HCSG Reports Q1 2024 Results
- Exceeded earnings expectations with revenue in line, reporting revenue of $423.4 million for Q1 2024.
- Net income of $15.3 million and adjusted net income of $16.5 million.
- Adjusted EBITDA of $28.9 million, a 10.7% increase over Q1 2023.
- Anticipated first quarter cash collection challenges due to a cyberattack, but confident in meeting the 2024 cash flow forecast.
- Industry fundamentals remain positive, with CMS proposing a 4.1% increase in Medicare rates for fiscal year 2025.
- None.
Insights
The reported Q1 financial performance of Healthcare Services Group showcases a robust financial standing. The exceedance of earnings expectations, along with an on-target revenue, is indicative of the company's adeptness in maintaining operational efficiency, particularly in the face of industry-wide challenges such as the Change Healthcare cyberattack. Notably, the adjusted EBITDA growth by 10.7% from the previous year reflects a strengthening operational core, potentially enhancing investor confidence in the company's growth trajectory.
While revenue remained steady, the increase in EPS (both reported and adjusted) may be seen as a positive signal of profitability improvements. However, investors should consider the consistency of these figures in subsequent quarters to ascertain a trend. The management's ability to keep the adjusted cost of services under the targeted 86% is commendable and a testament to their cost-containment strategies. One of the strategic pillars investors might appreciate is the company's liquidity position, highlighted by a strong current ratio and substantial cash reserves, leaving it well-equipped to navigate short-term obligations and invest in growth opportunities.
From an industry perspective, the report underscores several key elements influencing the healthcare services sector. The progress against the backdrop of workforce availability and occupancy levels inching towards pre-pandemic figures suggests a recovering market. The proposed 4.1% Medicare rate increase for FY 2025 could signal impending revenue boosts for providers like Healthcare Services Group, underpinning potential for improved margins.
Moreover, the mention of the CMS final minimum staffing rule and its possible non-implementation or revision points to a regulatory environment in flux. Investors should note how such changes can have ripple effects, potentially altering operational costs and strategic decisions. While the company's anticipation of such regulatory shifts demonstrates foresight, shareholders should remain vigilant of the actual outcomes and their subsequent impacts on the company's bottom line.
An evaluation of the financial and operational risks associated with Healthcare Services Group reveals a mixed landscape. The unexpected cyberattack incident at Change Healthcare, which affected HCSG's cash collections, is a stark reminder of the cyber risk inherent in today's digital-dependent business environments. While the company managed to minimize the impact, maintaining a 95% cash collection rate, the event highlights the necessity of robust cybersecurity measures and contingency planning.
Furthermore, the close attention to cash flow forecasts and the reiteration of the 2024 outlook despite the cyberattack-related hiccup evidences prudent financial management. Investors, however, should apply caution in assessing the long-term impact of such cyber risks and their mitigation plans as they could have far-reaching financial and reputational consequences.
Exceeds Earnings Expectations, Revenue In Line
Reiterates 2024 Cash Flow Forecast & Expectation for YoY Revenue Growth
-
Revenue of
$423.4 million -
Net income and diluted EPS of
$15.3 million $0.21 $16.5 million $0.22 -
Adjusted EBITDA(1) of
$28.9 million 10.7% increase over Q1 2023.
Ted Wahl, Chief Executive Officer, stated, “Our team delivered strong first quarter results, building on our positive momentum in 2023. During the quarter, we managed adjusted cost of services under
Mr. Wahl continued, “On the cash collections front, historically, the first quarter is our most challenging for cash collections, especially on the heels of the fourth quarter, which typically sees our strongest collections. The first quarter seasonality is anticipated and accounted for in our cash flow forecasting. However, what was unanticipated was the February Change Healthcare cyberattack. The resulting disruption had a far-reaching impact across the healthcare landscape and affected the claims submissions and billing activities of long-term and post-acute care providers, many of whom are HCSG customers. In spite of these first quarter headwinds, anticipated or otherwise, we achieved
Mr. Wahl stated, “Industry fundamentals continue to trend positively, with workforce availability continuing to improve, occupancy at
Mr. Wahl concluded, “As we round the turn of what has been a prolonged recovery for the industry, the Company’s underlying fundamentals are stronger than ever. We remain focused on executing on our strategic priorities to drive growth and deliver meaningful shareholder value in the year ahead.”
