Healthcare Services Group, Inc. (NASDAQ:HCSG) (the “Company”)
reported for the three months ended December 31, 2020 revenue of
$423.2 million, net income of $27.7 million, or $0.37 per basic and
diluted common share, and cash flow from operations of $75.7
million. The Company’s Board of Directors declared a quarterly cash
dividend of $0.20625 per common share, the 70th consecutive
increase since the initiation of dividend payments in 2003.
Additionally, the Company expects to repurchase up to 1.0 million
shares of its common stock, pursuant to its previous authorization,
over the next 12 months.
Ted Wahl, Chief Executive Officer, stated, “As I reflect on this
past year, I’m filled with gratitude for how industry leaders,
clients and frontline healthcare workers, especially our HCSG
heroes, have led and served through one of the most trying periods
for our industry and country. I’d also like to thank you, fellow
shareholders, for your ongoing support, trust and confidence in
HCSG and our team during these unprecedented times.”
Mr. Wahl continued, “Our strong Q4 results are a testament to
the passion and perseverance of our team members and our ability to
execute in even the most challenging environment. In short, we were
able to control the elements of our business that are within our
control exceedingly well. We will remain laser focused on
delivering strong operational and financial results in the year
ahead.”
Mr. Wahl concluded, “With the vaccine rollout currently
underway, we're hopeful that the worst of the clinical nightmare is
behind us. That said, we know 2021 will still have its share of
pandemic-related challenges, as the industry gradually shifts from
crisis mode to a state of recovery. And while COVID remains a
near-term headwind on revenue, our commitment to internal
investment and returning capital to shareholders underscores our
positive, longer term growth outlook and creates value for all
stakeholders.”
Fourth Quarter Results
Revenue for the quarter was $423.2 million, with housekeeping
& laundry and dining & nutrition segment revenues of $219.9
million and $203.3 million, respectively. Revenue included $5.1
million of COVID supplemental billings, primarily related to
employee pay premiums passed through to customers.
Direct cost of services was reported at $352.2 million, or
83.2%. Direct cost included a $14.0 million benefit related to
favorable workers’ compensation loss development trends, as the
Company continues to successfully execute on its strategy of
managing claim frequency, scope and severity. Direct cost also
included $7.0 million of leadership recognition bonuses for
facility-based and district operational leaders, who were not
included in “hero pay” programs that recognized our hourly line
staff, for their extraordinary and heroic efforts throughout 2020.
The Company’s goal remains to manage direct cost at or below
86.0%.
Housekeeping & laundry and dining & nutrition segment
margins were 9.9% and 7.7%, respectively. Selling, general and
administrative (“SG&A”) was reported at $42.0 million, or 9.9%;
after adjusting for the $5.2 million increase in deferred
compensation, actual SG&A was $36.7 million, or 8.7%. The
Company expects near-term SG&A around 8.5%, with the primary
leverage existing in top-line growth. Longer term, the Company’s
target remains 7.5%.
The Company reported an effective tax rate of 20.4% for the
fourth quarter and 23.6% for full year 2020. The Company expects a
2021 tax rate of 24% to 26%.
Cash flow from operations for the quarter was $75.7 million.
This includes a $45.2 million increase in accrued payroll,
inclusive of a $14.3 million increase in deferred payroll taxes
under the CARES Act.
Dividend & Share Repurchase
The Company’s Board of Directors declared a quarterly cash
dividend of $0.20625 per common share, payable on March 26, 2021 to
shareholders of record at the close of business on February 26,
2021. This represents the 71st consecutive quarterly cash dividend
payment, as well as the 70th consecutive increase since the
initiation of quarterly cash dividend payments in 2003.
Additionally, the Company remains authorized to repurchase 1.7
million shares of our common stock pursuant to the previous Board
of Directors’ authorization and expects to repurchase up to 1.0
million shares over the next 12 months.
