Healthcare Services Group, Inc. (NASDAQ:HCSG) (the “Company”)
reported for the three months ended June 30, 2021 revenue of $398.2
million, net income of $9.6 million, or $0.13 per basic and diluted
common share, and cash flow from operations of $25.3 million. The
Company’s Board of Directors declared a quarterly cash dividend of
$0.20875 per common share, the 72nd consecutive increase since the
initiation of dividend payments in 2003.
Ted Wahl, Chief Executive Officer, stated, “While Q2 reported
results were impacted by temporary or non-recurring items, our
underlying operational and financial performance was strong and in
line with recent quarters as we continue to execute on our strategy
and manage the elements of our business that are within our
control.”
Mr. Wahl continued, “Also during Q2, we agreed to temporarily
modify the terms of our agreements with Genesis, as it continues to
work through its restructuring plan. We believe that these
temporary adjustments, in conjunction with concessions made by
other stakeholders, are in our best interest as Genesis’ facilities
provide a broad platform for strategic opportunities in the
future.”
Mr. Wahl concluded, “We remain encouraged by the stabilizing
industry landscape, while also cognizant that significant
uncertainty related to COVID-19 remains. We’ll continue to closely
monitor the various interrelated factors that will play a crucial
role in industry recovery, including immunization rates, occupancy
trends, staffing levels, and government funding. Looking ahead,
given the new dining & nutrition agreements, we’re excited
about our return to growth in Q3 and are confident the Company is
well positioned for long-term growth.”
New Business Update
The Company expects over $50.0 million of annualized revenue
growth, or over $12.5 million per quarter, to be reflected in Q3,
consisting primarily of new dining & nutrition service
agreements with existing housekeeping & laundry customers.
Genesis Healthcare
The Company and Genesis reached an agreement in principle to
modify pricing through December 2021 and payment terms through
December 2022. The full run-rate impact of these temporary
adjustments is reflected in Q2 and accounted for the majority of
the Company’s sequential decrease in revenue, increase in DSO, and
unfavorably impacted Q2 earnings by $0.03 per share.
Legal Update
The Company recorded a $6.0 million reserve related to the
potential settlement of the previously announced Securities and
Exchange Commission (“SEC”) matter and will continue to cooperate
with the SEC in working toward a final resolution. Additionally,
the Company incurred $0.7 million of SEC-related legal and
professional fees. The Company also reserved $3.0 million related
to the expected mediated settlements of California labor and
employment matters. These one-time legal reserves and fees
unfavorably impacted Q2 earnings by $0.12 per share.
Second Quarter Results
Revenue for the quarter was $398.2 million, with housekeeping
& laundry and dining & nutrition segment revenues of $202.8
million and $195.3 million, respectively. The majority of the
sequential decrease in revenue relates to the aforementioned
temporary Genesis adjustments. Revenue was also impacted by a $3.1
million sequential decrease of COVID-19 supplemental billings.
Direct cost of services was reported at $336.4 million, or
84.5%, below the Company’s historical target of 86.0%.
Housekeeping & laundry and dining & nutrition segment
margins were 11.2% and 7.0%, respectively.
Selling, general, and administrative (“SG&A”) was reported
at $50.1 million; after adjusting for the $2.9 million increase in
deferred compensation, actual SG&A was $47.1 million. SG&A
was also impacted by the aforementioned legal-related charges,
including $6.0 million related to the potential settlement of the
SEC matter, $0.7 million of SEC-related legal and professional
fees, and $3.0 million related to the expected mediated settlements
of California labor and employment matters.
The Company reported an effective tax rate of 36.5%. The Q2 tax
rate was impacted by the non-deductibility of the $6.0 million
charge related to the potential settlement of the SEC matter. The
Company expects an effective tax rate of 24-26% in Q3 and Q4.
Cash flow from operations for the quarter was $25.3 million and
was impacted by a $20.7 million increase in accrued payroll. DSO
for the quarter was 62 days. The majority of the sequential
increase in DSO relates to the aforementioned temporary Genesis
adjustments, which also decreased Q2 cash flow from operations.
Dividend & Share Repurchase
The Company’s Board of Directors declared a quarterly cash
dividend of $0.20875 per common share, payable on September 24,
2021 to shareholders of record at the close of business on August
20, 2021. This represents the 73rd consecutive quarterly cash
dividend payment, as well as the 72nd consecutive increase since
the initiation of quarterly cash dividend payments in 2003.
Additionally, the Company repurchased $1.8 million of its common
stock, pursuant to its previous authorization, during the quarter.
The Company remains authorized to repurchase 1.6 million shares of
the Company’s common stock pursuant to the previous Board of
Directors’ authorization.
Conference Call and Upcoming
Events
The Company will host a conference call on Wednesday, July 21,
2021, at 8:30 a.m. Eastern Time to discuss its results for the
three months ended June 30, 2021. 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 the 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,” “estimates,” “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 six months ended June 30, 2021; 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; 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, 2020 under “Government Regulation of
Clients,” “Service Agreements and Collections,” and "Competition"
and under Item IA. “Risk Factors” in such Form 10-K.
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 Six Months
Ended
June 30,
June 30,
2021
2020
2021
2020
Revenues
$
398,171
$
452,029
$
805,922
$
901,179
Operating costs and expenses:
Cost of services provided
336,411
387,517
673,030
774,673
Selling, general and administrative
50,051
41,465
90,038
71,482
Income from operations
11,709
23,047
42,854
55,024
Other income, net:
Investment and other income, net
3,354
7,365
5,161
2,170
Income before income taxes
15,063
30,412
48,015
57,194
Income tax expense
5,498
7,311
13,797
13,903
Net income
$
9,565
$
23,101
$
34,218
$
43,291
Basic earnings per common share
$
0.13
$
0.31
$
0.46
$
0.58
Diluted earnings per common share
$
0.13
$
0.31
$
0.45
$
0.58
Cash dividends declared per common
share
$
0.20875
$
0.20375
$
0.41625
$
0.40625
Basic weighted average number of common
shares outstanding
75,005
74,695
75,004
74,676
Diluted weighted average number of common
shares outstanding
75,212
74,761
75,218
74,764
HEALTHCARE SERVICES GROUP,
INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
(in thousands)
June 30, 2021
December 31, 2020
Cash and cash equivalents
$
124,587
$
139,330
Marketable securities, at fair value
125,843
125,012
Accounts and notes receivable, net
271,081
255,474
Other current assets
68,981
52,587
Total current assets
590,492
572,403
Property and equipment, net
26,922
26,561
Notes receivable - long-term
35,156
34,417
Goodwill
61,659
51,084
Other intangible assets, net
17,208
18,187
Deferred compensation funding
50,434
46,825
Other assets
36,123
35,554
Total Assets
$
817,994
$
785,031
Accrued insurance claims - current
$
23,368
$
21,610
Other current liabilities
153,255
140,650
Total current liabilities
176,623
162,260
Accrued insurance claims - long-term
62,005
60,818
Deferred compensation liability
50,406
46,827
Other non-current liabilities
40,656
34,665
Stockholders' equity
488,304
480,461
Total Liabilities and Stockholders'
Equity
$
817,994
$
785,031
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210721005348/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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