First Quarter Highlights
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GAAP |
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Adjusted(1) |
Revenue |
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Cost of services |
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Selling, general and administrative |
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Earnings per share |
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Cash flows used in operating activities |
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-
Revenue was
$423.4 million $420.0 million $430.0 million $420.0 million $430.0 million -
Housekeeping & laundry and dining & nutrition segment revenues were
$190.5 million $232.9 million -
Housekeeping & laundry and dining & nutrition segment margins were
9.7% and7.6% , respectively. -
Cost of services was
$358.9 million $357.3 million 84.4% . The Company’s goal is to continue to manage adjusted cost of services in the86% range. -
SG&A was
$46.9 million $42.8 million 10.1% . The Company’s goal continues to be achieving adjusted SG&A in the8.5% to9.5% range. -
Diluted EPS was
$0.21 $0.22
Balance Sheet and Liquidity
The Company’s primary sources of liquidity are cash and cash equivalents, its revolving credit facility, and cash flow from operating activities. As of the end of the first quarter, the Company had a current ratio of 2.8 to 1, cash and marketable securities of
Conference Call and Upcoming Events
The Company will be attending and participating in the following conferences:
- 2024 RBC Capital Markets Global Healthcare Conference being held on May 14, 2024 at the InterContinental Barclay NY
- Benchmark’s 2024 Healthcare House Call Virtual Conference, taking place on May 21, 2024
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The UBS Healthcare Services Cape Cod Summit on June 5, 2024 at Chatham Bars Inn in
Chatham, MA - Baird’s 2024 Global Consumer, Technology & Services Conference on June 6, 2024 at the InterContinental Barclay NY
The Company will host a conference call on Wednesday, April 24, 2024, at 8:30 a.m. Eastern Time to discuss its results for the three months ended March 31, 2024. The call may be accessed via phone at 1 (888) 330-3451, Conference ID: 4431380. 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.
(1) Adjusted results are non-GAAP financial measures and exclude the impact of certain items. See the tables within "Reconciliations of Non-GAAP Financial Measures" for more information.
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 federal securities laws, 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 and 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 three months ended March 31, 2024; credit and collection risks associated with the healthcare industry; the impact of bank failures; 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; and the risk factors described in Part I of our Form 10-K for the fiscal year ended December 31, 2023 under “Government Regulation of Customers,” “Service Agreements and Collections,” and “Competition” and under Item 1A. “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 by continued inflation particularly if 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) cannot 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 projected growth strategies. There can be no assurance that we will be successful in that regard.
USE OF NON-GAAP FINANCIAL INFORMATION
To supplement HCSG’s consolidated financial information, which are prepared in accordance with generally accepted accounting principles in
The Company is presenting adjusted cost of services provided, adjusted selling, general and administrative expense, adjusted net income, adjusted diluted earnings per share, adjusted cash flows (used in) provided by operations, earnings before interest, taxes, depreciation and amortization (“EBITDA"), and EBITDA excluding items impacting comparability ("Adjusted EBITDA"). We cannot provide a reconciliation of forward-looking non-GAAP measures to GAAP due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation. The presentation of non-GAAP financial measures is not meant to be considered in isolation or as a substitute for financial statements prepared in accordance with GAAP.
