HEALTHCARE SERVICES GROUP INC Q3 FY2024 earnings call

• Third quarter results showed sequential and year-over-year growth in revenue, earnings, and cash flow. Revenue was $428.1 million, in line with expectations. Net income was $14 million and diluted EPS was $0.19 per share. Adjusted cash flow from operations was $19 million. • Industry fundamentals are positive with rising occupancy (79.8%), increased workforce availability (over 100,000 jobs added since 2023), and stable reimbursement environment including CMS's 4.2% increase in Medicare rates for FY 2025. • Cost of services was $364.7 million (85.2% of revenue), and SG&A was $44.5 million (10.4% of revenue). Other income was $2.3 million (0.5% of revenue). • The company repurchased over 350,000 shares ($4 million) of common stock in 2024, with 6.1 million shares remaining under the share repurchase authorization.

For the three months ended September 30, 2024, total revenue was $428.1 million. Housekeeping and laundry revenue was $191.1 million, accounting for 44.6% of total revenue, with a margin of 6.4%. Dining and nutrition revenue was $237 million, making up 55.4% of total revenue, and had a margin of 5.3%.

• Q4 expected revenue range is $430 million to $440 million. • Reaffirmed 2024 adjusted cash flow from operations range of $40 million to $55 million. • Confident in continuing to focus on strategic priorities of driving growth, managing costs, and optimizing collections to accelerate growth, enhance profitability, and maximize cash flow through 2025 and beyond.

• Regulatory risks such as potential significant revision or non-implementation of CMS's final minimum staffing rule due to pending litigation, legislation, or administration change. • Labor market risks including challenges in rural markets for staffing, and uneven recovery in the labor market affecting ability to hire and retain employees. • Weather-related risks as seen with recent storms in Florida and North Carolina, though no major disruptions to services or supply chains were reported, but the impact on clients and employees was noted.

Q: On cash flow, any visibility into full year target and impact of Change Healthcare payments?

A: Achieved over 98.5% collections for the quarter, positive momentum into Q4 with seasonality and year-end makeup payments, expecting continued collections on Change Healthcare delays in Q4 and optimization of cash collections.

Q: How many days of payroll accrual in Q3 and Q4?

A: Third quarter was nine days, fourth quarter will be three days.

Q: CECL accounting comparison to legacy standard?

A: Prior to CECL, bad debt was booked as incurred; since CECL, bad debt is an average of 70 basis points of revenue as a plug for comparison.

Q: SNF room demand from increasing acuity in assisted living?

A: Company sees opportunity across the senior living continuum, with greater opportunity in assisted living dining services compared to environmental services.

Q: SG&A management and Education segment seasonality?

A: SG&A managed as a percentage of revenue with investments in employee engagement, brand, and technology; Education segment has seasonality but minimal impact on total company results.

Q: Hourly workforce and food inflation?

A: Labor market stabilizing with wage growth, challenges in rural markets; food inflation was five basis points in Q3, with recent trends showing sequential increase.

Q: Capital deployment and inorganic growth?

A: Share repurchase is opportunistic with holistic consideration of returns; inorganic growth opportunities exist, but selective due to market position.