Earnings call transcript Q2 2023

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Operator

Hello, my name is Kirsten, I will be your conference operator today. At this time, I would like to welcome everyone to the HCSG 2023 Second 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. [Operator Instructions]

today's of include Healthcare on the statements discussed prospects business Services matters conference forward-looking call about The Group, Inc.

Group, the this Services please www.hcsg.com. found Healthcare Inc.’s forward-looking website recent For statements on refer our to which press morning issued release can be most notice,

Form result including and may results on those statements SEC Group, Annual the factors MD&A a discussed sections Services from risks, of uncertainties Report or implied those notice. indicated in and Actual various expressed and other Inc.’s the And materially filings. forward-looking as our differ Healthcare of XX-K important factors, risk recent most other as

management US Thank Additionally, A to GAAP measures. can financial be you. this certain be release. will found non-GAAP press items reconciliation of these in discussing morning's

begin. Officer, may Wahl, Executive Ted Chief you

Ted Wahl

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

second as our for year. discussion months EBITDA on well XXXX, back of key discuss outlook to $X.X June the three quarter the I'll half a as in of income $X.XX call share, per turn For XX, or more $XX.X net revenue detailed adjusted million. remarks, and we of X I'll my Today GAAP million the the then over ended our of for accomplishments Matt $XXX.X million, the opening reported quarter.

the strong quarter. during service delivered execution Overall, we

second like Our adherence consistent our high quality our and I'd client highlight quarter for trended key KPIs regulatory to to related leading customer QX, positively to experience, systems now in all and outcomes accomplishments. compliance, partners.

core highlight to like I'd earnings. accomplishment is our first strong The

managed $XX.X consecutive CECL, achieved targeted of XX% of third we EBITDA target delivered we cost our million. the direct within we and range, our excluding adjusted quarter, SG&A For

meet as collections in of key This heels April expiration in the XX cash falling second public our with collecting the heading May the for health year. for and came of positions we short of results we positive not clients highlight delivered half us provides emergency. our like objectives, brace back and on our QX achievement strong collection cash is May to well did us into quarterly I'd And target a May of the what June. although in momentum accomplishment we The the build June

timing of our to like pipeline into I'd planning during continued QX future heading remains line Lastly, the the the new second the ads of year, the year, XXXX. $XXX first revenue we the a to of of of pipeline range an half to partners $XXX while as estimated dynamic, we new have half million. of the replenishing and progress million we are first business continue And top in client the growth for compared half made XXXX highlight year, to of half growing back the business sequential in

industry to there improve to stabilizing ahead, steady And but have continue contributed increases the and recovery. remains occupancy gradual fundamentals on the customers’ the to select any manage finalizing for like ability in have that we consider remain rule. look might industry, requirement our hopeful operators confidence will labor a what state Looking reimbursement market staffing impact fully such while as based rule and uncertainty to CMS a and before minimum a

priorities. half enter with clear three second year We the the of

bill CECL, Excluding is the direct June. what The is on May and continuing strong momentum first the manage building gained we second to collecting in cost atXX%

then through of yielding starts. the high pivot efforts and the back impactful XXXX The new our the the to is internal a development third growth is of level half and of There we business facility enthusiasm perhaps XXXX. most realization as mode

those Matt, more our for introductory to detailed QX I'll discussion over on call with comments, results. So the turn

Matt McKee

and Direct was and $XX.X was laundry, reserves. X.X%, quarter nutrition the $XXX.X and for our were and Revenue X.X% increase of nutrition cost CECL revenues costs everyone. million and margins with segment morning, Housekeeping million, housekeeping services an million included Good and dining laundry, $XXX.X at reported segment dining in respectively. million, Ted. Thanks, recorded of or at and AR and respectively. XX.X%. $XXX.X Direct million, $XXX.X

deferred mentioned opening Ted XX%, was target our we $XX.X with remarks, again SG&A the million, for $X.X managing after As met reported compensation, in the CECL. business adjusting line our million of services was historical increase SG&A $XX.X goal with cost million at X.X%. his or of of in in actual excluding

SG&A of X.X%. expect rate expects effective to X.X% that to And XX.X%. We company XXXX between XXXX XX%. XX% was tax the The tax rate

by in for in million, a increase the and impact that of those quarter accounts that cash XXXX. we'd remarks, now third for was days operations from in receivable That timing, with of payroll had open And increase had million flow timing the the we six the the that But in of an $X.X quarter the out washes days. opening compares days. accrued the point the call out XXXX. through only And quarter we was days year. the XX QX DSO to $XX to relates for related questions. Also second like the XX ultimately the quarter to up to accrual full million impacted seven Cash $XX.X and and be accrual we the was will collections. would payroll payroll

Operator

Instructions] [Operator

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

Sean Dodge

morning. your as Thanks. of the the collected? June, the a post, I April. outstanding Are DSOs us those of Yes. be some and for give like Ted, down in guess in through improved Are Good want through maybe sounds second go to just comments quarter. to of But year? you've helped just going to there big we able of balance collections around close now come XX I of quarter? sense May kind of That up? the in I with this any kind stuff balances the start

