- Earnings call transcript Q3 2022

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Operator

Good morning. My name is Chris and I will be your conference operator today. At this time, I’d like to welcome everyone to the HCSG 2022 third quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session.

ask the during telephone number to press time, keypad. like then star one you’d a this question simply If on your To one please question, withdraw press your again. star, you. Thank begin. and Officer, Chief Ted Wahl, you President may Executive

Ted Wahl

I Thank you Chris, morning third joining the good the morning and our plan today. released results our week. appreciate XX-Q end McKee We by everyone. us quarter you Matt and and this on filing of

our second the third to results during that the that we have and we ongoing are within manage components of ability choppiness call, industry quarter our customer expected quarter economy. conviction challenges compliance regulatory remain our business, also discipline, Our reflect broader and adherence, controllable our we while about and realistic namely ongoing and referenced in systems budget satisfaction, the the

we During executed favorably strategy position agreements. to customer our more on partnerships and the our quarter, successfully

will quarter of track results that with We improved in of yield our confident year historical the exiting meet fourth the services to cost target with this in are of line on remain our work XX%. and goal

We With a our that opportunistically turn the results. will to and and adapt on QX to more partnerships quality existing of the those growth. Matt way introductory integrity over our comments, explores discussion maintains call results optimal future continue and adjust, a detailed deliver to in aim I’ll for

Matt McKee

$XXX.X reported $XXX.X nutrition Ted, with Revenue segment Thanks was and $XXX.X the and at of million million million everyone. laundry and good timing revenues morning housekeeping quarter respectively. and and for

operations Housekeeping reduction $XX increase also $XXX.X. to receivable reported AR cost actions his the laundry at was deferred track part in taken in to $XX.X reported majority of compensation, million $X.X our of to of increase and After calculation of margins X.X% were modification respectively. company contract work, the the million and modification aged and impacted to used was and was margins and accounts goal relates X.X% we cost the $XX.X was of CECL results resulting exiting related were segment on remain aforementioned by the and we impacted million expect to in Direct primarily and the of increase compares modification X.X% reduction. by reserves. was or million the AR remarks, has services accounts by between revenue, AR as actions services $X.X X.X%. cost target in dining line adjusting in and $X decrease operating by on Cash with of the a $XX.X SG&A impact negative the previously of meet that million year million disclosed, the services As The $X and of million third Ted for or $X.X X.X%, our SG&A SG&A with contract quarter impacted actual as receivable. million. of highlighted income in XXXX quarter actions. reserves and estimated at approximately was contract previously in nutrition in million million million a one-time that taken and impacted aged the in XX%. opening our $XX XX.X%, Segment for by a were a historical

contract the DSO in was used in by aged of the for our receivable company modification As Cash accrued accounts work. operations the was impacted also a as $XX.X of part relates actions days. increase I quarter earlier, XX payroll. to in million referenced this by majority decrease taken

will Act in QX be $XX and of installment but Our CARES six tax by million that QX, to XX part QX impacted the in flow second from cash repayment. payroll will the in offset by the final in accrual days increase deferred days payroll

up to balance to continues approved our XX% capital program cash was XXXX shareholders. the of be that’s of strength XXth while period directors for ongoing questions. to opening the consecutive announced most stock board to continuing tax We capital the sheet XX-year HCSG we’d like those since dividend payment four to the the with to ability dividend the to that quarterly and will This pleased a With business return support We’re way an instituted the mark place and increase in the splits. three-for-two dividend now open tax per payable the increase cash efficient XXXX. rate The in balance that’s included and with future, the shareholders. cash to for the now share dividend foreseeable XX, $X.XXX program in on - the is remarks, return supported consecutive call December the

Operator

Wittmann [Operator first Andy from with question Our is Baird. instructions]

Your line is open.

Andy Wittmann

good my the for start margin this I taking I guess, to guys. Thanks Yes, wanted gross question morning. Ted, morning comments. with

you’ve three-plus here in You XX% do, the achievement, in what guys quarters that have the commitment resolute year. to--you talk rate been goal? It’s exit for been XX here so contract you at and getting the of doing guess. your it year, exit not you to modifications now been the a couple what’s to the might here is for that feels the even it you print three in seems and receivable to adjust My here to but a the about quarter. conversations, can points question post of work XXX quarter, exactly change those lot confidence write-off to got, planning and gives for fourth like the sequentially achieve I recognize that like I know, months you’ve quarter, in it next to the in that going to in having basis if fourth like, you you’re