HEALTHCARE SERVICES GROUP, INC. |
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CONSOLIDATED STATEMENTS OF INCOME |
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(Unaudited) |
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(in thousands, except per share data) |
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For the Three Months Ended |
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March 31, |
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2024 |
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2023 |
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Revenue |
|
$ |
423,433 |
|
$ |
417,230 |
Operating costs and expenses: |
|
|
|
|
||
Costs of services |
|
|
358,911 |
|
|
362,379 |
Selling, general and administrative |
|
|
46,911 |
|
|
40,047 |
Income from operations |
|
|
17,611 |
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|
14,804 |
Other income (expense), net |
|
|
3,703 |
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|
1,351 |
Income before income taxes |
|
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21,314 |
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16,155 |
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Income tax provision |
|
|
6,005 |
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|
4,484 |
Net income |
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$ |
15,309 |
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$ |
11,671 |
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Basic earnings per common share |
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$ |
0.21 |
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$ |
0.16 |
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Diluted earnings per common share |
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$ |
0.21 |
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$ |
0.16 |
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Basic weighted average number of common shares outstanding |
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73,926 |
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74,497 |
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Diluted weighted average number of common shares outstanding |
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74,055 |
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74,518 |
HEALTHCARE SERVICES GROUP, INC. |
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CONDENSED CONSOLIDATED BALANCE SHEETS |
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(Unaudited) |
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(in thousands) |
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March 31, 2024 |
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December 31, 2023 |
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Cash and cash equivalents |
$ |
29,288 |
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$ |
54,330 |
Restricted cash equivalents |
|
24,695 |
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|
— |
Marketable securities, at fair value |
|
75,618 |
|
|
93,131 |
Accounts and notes receivable, net |
|
407,140 |
|
|
383,509 |
Other current assets |
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43,673 |
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|
40,726 |
Total current assets |
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580,414 |
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571,696 |
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Property and equipment, net |
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29,190 |
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|
28,774 |
Notes receivable — long-term, net |
|
23,287 |
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|
24,832 |
Goodwill |
|
75,529 |
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|
75,529 |
Other intangible assets, net |
|
11,456 |
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|
12,127 |
Deferred compensation funding |
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44,269 |
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|
40,812 |
Other assets |
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39,735 |
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|
36,882 |
Total assets |
$ |
803,880 |
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$ |
790,652 |
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Accrued insurance claims — current |
$ |
23,138 |
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$ |
22,681 |
Other current liabilities |
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186,237 |
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|
194,247 |
Total current liabilities |
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209,375 |
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|
216,928 |
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Accrued insurance claims — long-term |
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62,796 |
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|
61,697 |
Deferred compensation liability — long-term |
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44,271 |
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|
41,186 |
Lease liability — long-term |
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10,590 |
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|
11,235 |
Other long term liabilities |
|
2,267 |
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|
2,990 |
Stockholders' equity |
|
474,581 |
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|
456,616 |
Total liabilities and stockholders' equity |
$ |
803,880 |
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$ |
790,652 |
HEALTHCARE SERVICES GROUP, INC. |
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RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES |
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(Unaudited) |
