cost reductions in staffing and purchasing.
Direct cost of services was reported at $387.5 million, or
85.7%. The improvement is primarily the result of the Company
having successfully assigned its additional managers to facilities
at which they are budgeted. Overall, the Company’s near-term goal
remains to manage direct cost at or below 86.0%.
Housekeeping & laundry and dining & nutrition segment
margins were 11.1% and 8.3%, respectively.
Selling, general and administrative (“SG&A”) was reported at
$41.5 million, or 9.2%; after adjusting for the $6.5 million
increase in deferred compensation, actual SG&A was $35.0
million, or 7.7%. The Company continues to target SG&A of
7.5%.
The Company reported an effective tax rate of 24.0% and expects
a 2020 tax rate of 24.0% to 26.0%.
Cash flow from operations for the quarter was $79.7 million,
inclusive of the $20.7 million increase in accrued payroll, $15.4
million of which related to the deferral of payroll taxes under the
CARES Act.
Mr. Wahl stated, “We were pleased with our strong operating
results and service execution during the quarter and believe our
value proposition is more compelling today than ever before. By
prioritizing systems implementation and adherence, increasing
customer payment frequency and management recruitment and
development over the past couple years, along with our past
investments in technology and programmatic enhancements to our
workers’ compensation and general liability programs, we are better
positioned to thrive in the current environment.”
Mr. Wahl concluded, “Looking ahead, we will continue to innovate
in managing our business, coordinating with nursing departments to
do our part in the infection prevention and control continuum and
remaining flexible in responding to our client-partners’ evolving
service-level, staffing and supply chain needs. At this time, we
maintain our cautious view on growth as we make our way into a new
norm, and above all, remain deeply committed to making decisions
that best position us to deliver shareholder value over the long
term.”
Dividend
The Company’s Board of Directors declared a quarterly cash
dividend of $0.20375 per common share, payable on September 25,
2020 to shareholders of record at the close of business on August
21, 2020. This represents the 69th consecutive quarterly cash
dividend payment, as well as the 68th 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, July 22,
2020, at 8:30 a.m. Eastern Time to discuss its results for the
three months ended June 30, 2020. 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.
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; 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 six months ended June 30,
2020; credit and collection risks associated with the healthcare
industry; our claims experience related to workers’ compensation
and general liability insurance (including any claims 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; continued realization of tax benefits arising from our
corporate reorganization and self-funded health insurance program;
the impact of the SEC investigation and the related class action
lawsuit; risks associated with the reorganization of our corporate
structure; and the risk factors described in Part I of our Form
10-K for the fiscal year ended December 31, 2019 under “Government
Regulation of Clients,” “Service Agreements and Collections,” and
“Competition” and under Item 1A. “Risk Factors” in such Form 10-K,
and in Item 1A. "Risk Factors" of our Form 10-Q for the quarter
ended March 31, 2020.
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 and COVID-19) 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/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.
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,
2020
2019
2020
2019
Revenues
$
452,029
$
462,101
$
901,179
$
938,212
Operating costs and expenses:
Cost of services provided
387,517
400,485
774,673
827,750
Selling, general and administrative
41,465
38,609
71,482
79,710
Income from operations
23,047
23,007
55,024
30,752
Other income, net:
Investment and other income, net
7,365
610
2,170
4,757
Income before income taxes
30,412
23,617
57,194
35,509
Income tax expense
7,311
5,431
13,903
8,167
Net income
$
23,101
$
18,186
$
43,291
$
27,342
Basic earnings per common share
$
0.31
$
0.24
$
0.58
$
0.37
Diluted earnings per common share
$
0.31
$
0.24
$
0.58
$
0.37
Cash dividends declared per common
share
$
0.20375
$
0.19875
$
0.40625
$
0.39625
Basic weighted average number of common
shares outstanding
74,695
74,352
74,676
74,327
Diluted weighted average number of common
shares outstanding
74,761
74,619
74,764
74,669
HEALTHCARE SERVICES GROUP,
INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
(in thousands)
June 30, 2020
December 31, 2019
Cash and cash equivalents
$
78,109
$
27,329
Marketable securities, at fair value
92,318
90,711
Accounts and notes receivable, net
295,261
340,930
Other current assets
57,853
56,762
Total current assets
523,541
515,732
Property and equipment, net
28,558
28,820
Notes receivable - long-term
41,868
46,992
Goodwill
51,084
51,084
Other intangible assets, net
20,270
22,353
Deferred compensation funding
37,217
37,247
Other assets
34,150
20,364
Total Assets
$
736,688
$
722,592
Accrued insurance claims - current
$
24,806
$
23,256
Other current liabilities
144,689
125,395
Total current liabilities
169,495
148,651
Accrued insurance claims - long-term
68,212
64,366
Deferred compensation liability
37,211
37,621
Lease liability - long-term portion
12,083
11,649
Stockholders' equity
449,687
460,305
Total Liabilities and Stockholders'
Equity
$
736,688
$
722,592
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200721005918/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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