Ted Wahl

having guess, referenced at not is print it I expectation it crystal that without would you ball absolutely our a XX%. QX and for that well Yes, QX,

complete an Andy, focus really we’ve reflected perspective of to quarter or we’ve clear, continue the our is work a really contract to in basis being about think, ’XX, be the we future negotiations, why impact expect and we going goal of work target. the of until I confident P&L again year done strategy for with we either could think exiting point, opportunity that capturing exiting goal continue the to tried we’re going and are recent Andy, work that aggressively we to of with a that over phase line rate to we’ve of at the as the during without that the an that in quarter. after of the will and the The of is your emphasis that, everyone lot initiative orient these cost real-time is we’ve of of behind very modification possibly be modifying past year ours but area on variety clear, I’d of resolute the of goal a our focused year, QX. are I QX that meeting on and around the to an we’ve QX, a we’re hopefully more been from completed, I based which pursued end back-end of target, forward. say is that and they’re going again, more and third a fourth point want to in first a that’s reasons, before realize be run the us, services But begin year amount extraordinary to the as have going QX that inflation our pursue the To in on that of with it’s loaded, won’t make. to benefits contracts, so had

Andy Wittmann

you done be work--I there’d this contracts some be about Okay. I revenue exiting, and maybe like? much help quarter before year to Is thought. run could were us did that you the from how rate us thinking that you quarter forecasted that didn’t many terms of is more with you more want guess as the maybe end, we mean, in rate that, still look like you there actually to as run helped achieve work you what last should here be exit to

Ted Wahl

between of earlier, adds modification XXX. from adjust business back-end for are you for could in parts, which the you Yes, timing once but of more range reflected, business as being moving between I loaded; the exits, of estimated as be think our factoring revenue and I the the potential QX a offsetting one-time would there’s again the to impact XXX alluded and a--look, imagine, lot adjustments considering QX, the QX QX QX adds, and for the new reduction, contract

Andy Wittmann

guys, Thanks I’ll the a Great floor. yield lot.

Ted Wahl

Great, thanks Andy.

Operator

Our Capital next question RBC Markets. Dodge with is Sean from

Your line is open.

Sean Dodge

little all in those why us bit was? less detail bit just Thanks, a quarter, good you anticipated. Can with had morning. a being the you contract that Maybe on maybe than you starting Matt, modifications the more give initially little mentioned

Matt McKee

on operating impact leveraging determined in was assessment Sean. and it there income, nature operating really million partners in million and was thought that that one-time just $XX internally accounting after million $X with initial in Yes, treatment, would time one the reduction There was $X external which in reduction, we income. the and corresponding several and consultants, both the the revenue treatment reviews the that revenue appropriate was

Sean Dodge

Okay, helpful, thank you. that’s

hourly modifications. that doing backdrop a now take work that what’s ease guess all been there, things on remain a You’ve if or the lot back, up for of I labor? does set of contract aside like step the maybe to challenging? started still Have we and

Ted Wahl

very ongoing modest that, bit but improvement, in doubt Sean. with of both, this about It to is remains bearing challenge, dynamic. a much market market a little a mind It’s there’s seen no we’ve stabilization

in growth While a still or incremental low, but just continued in there’s good increase since workforce, high general. wage that’s relative industry that which pace remains been about and growth of has the is to remain near so, XX-year for norms, a nursing and to slow historical the home March modest overall the certainly thing, we

the approaching them more job our we We’ve in hiring rise off terminations tailing is last the improvement. seen perspective most and number definitely separations, a feel and it comfortable application point remains from some notable noted the challenge trends. HCSG and retention, our so but and we’re the in open the calling and and As specifically, decrease for starting in on nice a rates we’re a of signs of we at a of positive see call postings, to importantly which

Sean Dodge

again. great. Okay, Thanks

Operator

Ryan next is from question Daniels The William Blair. with

is line Your open.

Jack

guys, Hey for Ryan Jack is on this Daniels. [indiscernible]

correct? comment instead of estimated were drove revenue or of in if negative would at thinking $X point additional modestly. this this increases, Is one-time about for about a color a appreciated. Can million, Just kind above your of clarification, just of still you expecting price factor So this a what have outperformance? last am but more came impact for revenue be you quarter range $XX you just this it’s correctly, on any I million, it quarter

Matt McKee

were we expected would business seamlessly of guess, that I right additions, that opportunistic Yes to, managers that able Jack, part related the in reassign fairly contract was I facilities the majority exited to new modification what of from our as as in the revenue initiative, the opportunistic higher certainly to billing increases, than as than that we into really the we describe sense of so to new modification opportunities impact mentioned in of the in it those specifically related exits, offset related which the see primary impact business and earnest, the more contract was driver earlier, until the QX. won’t helped really which I anything QX QX