SEC Matter Update
As previously disclosed, the Securities and Exchange Commission
(“SEC”) has been conducting an investigation into the Company’s
earnings per share (“EPS”) calculation practices. Following receipt
of a letter from the SEC in November 2017 regarding its inquiry
into those practices and a subpoena in March 2018, the Company
authorized its outside counsel to conduct an internal
investigation, under the direction of the Company’s Audit
Committee, into matters related to the SEC subpoena. This
investigation was completed in March 2019, and the Company has
continued to cooperate with the SEC’s investigation and document
requests since then.
The Company and the SEC have recently commenced discussions
regarding a potential resolution of the investigation, which
focuses on periods prior to 2018. As discussions regarding a
potential resolution are ongoing, Mr. John C. Shea, the Company’s
Chief Financial Officer, has notified the Company that he is taking
a temporary leave of absence from his duties. During Mr. Shea’s
leave of absence, Mr. Andrew Brophy, a Certified Public Accountant
who has served as the Company’s Director of Accounting since
November 2020 and SEC Reporting Manager since January 2018, will
serve as the Company’s Acting Principal Accounting Officer.
Website Redesign
The Company recently launched its redesigned website at
www.hcsg.com, which better represents the organization in
services offered, and reflects the Company’s Purpose, Vision,
Values and Social Responsibility perspective. A new company
intranet site called the HUB has also been created and will be
accessible to all employees. The HUB is designed to address the
challenges of communicating directly with line staff employees,
given that they are dispersed over so many facilities and are
generally not frequent users of email. The HUB offers an
interactive platform through which to initiate two-way
communication with all employees and generally further engage every
associate.
Conference Call and Upcoming
Events
The Company will host a conference call on Wednesday, February
10, 2021, at 8:30 a.m. Eastern Time to discuss its results for the
three months ended December 31, 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 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 year ended December 31, 2020; 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; continued realization of tax
benefits arising from our corporate reorganization and self-funded
health insurance program; changes in the federal corporate tax
rate; the impact of the Securities and Exchange Commission
investigation and 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 quarters ended March 31, 2020,
June 30, 2020 and September 30, 2020.
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 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 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 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,
2020
2019
2020
2019
Revenues
$
423,177
$
446,960
$
1,760,303
$
1,840,778
Operating costs and expenses:
Cost of services provided
352,201
386,723
1,492,317
1,612,877
Selling, general and administrative
41,959
36,833
150,778
150,022
Income from operations
29,017
23,404
117,208
77,879
Other income, net:
Investment and other income, net
5,843
2,467
11,978
7,217
Income before income taxes
34,860
25,871
129,186
85,096
Income tax expense
7,113
6,976
30,504
20,515
Net income
$
27,747
$
18,895
$
98,682
$
64,581
Basic earnings per common share
$
0.37
$
0.25
$
1.32
$
0.87
Diluted earnings per common share
$
0.37
$
0.25
$
1.32
$
0.87
Cash dividends declared per common
share
$
0.20625
$
0.20125
$
0.81750
$
0.79750
Basic weighted average number of common
shares outstanding
74,730
74,404
74,696
74,362
Diluted weighted average number of common
shares outstanding
74,837
74,514
74,785
74,590
HEALTHCARE SERVICES GROUP,
INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
(in thousands)
December 31, 2020
December 31, 2019
Cash and cash equivalents
$
139,330
$
27,329
Marketable securities, at fair value
125,012
90,711
Accounts and notes receivable, net
255,474
340,930
Other current assets
52,587
56,762
Total current assets
572,403
515,732
Property and equipment, net
26,561
28,820
Notes receivable - long-term
34,417
46,992
Goodwill
51,084
51,084
Other intangible assets, net
18,187
22,353
Deferred compensation funding
46,825
37,247
Other assets
35,554
20,364
Total Assets
$
785,031
$
722,592
Accrued insurance claims - current
$
21,610
$
23,256
Other current liabilities
140,650
125,395
Total current liabilities
162,260
148,651
Accrued insurance claims - long-term
60,818
64,366
Deferred compensation liability
46,827
37,621
Other non-current liabilities
34,665
11,649
Stockholders' equity
480,461
460,305
Total Liabilities and Stockholders'
Equity
$
785,031
$
722,592
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210210005329/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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