HCSG Healthcare Services Group Inc

Delivers Strong Earnings & Cash Flow, Provides 2025 Growth Expectations 

• Revenue of $437.8 million.

• Net income and diluted EPS of $11.9 million and $0.16, inclusive of new business start-up costs.

• Reported cash flow from operations of $36.2 million; actual cash flow from operations, excluding the change in payroll accrual, of $27.0 million.

• Expects mid-single digit revenue growth in 2025 and Q1 revenue in the range of $440.0 to $450.0 million.

• Expects 2025 actual cash flow from operations, excluding the change in payroll accrual, in the range of $45.0 to $60.0 million.

Healthcare Services Group, Inc. (NASDAQ:HCSG) today reported results for the three months ended December 31, 2024.

Ted Wahl, Chief Executive Officer, stated, “2024 was a transitional year for HCSG, as it marked a pivotal shift from recovery to renewed growth. This shift was highlighted by our Q4 results and the positive momentum we’re carrying into the new year. Looking ahead, we are confident that continuing to execute on our strategic priorities, supported by our strong business fundamentals, will enable us to further accelerate growth, enhance profitability, and maximize cash flow through 2025 and beyond.”

Fourth Quarter Results

• Revenue was reported at $437.8 million.
  • Housekeeping & laundry and dining & nutrition segment revenues and margins were $192.7 million and 10.2% and $245.1 million and 4.7%, respectively.
  • The Company expects mid-single digit revenue growth in 2025 and Q1 revenue in the range of $440.0 to $450.0 million.
• Cost of services was reported at $379.2 million or 86.6%, inclusive of new business start-up costs.
  • The Company’s 2025 goal is to manage cost of services in the 86% range.
• SG&A was reported at $44.8 million; after adjusting for the $0.4 million increase in deferred compensation, actual SG&A was $44.4 million or 10.1%, inclusive of new business start-up costs.
  • The Company’s 2025 goal is to manage SG&A into the 8.5% to 9.5% range.
• Net income and diluted EPS were reported at $11.9 million and $0.16, inclusive of new business start-up costs.
• Cash flow from operations was reported at $36.2 million; after adjusting for the $9.2 million increase in the payroll accrual, actual cash flow from operations was $27.0 million.
  • The Company estimates 2025 actual cash flow from operations, excluding the change in payroll accrual, in the range of $45.0 to $60.0 million.

Balance Sheet and Liquidity

The Company’s primary sources of liquidity are cash flow from operating activities, cash and cash equivalents, and its revolving credit facility. As of the end of the fourth quarter, the Company had cash and marketable securities of $135.8 million and a $500.0 million credit facility, inclusive of its $200.0 million accordion, which expires in November 2027.

Since the February 2023 share repurchase authorization, the Company has repurchased over $16.0 million of its common stock. The Company repurchased over $5.0 million of its common stock in 2024, including $1.0 million during the fourth quarter. The Company has 6.0 million shares remaining under its authorization.

Conference Call and Upcoming Events

The Company will host a conference call on Wednesday, February 12, 2025, at 8:30 a.m. Eastern Time to discuss its results for the three months ended December 31, 2024. The call may be accessed via phone at 1 (800) 715-9871, Conference ID: 9951274. 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.

The Company will be participating in Oppenheimer’s 35th Annual Healthcare MedTech & Services Conference, which will be conducted virtually on March 19, 2025.

About Healthcare Services Group, Inc.

Healthcare Services Group (NASDAQ: HCSG) is an experienced leader in managing housekeeping, laundry, dining, and nutritional services within the healthcare industry. With more than 45 years of experience, HCSG aims to provide improved operational, regulatory, and financial outcomes for our clients.

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; credit and collection risks associated with the healthcare industry; the impact of bank failures; our claims experience related to workers’ compensation, general liability and auto insurance; 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; the impacts of past or future cyber attacks or breaches; 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 IA. “Risk Factors” in such Form 10K.

These factors, in addition to delays in payments from customers and/or customers undergoing restructurings, have resulted in, and could continue to result in, significant additional bad debts in the near future. Additionally, our operating results have been in the past and could in the future 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) 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 adjusted cash flows 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.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in thousands, except per share data)

 

 

For the Three Months Ended

 

For the Year Ended

 

December 31,

 

December 31,

 

2024

 

2023

 

2024

 

2023

Revenue

$

437,812

 

$

423,840

 

$

1,715,682

 

$

1,671,389

Operating costs and expenses:

 

 

 

 

 

 

 

Cost of services

 

379,209

 

 

349,124

 

 

1,487,592

 

 

1,456,643

Selling, general and administrative

 

44,824

 

 

46,249

 

 

183,060

 

 

166,772

Income from operations

 

13,779

 

 

28,467

 

 

45,030

 

 

47,974

Other income, net

 

1,026

 

 

3,833

 

 

7,911

 

 

5,082

Income before income taxes

 

14,805

 

 

32,300

 

 

52,941

 

 

53,056

 

 

 

 

 

 

 

 

Income tax provision

 

2,885

 

 

8,792

 

 

13,470

 

 

14,670

Net income

$

11,920

 

$

23,508

 

$

39,471

 

$

38,386

 

 

 

 

 

 

 

 

Basic earnings per common share

$

0.16

 

$

0.32

 

$

0.54

 

$

0.52

 

 

 

 

 

 

 

 

