HCSG Reports First Quarter Results

Delivers Strong Revenue, Earnings & Cash Flow Revenue of $447.7 million, an increase of 5.7% over the prior year. Net income and diluted EPS of $17.2 million and $0.23. Reported cash flow from operations of $27.5 million; cash flow from operations (excluding the change in payroll accrual) of $32.1 million, an increase of $41.3 million over the prior year. Reiterates 2025 mid-single digit growth expectations. Raises 2025 cash flow from operations forecast (excluding the change in payroll accrual) from $45.0 to $60.0 million to $60.0 to $75.0 million. Healthcare Services Group, Inc. (NASDAQ:HCSG) today reported results for the three months ended March 31, 2025. Ted Wahl, Chief Executive Officer, stated, “First quarter revenue and cash flow were our best results in five years, and we have carried that positive momentum into the second quarter. New client wins drove our organic growth, collections exceeded revenue, and we continued to strengthen our balance sheet. These favorable dynamics have positioned us to execute our 2025 growth plans, while delivering sustainable, profitable results in the year ahead.” First Quarter Results Revenue was reported at $447.7 million. Environmental and Dietary Services segment revenues and margins were $196.3 million and 10.8% and $251.3 million and 7.6%, respectively.The Company reiterated its 2025 mid-single digit revenue growth expectations.Cost of services was reported at $379.7 million or 84.8%.The Company’s 2025 goal is to manage cost of services in the 86% range.SG&A was reported at $45.0 million; after adjusting for the $1.4 million decrease in deferred compensation, actual SG&A was $46.4 million or 10.4%.The Company expects to manage SG&A in the 9.5% to 10.5% range in the near term, with the longer term goal of managing those costs into the 8.5% to 9.5% range.Net income and diluted EPS were reported at $17.2 million and $0.23.Cash flow from operations was reported at $27.5 million; after adjusting for the $4.6 million decrease in the payroll accrual, cash flow from operations was $32.1 million.The Company raised its 2025 cash flow from operations forecast (excluding the change in payroll accrual) from $45.0 to $60.0 million to $60.0 to $75.0 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 first quarter, the Company had cash and marketable securities of $143.9 million and a $500.0 million credit facility, inclusive of its $200.0 million accordion, which expires in November 2027. The Company repurchased approximately $7.0 million of common stock during the first quarter. In total, the Company has repurchased over $23.0 million of its common stock since the February 2023 share repurchase authorization with 5.4 million shares remaining under its authorization. Conference Call and Upcoming Events The Company will host a conference call on Wednesday, April 23, 2025, at 8:30 a.m. Eastern Time to discuss its results for the three months ended March 31, 2025. 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 attending and presenting at the RBC Capital Markets Global Healthcare Conference on May 21, 2025 at the InterContinental Barclay NY. The Company will be participating in Benchmark’s Healthcare House Call Virtual Conference which will be conducted virtually on May 29, 2025. The Company will be attending and presenting at the Baird Global Consumer, Technology & Services Conference on June 3, 2025 at the InterContinental Barclay NY. About Healthcare Services Group, Inc. Healthcare Services Group (NASDAQ: HCSG) is a 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,” “intend” 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; global events including ongoing international conflicts; and the risk factors described in Part I of our Form 10-K for the fiscal year ended December 31, 2024 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 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 net cash flow from operations (excluding the impact of payroll accrual), 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 March 31, 2025 2024 Revenue $ 447,662 $ 423,433 Operating costs and expenses: Cost of services 379,691 358,911 Selling, general and administrative 44,966 46,911 Income from operations 23,005 17,611 Other income, net 889 3,703 Income before income taxes 23,894 21,314 Income tax provision 6,666 6,005 Net income $ 17,228 $ 15,309 Basic earnings per common share $ 0.23 $ 0.21 Diluted earnings per common share $ 0.23 $ 0.21 Basic weighted average number of common shares outstanding 73,670 73,926 Diluted weighted average number of common shares outstanding 73,961 74,055 HEALTHCARE SERVICES GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands) March 31, 2025 December 31, 2024 Cash and cash equivalents $ 64,317 $ 56,776 Restricted cash equivalents 65 3,355 Marketable securities, at fair value 50,496 50,535 Restricted marketable securities, at fair value 29,051 — Accounts receivable, net 337,896 330,907 Notes receivable — short-term, net 49,121 51,429 Other current assets 44,022 63,650 Total current assets 574,968 556,652 Property and equipment, net 29,307 28,198 Notes receivable — long-term, net 36,197 41,054 Goodwill 80,042 75,529 Other intangible assets, net 10,018 9,442 Deferred compensation funding 46,832 49,639 Other assets 45,599 42,258 Total assets $ 822,963 $ 802,772 Accrued insurance claims — current $ 25,931 $ 25,148 Other current liabilities 172,818 167,399 Total current liabilities 198,749 192,547 Accrued insurance claims — long-term 53,259 51,869 Deferred compensation liability — long-term 46,766 50,011 Lease liability — long-term 7,948 8,033 Other long-term liabilities 2,043 385 Stockholders' equity 514,198 499,927 Total liabilities and stockholders' equity $ 822,963 $ 802,772 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 March 31, 2025 2024 GAAP net income $ 17,228 $ 15,309 Income tax provision 6,666 6,005 Interest, net (865 ) 1,081 Depreciation and amortization(1) 3,878 3,531 EBITDA $ 26,907 $ 25,926 Share-based compensation 3,738 2,484 Adjusted EBITDA $ 30,645 $ 28,410 Adjusted EBITDA as a percentage of revenue 6.8 % 6.7 % Reconciliation of GAAP cash flows provided by (used in) operations to net cash flow from operations (excluding the change in payroll accrual) For the Three Months Ended March 31, 2025 2024 GAAP cash flows provided by (used in) operations $ 27,501 $ (26,033 ) Accrued payroll(2) (4,591 ) (16,815 ) Net cash flow from operations (excluding the change in payroll accrual) $ 32,092 $ (9,218 ) 1. Includes right-of-use asset depreciation of $2.1 million for the three months ended March 31, 2025, and $1.8 million for the three months ended March 31, 2024. 2. The accrued payroll adjustment reflects changes in accrued payroll for the three months ended March 31, 2025 and 2024. 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. Source: Healthcare Services Group, Inc.