Jack

on seen a going impacts quarter getting we make Great, where you. the the and possibly and you as of even the impacted about up just expect you quarter is is then sequential the one-time a in collect first basis, fourth know on thinking quick stated in pushed collections what follow-up, of that AR so. thank quarter and forward? position this a days back, more I before, cash trying so guess, DSO but up X just were collections I in a about obviously so second a that look again be how you cash mentioned this know Then understand, previously more to up impact of Thanks. just be by portion just also to is do function bill you then you that or--I it’s to XXXX, to or more timing should by half,

Matt McKee

repayment up we plans win-win dynamic a plans with point, driven your so we than move or more as a our goal talked those with has the that really--was to half of customers intentional kind shortfall a QX Last and thinking - some and the make was and the more up up shortfall, quarter, forward. of how shifted quarter--you as that working continued that when about recalibrated trend year some to begin. know, date, part of back of we was these the on timing now, majority QX XXXX in and of of to negotiation situation the that come modifications, contract to shortfall repayment stated last maybe just that more portion through we’re and of as of our into during timing Yes, how QX,

them we’ve critical talked of Specifically on promissory in just which, plans, tactic good where up Jack, want the which junior overall seat at that’s a collections the to security interest been instrument it’s It’s to that repayment I secured again, notes still while memorialize always lender, promissory since in in emphasize have interest-bearing it’s but to those about an a number comes for company, if even a able senior we’re secured and a a of notes been it gives oftentimes table. It’s the value our strategy. it outstanding a with it’s formal a indebtedness ended interest, document.

reasons payment have the modification we’ve a number all them record in conjunction notes, date, originated for grow in well. in notes anticipate know, of company historically, over year of I as to the--you million would promissory track for with QX that and to contract those think lot work, I perspective that and the promissory for and XX QX, nearly but QX strong it’s a of all just

we’ll the promissory some when XXXX and make can kick but to effort really the recent we notes every of repayment in. to more year, and again, the now recoup what agreements So between the scheduled are is of end

Jack

Awesome, thank you guys.

Matt McKee

Jack. thanks Okay,

Operator

next question is Mitra from Sidoti. Ramgopal with The

is Your line open.

Mitra Ramgopal

Yes, questions. good thanks and the for morning, taking

waiting as you to have you’d deployed state business to you lean business, sort of you out if on already and First, new hire managers, are or personnel right have I the was be at a running now, curious, just that go bring etc.?

Ted Wahl

some are place to Mitra, facilities the and on-boarding the look think selective have business that our want very are opportunistic to generally run we’re in our sense remains in be the out But opportunities, along geographies, managers opportunities, others. given we with census efforts development management effort always continue, development are growth. speaking, on there of of No, the the drag really, certain into It than that had management industry the namely as the from we course, retention back good relative opportunistically new perspective development ultimately availability of growth business equipped to when continuum management we with of just won’t concert new that, for we’re and availability challenges in, locally, the our a and to with geographies impact that we about that because business development, right taken for that localized so training, that spot new that are of so that on is and prospective landscape the where efforts, locally, happens clients. some respect assessment and there candidates recruiting, further that’s now clients of are labor that

Mitra Ramgopal

thanks. Okay,

hearing etc. COVID to especially talk surge see in you home of Increasingly we’re quarter, amongst Speaking strains, seeing clients. occupancy How a you could nursing positioned yourself about do new that, you’re census, fourth touch deal industry? with if the on your the just potential

Ted Wahl

and the industry-wide, recent encouraging say is about I’d higher. sits occupancy but census XX.X%. occupancy somewhat most national just that steadily are data moving currently slowly The Mitra, at

in would increase that so we’re and COVID XX that’s that of XX.X% couple that the heard the but than not QX, QX, is type If what indicator improvement the in points, by As term, that know, about the our even about so forward, just industry always industry-wide to that is key haven’t a we a per getting industry reported slightly or for during occupancy heard, but as flu diseases, basis experiences company, above longer X.X% we to nothing any COVID-related quarter. an talk going about industry for we’ve and planning but preparing pace that But but clients infectious said, specifically point that a--you and higher that highlighting. they’re or that and other again a labor end week industry of the to to that not doesn’t put surge of the in key. where a at the factor quarter-to-quarter magic any by sat it’s like in That is is of over XX recovery, be of reference least Occupancy a XXXX. pre-pandemic, as the industry industry staffing. it’s out month-to-month industry sort Labor staffing the we’d is to anything continues the a key going the XX frame XX%, reach availability but months of availability the the recovery be reach terms which recovery. on next to around dynamics or occupancy of key to number and COVID

Mitra Ramgopal

have thanks. it the you by might could That’s been us contract but mentioned modifications, you remind Okay, if in year-end? of great. do it or get completed to you terms done this earlier, Then expect has