Diluted earnings per common share

$

0.16

 

$

0.32

 

$

0.53

 

$

0.52

 

 

 

 

 

 

 

 

Basic weighted average number of common shares outstanding

 

73,553

 

 

73,817

 

 

73,754

 

 

74,288

 

 

 

 

 

 

 

 

Diluted weighted average number of common shares outstanding

 

73,934

 

 

73,879

 

 

73,988

 

 

74,340

HEALTHCARE SERVICES GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

 

 

December 31,

2024

 

December 31,

2023

Cash and cash equivalents

$

56,776

 

$

54,330

Restricted cash equivalents

 

3,355

 

 

—

Marketable securities, at fair value

 

50,535

 

 

93,131

Restricted marketable securities, at fair value

 

25,105

 

 

—

Accounts receivable, net

 

330,907

 

 

344,864

Notes receivable, net

 

51,429

 

 

38,645

Other current assets

 

38,545

 

 

40,726

Total current assets

 

556,652

 

 

571,696

 

 

 

 

Property and equipment, net

 

28,198

 

 

28,774

Notes receivable — long-term, net

 

41,054

 

 

24,832

Goodwill

 

75,529

 

 

75,529

Other intangible assets, net

 

9,442

 

 

12,127

Deferred compensation funding

 

49,639

 

 

40,812

Other assets

 

42,258

 

 

36,882

Total assets

$

802,772

 

$

790,652

 

 

 

 

Accrued insurance claims — current

$

25,148

 

$

22,681

Other current liabilities

 

167,399

 

 

194,247

Total current liabilities

 

192,547

 

 

216,928

 

 

 

 

Accrued insurance claims — long-term

 

51,869

 

 

61,697

Deferred compensation liability — long-term

 

50,011

 

 

41,186

Lease liability — long-term

 

8,033

 

 

11,235

Other long-term liabilities

 

385

 

 

2,990

 

 

 

 

Stockholders’ equity

 

499,927

 

 

456,616

Total liabilities and stockholders’ equity

$

802,772

 

$

790,652

HEALTHCARE SERVICES GROUP, INC.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

(Unaudited)

 

Reconciliation of GAAP net income to EBITDA and adjusted EBITDA (in thousands)

 

For the Three Months Ended

 

For the Year Ended

 

December 31,

 

December 31,

 

2024

 

2023

 

2024

 

2023

GAAP net income

 

$

11,920

 

 

$

23,508

 

 

$

39,471

 

 

$

38,386

 

Income tax provision

 

 

2,885

 

 

 

8,792

 

 

 

13,470

 

 

 

14,670

 

Interest, net

 

 

(555

)

 

 

509

 

 

 

(424

)

 

 

1,629

 

Depreciation and amortization1

 

 

3,602

 

 

 

3,779

 

 

 

14,585

 

 

 

14,344

 

EBITDA

 

$

17,852

 

 

$

36,588

 

 

$

67,102

 

 

$

69,029

 

Share-based compensation

 

 

2,337

 

 

 

2,192

 

 

 

9,165

 

 

 

8,985

 

(Gain)/loss on deferred compensation, net2

 

 

(12

)

 

 

(28

)

 

 

(52

)

 

 

39

 

Adjusted EBITDA

 

$

20,177

 

 

$

38,752

 

 

$

76,215

 

 

$

78,053

 

Adjusted EBITDA as a percentage of revenue

 

 

4.6

%

 

 

9.1

%

 

 

4.4

%

 

 

4.7

%

Reconciliation of GAAP cash flows provided by operations to adjusted cash flows provided by operations (in thousands)

 

For the Three Months Ended

 

For the Year Ended

 

December 31,

 

December 31,

 

2024

 

2023

 

2024

 

2023

GAAP cash flows provided by operations

 

$

36,204

 

 

$

49,445

 

 

$

30,802

$

43,498

 

Accrued payroll3

 

 

(9,247

)

 

 

(21,563

)

 

 

3,573

 

(4,186

)

Adjusted cash flows provided by operations

 

$

26,957

 

 

$

27,882

 

 

$

34,375

$

39,312

 

1.

Includes right-of-use asset depreciation of $2.0 million and $7.8 million for the three and twelve months ended December 31, 2024, respectively, and $1.8 million and $6.4 million for the three and twelve months ended December 31, 2023.

2.

The Company offers a Supplemental Executive Retirement Plan (“SERP”) for executives and certain key employees which is also referred to as the Company’s “Deferred Compensation” plan. For SERP participants, the Company has historically retained, and anticipates continuing to retain, 100% of the funds received from SERP participants and holds such assets (the “Deferred Compensation Assets”) in a brokerage account where the investments are managed to mirror the investment elections of SERP participant holdings under such plans (the “Deferred Compensation Liabilities”). The Company’s changes in fair market value of the Deferred Compensation Assets are presented under the “Other income, net” caption on the Company’s Consolidated Statements of Comprehensive Income, however the corresponding and offsetting changes in the fair market value of the Deferred Compensation Liabilities are presented under the “Selling, general and administrative expense” caption.

3.

The accrued payroll adjustment reflects changes in accrued payroll for the three and twelve months ended December 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/20250212259240/en/

Theodore Wahl President and Chief Executive Officer

Vikas Singh Executive Vice President and Chief Financial Officer

Matthew J. McKee Chief Communications Officer

215-639-4274 investor-relations@hcsgcorp.com