Healthcare Services Group, Inc. Q2 FY2025 earnings call

• Genesis filed for Chapter 11 bankruptcy on July 9, with continued contractual relationship with Genesis facilities without disruption. Believes Genesis event is specific to Genesis and not reflective of industry. • Q2 was fifth consecutive sequential revenue increase, highest growth since Q1 2018, driven by new client wins and high retention. • Industry fundamentals gain strength with demographic tailwind, steady occupancy, increasing workforce, stable reimbursement. • One Big Beautiful Bill has political debate, but beneficial provisions like 10-year moratorium on staffing, industry exemption from provider tax reductions, $50B rural investment promote industry strength. • Top strategic priorities: driving growth, managing cost, optimizing cash flow. • Announced $50 million share repurchase plan over next 12 months.

Revenue was $458.5 million, an increase of 7.6% over the prior year. Segment revenues for Environmental Services were $205.8 million and for Dietary Services were $252.7 million. Segment margins for Environmental Services were 0.8% and included a $20.3 million noncash charge related to Genesis restructuring. Segment margins for Dietary Services were negative 10.1% and included a $40.9 million noncash charge related to Genesis restructuring.

• Reiterates 2025 mid-single-digit growth expectations. • Raises 2025 cash flow from operations forecast, excluding change in payroll accrual, from $60 million to $75 million to $70 million to $85 million. • Estimates Q3 revenue in range of $455 million to $465 million.

• Impact of Genesis bankruptcy on Q2 results. • Potential longer-term questions about Medicaid provisions and their impact on long-term and post-acute care facilities. • Political uncertainty around healthcare legislation.

Q: Will all exposure to Genesis be written off after third quarter and any sense of recoveries?

A: After third quarter, it will effectively be reserved in its entirety. Still early in process to speculate on recoveries.

Q: On growth, are you back to normalized rate with retention and new business?

A: Q2 was fifth consecutive sequential revenue increase, driven by organic growth, new business wins and 90%-plus retention rates expected to continue.

Q: Update on food inflation and pass-through?

A: We have rights to pass through increases, mitigate specific items with clinical dieticians, CPI for food at home has bounced around but we manage and pass through as needed.

Q: Why reiterate mid-single-digit guidance when trending higher?

A: Timing of new business adds can be fluid, so provide ranges, but trending in direction of mid-single digits.

Q: Genesis charge difference in Q2 and expected in Q3?

A: Q2 charge was tax rate related, and timing of prepetition monies causes modest $0.04 per share charge in Q3.

Q: Cross-selling of dining into Environmental Services and outlook?

A: New business pipeline split evenly between EVS and Dietary, dine-in contract has 2x revenue impact, still 50% penetrated in existing EVS customer base for cross-sell.

Q: Educational segment outlook?

A: Still less than 5% of total revenue, but positive early returns, committed to opportunity, complement to 2025 growth strategy