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Reconciliation of GAAP costs of services provided to adjusted cost of services (in thousands) |
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For the Three Months Ended |
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March 31, |
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2024 |
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2023 |
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GAAP costs of services provided |
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$ |
358,911 |
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$ |
362,379 |
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Bad debt expense adjustments(1) |
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|
1,644 |
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|
|
4,035 |
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Adjusted cost of services |
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$ |
357,267 |
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$ |
358,344 |
|
Adjusted costs of services as a percentage of Adjusted revenues |
|
|
84.4 |
% |
|
|
85.9 |
% |
Reconciliation of GAAP selling, general and administrative ("SG&A") to adjusted SG&A (in thousands) |
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For the Three Months Ended |
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|
March 31, |
|||||||
|
2024 |
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2023 |
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GAAP SG&A |
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$ |
46,911 |
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|
$ |
40,047 |
|
(Gain)/loss on deferred compensation in SG&A(2) |
|
|
4,100 |
|
|
|
1,546 |
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Adjusted SG&A |
|
$ |
42,811 |
|
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$ |
38,501 |
|
Adjusted SG&A as a percentage of adjusted revenues |
|
|
10.1 |
% |
|
|
9.2 |
% |
Reconciliation of GAAP net income to adjusted net income (in thousands) and earnings per share to adjusted diluted earnings per share |
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For the Three Months Ended |
||||||
|
March 31, |
|||||||
|
2024 |
|
2023 |
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GAAP net income |
|
$ |
15,309 |
|
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$ |
11,671 |
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(Gain)/loss on deferred compensation, net |
|
|
(10 |
) |
|
|
44 |
|
Bad debt expense adjustments(1) |
|
|
1,644 |
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|
|
4,035 |
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Tax effect of adjustments(3) |
|
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(460 |
) |
|
|
(1,132 |
) |
Adjusted net income |
|
$ |
16,483 |
|
|
$ |
14,618 |
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Adjusted net income as a percentage of adjusted revenues |
|
|
3.9 |
% |
|
|
3.5 |
% |
GAAP diluted earnings per share |
|
$ |
0.21 |
|
|
$ |
0.16 |
|
Adjusted diluted earnings per share |
|
$ |
0.22 |
|
|
$ |
0.20 |
|
Weighted-average shares outstanding - diluted |
|
|
74,055 |
|
|
|
74,518 |
|
Reconciliation of GAAP net income to EBITDA and adjusted EBITDA (in thousands) |
|
For the Three Months Ended |
||||||
|
March 31, |
|||||||
|
2024 |
|
2023 |
|||||
GAAP net income |
|
$ |
15,309 |
|
|
$ |
11,671 |
|
Income tax provision |
|
|
6,005 |
|
|
|
4,484 |
|
Interest, net |
|
|
(48 |
) |
|
|
102 |
|
Depreciation and amortization(4) |
|
|
3,531 |
|
|
|
3,720 |
|
EBITDA |
|
$ |
24,797 |
|
|
$ |
19,977 |
|
Share-based compensation |
|
|
2,484 |
|
|
|
2,058 |
|
(Gain)/loss on deferred compensation, net |
|
|
(10 |
) |
|
|
44 |
|
Bad debt expense adjustments(1) |
|
|
1,644 |
|
|
|
4,035 |
|
Adjusted EBITDA |
|
$ |
28,915 |
|
|
$ |
26,114 |
|
Adjusted EBITDA as a percentage of adjusted revenue |
|
|
6.8 |
% |
|
|
6.3 |
% |
Reconciliation of GAAP cash flows used in operations to adjusted cash flows provided by (used in) operations (in thousands) |
|
For the Three Months Ended |
||||||
|
March 31, |
|||||||
|
2024 |
|
2023 |
|||||
GAAP cash flows used in operations |
|
$ |
(26,033 |
) |
|
$ |
(16,290 |
) |
Accrued payroll(5) |
|
|
16,815 |
|
|
|
21,167 |
|
Adjusted cash flows (used in) provided by operating activities |
|
$ |
(9,218 |
) |
|
$ |
4,877 |
|
| (1) | The bad debt expense adjustment reflects the difference between GAAP bad debt expense (CECL) and historical write-offs as a percentage of adjusted revenues, both of which are based on the same seven year look-back period. |
|
| (2) | Represents the changes in fair market value on deferred compensation investments. The impact of offsetting investment portfolio gains are included in the “Other (expense) income, net” caption on the Consolidated Statements on Income (Loss). |
|
| (3) |
The tax impact of adjustments is calculated using a |
|
| (4) |
Includes right-of-use asset depreciation of |
|
| (5) | The accrued payroll adjustment reflects changes in accrued payroll for the three months ended March 31, 2024 and 2023. The Company processes payroll on set weekly and bi-weekly schedules, and the timing of payments may result in operating cash flow increases or decreases which are not indicative of the Company’s quarterly cash flow performance. |
View source version on businesswire.com: https://www.businesswire.com/news/home/20240424139086/en/
Theodore Wahl
President and Chief Executive Officer
Matthew J.
Chief Communications Officer
215-639-4274
investor-relations@hcsgcorp.com
Source: Healthcare Services Group, Inc.
FAQ
What were Healthcare Services Group, Inc.'s revenue and net income for Q1 2024?
What was the adjusted EBITDA for Healthcare Services Group, Inc. in Q1 2024?
How did a cyberattack impact Healthcare Services Group, Inc.'s cash collections in Q1 2024?
What positive industry trends were mentioned in the PR for Healthcare Services Group, Inc.?