Ted Wahl

inflation, will something and there’s far will that ends There’s but be behind we’re I this phase, and after will us. force future that highlighting the on still continue which an still, be kind company, behind the as timing area referenced to the be be--that of we’ll as as QX, initiative a loose initiative driving earlier, of the this of that designated but and really us few Mitra, initiative, be the in we’ve opportunity, and on emphasis will The groups call, within but that progress that recent of as working initiative capturing was progress the an us. behind focus with,

Mitra Ramgopal

I used also given should of buybacks? obviously the where the being know looking terms is we dividend then capital but stock’s share priority, and in for trading, finally, a Thanks, be

Ted Wahl

the board. buyback something considered that’s been always has being - Look the by

an along could in allocation just but--so opportunity dividend along from in and itself an the for strategy, continue investment now, itself, the evaluate organic quarter, different remains to second continue the to of growth board the dividend, capital dividend that with the to be investment. part option a a type presented strategy, terms capital something That presented obviously with I respect I situation the of priorities will general allocation. internal priority allocation the with is and organic or growth, that way. the board and But only think internal be quarter if perspective of to to think of in important capital highest

Mitra Ramgopal

Okay, thanks again for the taking questions.

Ted Wahl

Great.

Operator

with is question next Jefferies. Brian from Tanquilut The

Your line is open.

Brian Tanquilut

clear in contract as these think but Hey, think guys. is of on the should about question health increases bad as appreciate; as you structures? putting we which right potential there, I good the out adjustors focused new we it’s be morning contract thinking inflation my guess you about in about right, modifications, industry were or these we how now, client we debt turnover roll that

Matt McKee

seamlessly exit as the sit that wouldn’t say about that not partnerships. business. way here. there exited business, with final clients fact significant we levers You know, business very we that from certain may at that that in we QX we that through in new contract feel not positive to We business ourselves. but to initiative we’re say of our will retaining That’s in It we very fairly or a the clearly we feeling able as directional and Brian, confident that those so not retain to usual, we exiting If we anticipating for not in the much potentially about a should the that in or negate QX, confidence some that to evolves any looking negotiations structure to had work we are result phase, QX main reason, ever need being an replacing QX and able as as but into terms, we’re meaningful. very result and instances cease. the right, all then to, of of into the that, the very high have opportunities of the of that in negotiation any Ted level facility facilities, majority that in would managers the seamlessly be the the as stages but we’re do here, point are talked repurpose the contracts result think into we’re customers exit additional that payment anything between from in and for which shift business possibility I alluded be experience work, open pricing, essentially that exits negotiations, not out well, would be cavalierly facilities, called about directionally, but these it of to a other do confidence as we’d we business confident any it’s that we replace something that we

Brian Tanquilut

That last the remind second I here as as maybe about here I preparing potential we recession the my business XXXX. us guess think a potential as and can a sense. during how at question, economic XXXX, how fared slowdown makes we you enter look you’re for recession

Ted Wahl

I terms recession terms Quite I outlier I perhaps is a keeping of boost the Yes, of slack you for and be in never environment which think availability only monitoring recession, unknown; to in economic state levels, somewhat as from because impact in availability had on pent-up we’re approach but pre-pandemic a earlier, somewhat in the of the industry. we’re workers workforce of a that has overall take watchful mentioned Because kind labor in an it’s something specific and would workforce recovery the that. be of our really answer speaking could always the it’s having industry some--a I nice I the environment of in post-pandemic has in of the terms a when a an demand. always think been even a again, as been that economy, we to slowdown considerations, is reached recessionary really that general as it could because, or facilitate It’s and recessions benefit a think mirrored nice staffing event frankly, industry, there occupancy, that recession-proof, has the occupancy the the post-pandemic counter additional question on. in boost, think terms to and a the difficult the and a in so eye performance a could industry somewhat place earlier, to I of have the industry key highlighted past, perspective, an industry of view workforce occupancy has about appropriate generally think on to would

Brian Tanquilut

guys. thanks it, Got

Ted Wahl

Great, thanks.

Operator

at further I’ll turn time. no over have any We Mr. this it to closing for questions remarks. Wahl

Ted Wahl

Great, well recent cost the continue we thank target on in of to you, quarter Chris. contract the prioritize basis, XX%. exiting services to ahead, future both In a with historical real-time goal of modifications capture more and will inflation our with with of the line year

that We satisfaction, collecting goal we delivering execution on will you with prioritize and to imperatives call decisions the goal and hosting discipline. at we Chris value, and so making adherence, Group, our the no for bill, I cash to client shareholder committed thank all remain us to prioritize of term collections of to Matt budget joining. position compliance, wanted today and best behalf for thank operational Healthcare what long will again the regulatory of deliver of Above we systems with us everyone Services of all, operational

Operator

this you conference today’s Thank participating. call. Ladies and gentlemen, concludes for

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Healthcare Services (HCSG) 19 Oct 222022 Q3 Earnings call transcript