Healthcare Services Group, Inc. Reports Q1 2023 Results

Rhea-AI Summary

Healthcare Services Group (NASDAQ:HCSG) reported its Q1 2023 financial results, with revenue of $417.2 million and a net income of $12.7 million ($0.17 per share). The adjusted EBITDA rose by 18% to $27.5 million, signifying positive operational momentum. Revenue segments showed housekeeping & laundry at $193.5 million and dining & nutrition at $223.7 million. However, direct costs accounted for 86.5% of revenue, including a $6.9 million rise in reserves. Cash flow from operations was negative at -$16.3 million, affected by a $21.2 million drop in accrued payroll and an increase in accounts receivable. The effective tax rate stood at 27.8%, with an expected full-year rate of 24%-26%.

Positive

• Q1 revenue increased to $417.2 million.
• Adjusted EBITDA rose by 18% year over year to $27.5 million.
• Housekeeping & laundry and dining & nutrition segment revenues were $193.5 million and $223.7 million, respectively.

Negative

• Direct costs were 86.5% of revenue, indicating high operational expenses.
• Cash flow from operations was negative at $16.3 million.
• A $6.9 million increase in CECL AR reserves indicates potential credit risks.

Continues Positive Business Momentum, Adjusted EBITDA up 18%

BENSALEM, Pa.--(BUSINESS WIRE)-- Healthcare Services Group, Inc. (NASDAQ:HCSG) (the “Company”) reported for the three months ended March 31, 2023 revenue of $417.2 million, GAAP net income of $12.7 million, or $0.17 per basic and diluted common share, and adjusted EBITDA of $27.5 million.

Q1 Results

• Revenue for the quarter was reported at $417.2 million, with housekeeping & laundry and dining & nutrition segment revenues of $193.5 million and $223.7 million, respectively.
• Housekeeping & laundry and dining & nutrition segment margins were 10.4% and 6.6%, respectively.
• Direct cost of services was reported at $361.0 million, or 86.5%. Direct cost included a $6.9 million increase in CECL AR reserves.
• Selling, general and administrative (“SG&A”) was reported at $40.0 million; after adjusting for the $1.5 million increase in deferred compensation, actual SG&A was $38.5 million, or 9.2%.
• The effective tax rate was 27.8%, which included discrete items specific to Q1. The Company expects a 2023 tax rate of 24% to 26%.
• Adjusted EBITDA was $27.5 million, an 18% increase over the prior year's corresponding quarter.
• Cash flow used in operations for the quarter was $16.3 million and was impacted by a $21.2 million decrease in accrued payroll and a $20.6 million increase in accounts receivable related to the timing of cash collections. DSO for the quarter was 76 days.

Ted Wahl, Chief Executive Officer, stated, “We delivered strong operating results and service execution during the quarter, as our relentless focus on customer experience, systems adherence and regulatory compliance led to high quality and consistent outcomes for our client-partners. We successfully managed cost of services in line with our target of 86% and showed marked improvement in Q1 cash collections year over year in what has historically been our most challenging cash collections quarter. We also successfully exited the final tranche of facilities related to the 2022 contract modification initiative, providing a solid foundation for us to grow in the future.”

Mr. Wahl concluded, “Industry fundamentals continue to improve, and a stabilizing labor market and stronger reimbursement environment, especially at the state level, contributed to what has been a gradual occupancy recovery. Looking ahead, we are focused on executing on our strategic priorities to drive growth, and we remain confident in our ability to deliver long-term value to our shareholders.”

Conference Call and Upcoming Events

The Company will host a conference call on Wednesday, April 26, 2023, at 8:30 a.m. Eastern Time to discuss its results for the three months ended March 31, 2023. 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.

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, 2023; 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, 2022 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 United States of America (“GAAP”), the Company believes that certain non-GAAP financial measures are useful in evaluating operating performance and comparing such performance to other companies.

The Company is presenting earnings before interest, taxes, depreciation and amortization ("EBITDA"), and excluding items impacting comparability ("Adjusted EBITDA"). We cannot provide a reconciliation of forward-looking EBITDA and Adjusted EBITDA margin 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.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)
		For the Three Months Ended
		March 31,
		2023			2022
Revenues		$	417,230		$	426,811
Operating costs and expenses:
Costs of services provided			360,978			373,262
Selling, general and administrative			40,047			35,736
Income from operations			16,205			17,813
Other income (expense), net			1,351			(2,032	)
Income before income taxes			17,556			15,781
Income tax provision			4,872			4,452
Net income		$	12,684		$	11,329
Basic earnings per common share		$	0.17		$	0.15
Diluted earnings per common share		$	0.17		$	0.15
Basic weighted average number of common shares outstanding			74,497			74,326
Diluted weighted average number of common shares outstanding			74,518			74,333

HEALTHCARE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
	March 31, 2023			December 31, 2022
Cash and cash equivalents	$	16,153		$	26,279
Marketable securities, at fair value		95,985			95,200
Accounts and notes receivable, net		350,784			336,777
Other current assets		47,165			50,376
Total current assets		510,087			508,632
Property and equipment, net		23,400			22,975
Notes receivable — long-term		32,327			32,609
Goodwill		75,529			75,529
Other intangible assets, net		14,743			15,946
Deferred compensation funding		34,312			33,493
Other assets		28,735			29,150
Total assets	$	719,133		$	718,334
Accrued insurance claims — current	$	23,974		$	23,166
Other current liabilities		138,190			155,453
Total current liabilities		162,164			178,619
Accrued insurance claims — long-term		67,100			65,541
Deferred compensation liability — long-term		34,263			33,764
Lease liability — long-term		8,586			8,097
Other long term liabilities		6,448			6,141
Stockholders' equity		440,572			426,172
Total liabilities and stockholders' equity	$	719,133		$	718,334

HEALTHCARE SERVICES GROUP, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
(Unaudited)
(in thousands)
		For the three months ended March 31,
		2023			2022
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
Net income		$	12,684		$	11,329
Income tax provision			4,872			4,452
Interest, net			102			(417	)
Depreciation & amortization			3,720			4,147
EBITDA		$	21,378		$	19,511
Share-based compensation			2,058			2,396
Gain/loss on deferred compensation, net			44			289
Bad debt expense adjustments(1)			4,035			1,108
Adjusted EBITDA		$	27,515		$	23,304
(1) The bad debt expense adjustment reflects the difference between GAAP bad debt expense (CECL) and historical write-offs as a percentage of revenues, both of which are based on the same seven year look-back period.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20230426005308/en/

Theodore Wahl

President and Chief Executive Officer

Matthew J. McKee

Chief Communications Officer

215-639-4274

investor-relations@hcsgcorp.com

Source: Healthcare Services Group, Inc.

FAQ

What are Healthcare Services Group's Q1 2023 revenue figures?

Healthcare Services Group reported Q1 2023 revenue of $417.2 million.

How much did adjusted EBITDA increase for Healthcare Services Group in Q1 2023?

Adjusted EBITDA increased by 18% to $27.5 million in Q1 2023.

What was Healthcare Services Group's net income for Q1 2023?

Net income for Q1 2023 was $12.7 million, or $0.17 per share.

What were the direct costs as a percentage of revenue for HCSG in Q1 2023?

Direct costs were reported at 86.5% of total revenue in Q1 2023.

When is Healthcare Services Group's conference call to discuss Q1 2023 results?

The conference call is scheduled for April 26, 2023, at 8:30 a.m. Eastern Time.