HCSG

• Core Industry Fundamentals and Demographics

  • Long-term multi-decade demographic tailwind: the first baby boomers turned 80 in 2026, and all 70 million+ boomers will be over 65 by 2030, increasing demand for long-term and post-acute care services.
  • Current industry trends are positive: steady facility occupancy, healthcare workforce has recovered to pre-pandemic levels, and the reimbursement environment remains stable.
  • Recent federal regulatory and policy changes are aligned with provider and patient needs, supporting industry operations.

• Macro Environment and Cost Management

  • Management monitors broader macro volatility from geopolitical conflicts impacting energy and supply chains.
  • Long-standing vendor partnerships provide supply chain visibility and stability; the company can adjust sourcing strategies to mitigate cost pressures.
  • Contractual frameworks allow pass-through of unavoidable cost increases to preserve margins while maintaining service quality.

• 2026 Q3 Strategic Priorities

  • Drive growth via leadership development, sales pipeline conversion, existing client retention, and cultivation of strategic acquisition opportunities.
  • Manage costs through field-level operational execution and enterprise-level prudent spending controls.
  • Optimize cash flow via increased customer payment frequency, improved contract terms, and disciplined working capital management.

• Liquidity and Capital Allocation

  • Ended Q2 with $200.9 million in cash and marketable securities; the $300 million revolving credit facility is undrawn (only used for letters of credit).
  • Closed a small strategic acquisition in the campus business segment during Q2.
  • Repurchased $20.9 million of common stock in Q2, bringing year-to-date repurchases to $44.9 million under the 12-month $75 million buyback program announced in February 2026; $8.3 million remains under the current authorization.

• Financial Performance Highlights

  • Reported Q2 net income of $22.7 million, diluted EPS of $0.32, and operating cash flow of $21.9 million ($27.9 million excluding payroll accrual changes).
  • Cost of services came in at 84.1% of revenue, below the 86% target, driven by strong execution and lower-than-historical bad debt expense.
  • Reported SG&A of $52.6 million; adjusted for a $6.9 million deferred compensation increase, SG&A was 9.7% of revenue, within the 9.5%-10.5% short-term target range.

• Reaffirms full-year 2026 mid-single-digit revenue growth outlook, with expected acceleration in growth during the second half of the year.
• Q3 2026 revenue guidance is set at a range of $475 million to $485 million.
• Expects full-year 2026 effective tax rate of approximately 25%.
• Maintains the medium-term target for cost of services of 86% of revenue, and a long-term SG&A target range of 8.5% to 9.5% of revenue (down from the current 9.5% to 10.5% short-term range).
• No ERC receipts are expected or included in 2026 cash flow guidance, as remaining pending claims have uncertain timing.

1. Environmental Services: Revenue of $213.2 million, representing 45.3% of total company revenue, with a segment margin of 13.3%. 2. Dietary Services: Revenue of $257.6 million, representing 54.7% of total company revenue, with a segment margin of 7.5%. Total company Q2 2026 revenue was $470.8 million.

• Actual future results may differ materially from forward-looking statements due to a range of uncertain factors, including those outlined in the company's SEC filings (Form 10-K, MD&A, and other disclosures).
• Ongoing geopolitical conflicts create sustained volatility in global energy and supply markets, which could drive unexpected cost inflation for supplies and food.
• Timing of new business launches and acquisition closing is fluid, and opportunities may be pushed out between quarters, creating potential volatility in quarterly growth outcomes.
• Actuarial adjustments for self-insurance reserves (workers' compensation and general liability) can create unpredictable quarterly earnings volatility, though the benefit from excess reserves is expected to trend toward zero over time.
• Pending employee retention credit (ERC) claims have highly uncertain timing, with no guarantee of future receipts.
• While the current labor market has improved for hiring and retention, some local markets still face ongoing staffing challenges.

Q: Analysts asks what drives the expected 4Q growth acceleration, whether new business timing is already confirmed, and if it is tied to campus segment seasonal trends. / A: CEO Ted Wahl explains the acceleration is driven by the composition of the current new business and acquisition pipelines, specifically the mix of signed contracts not yet started and high-probability opportunities. The ramp is based on management's assessment of expected timing across all business segments, not tied to any single division or seasonal trend, and the robust pipeline gives management confidence in the back half growth profile.

Q: The analyst asks for an update on the Genesis bankruptcy process, current operations, and expected second half impacts. / A: HCSG continues to provide uninterrupted services to Genesis facilities, and payment and operations remain normal. The bankruptcy court approved the sale of Genesis to 101 West State Street, an existing industry partner of HCSG, and closing is on track for late Q3 or early Q4 2026. No operational disruptions are expected between now and closing.

Q: The question asks how management views the current M&A pipeline compared to 6-12 months ago, given the company's strong cash balance. / A: CFO Vikas Singh confirms the current M&A pipeline is more robust than it was 6-18 months ago. HCSG continues to focus on smaller, strategically aligned deals that match the company's culture and long-term vision, with a recent small closed acquisition in the campus segment. Strong liquidity gives the company flexibility to pursue organic growth, M&A, and share repurchases simultaneously without trade-offs.

Q: The analyst asks for an update on cross-selling dietary services to existing Environmental Services (EVS) clients, which management has framed as a key low-hanging growth opportunity. / A: Management confirms demand remains robust, with only 50% penetration of dietary services within the existing EVS client base for core long-term care, and the same cross-sell opportunity exists in the campus segment between HCSG's environmental services and premium dining offering. COVID strengthened the resonance of HCSG's value proposition in the market, leading to sustained inbound interest and continued pipeline growth.

Q: The analyst asks if labor market conditions have improved for recruiting and developing the managerial candidates needed to support new business growth. / A: Management notes the overall healthcare labor market continues to strengthen, with healthcare now accounting for most private sector job growth in the U.S., and nursing facility employment has surpassed pre-pandemic levels. Applications for both line staff and management roles are high, wage growth remains stable, and while some local markets face challenges, HCSG can reallocate resources to address issues. Management characterizes the current hiring environment as stable, business-as-usual for the company.