Ted Wahl

our forums, an indicator terms DSO forum for view us, consider account collection And on focus other executing each Yes, before and and every our question, assessments. Sean. success. a it's as and do in to more we something a great talked we strategies of DSO in but about Obviously, we as our holistically we it's view byproduct of and we've this

engaged the of to on could plans, if the notes some including to up TBD think tailwind shortfall months. can tell be repayment are specifically, your we actively of the coming form I with I which of back The a on our promissory in be is for to nice some make year. But the that in the recapturing April you, that. actively half and we cashflow working specifically timing the on delayed plans, are we're question, payments, April finalizing customers of going

goal and we be going the disciplined payment well in as business. remaining ahead. promissory what and to then collect our decision focus new for proactively remains existing using customers as to quarter to to that in increasing our notes frequency, utilizing Beyond continue both on build we're And making

meet really we it's, year half to objective we but again, the momentum standpoint. positive been feel and May not did we've in seen, So collection good our date April, July gained the from of we about June back and a has in what and the

Sean Dodge

With that then the is function able around to full to for comment the positioning of the of first actually up look that just or And through CECL that of making to if should quarters, the of of course the that's something to been across happening and there's adjust of you're XX%. great. two over growth XX% year, expect core you've kind kind continuing target we your sales again, reserves, a of and that for Okay, excluding else increase we you're manage staffing to closer kind kind CECL cost now investments there year? up sales, the the

Ted Wahl

Yes, consecutive below quarter is able XX% with target. which accounting the to cost now a point rate, on in we year, CECK, on for, your it's of third point, sales. growth, half target. XX%, exited having that's at Sean, the to the of temporary, going when consideration And growth temporary that be factor course is we've a always of negative the or year run a impact execution ex of deliver back your to always risk, to that the We been

as I As we days. But to viewed head staffing because year margin compression, over think into positive XX our budgets. implement the work XX a second a patterns we're degree second growth of there's of that'll the first already have of well we the Typically, XXXX. going existing the half new be we're half payrolls, expecting a pivoted mode and viewed and start be the as as we into piece the to and of to inhering are as anyone, should systems when inheriting we business, supply

Operator

The next Wittmann is Baird. with from question Andy

Andy Wittmann

ask business And guys. Ted, about Yes, guess, pipeline. new taking to the thanks good I my for question. morning, I wanted

ready facilities. you guess those this for the training ready challenge in talking you're what Group? And in able turn the having hire about I of your know training got how Services and for go on training people decide to program. you But program. over keeping those years, and having some and asking And fullness amount growth the go, it'd to the been Healthcare I you've worth the years, the strength of if facility of you're Here's constantly about been to ready pipeline. for the people about be customers talk positions, managers you're launch couple now given you I you're new to that more thought haven't your that last should you performance, of to the talking when you to in has switch

Matt McKee

Matt. I you're growth about our Yes, dive touched Andy, I'll right. address that, deeper, little this we asked a bit think But glad this. in component a you last I'm on this of bit trajectory quarter. And exactly to is

to management our if of one's grow of specifically, light to been the our One line employee own the the up career compelling promotional will, the more training different capacity, top and having in the company created growth working able one's has In that challenge one Healthcare has one appropriate historically of as number trajectory. based that's Services major through program. value develop past a managers course the contingencies career overall our the put And been pitch, organization. historically much has grow not few the over opportunity Q to always for but is proposition ability with grows, our years, of Group that having the or management you of

over of folks their least the portion from been mindful with bit mode, both that very at the were of certainly few we managers, discussions having rationale as what of to a be to honestly, for why not more sort to quite have we we but the communicative our and only about and of, of it's who it that times having, were didn't selective outright new underperforming past be course transparent us sense hiring, replacing significantly And we've challenging who've growth environment. a existing required and to enabled Andy, overly us whom the were and were our clearly about been make significant And organization, in and what in that's operational recruiting judicious committed managers overall not business operating onboarding years, concerned perspective. careers us be in an challenging if perhaps was a our and one transparent to whom managers with to

challenges with labor You back we related availability payroll respect clinical struggles the the of and faced the our presented labor and limitations on think the that managing the that costs. overall heels COVID US challenges of to and to that

managers top those notch needed through of conditions. all we So

not program by the top mean only in executed does So more the see is mode, for would been we've has is organization So folks what sort growth that as massive opening training running around the through locally. way and the putting but everyone that's of and recruiting our from organization. personal results in in to reverberations that's been enthusiasm bit question, career opportunity? able excited alluded of that your we line out his to to to and keep carrot pivot Ted of them remind a efforts growth, long developmental growth end this to remarks, management perspective, within palpable motivated a that I hold up to and answer an that that effects engaged a you

staffing the of variability other the geographies new to as be in struggling onboarding labor some market of So, being still always and Whereas to and here. course, ahead third fourth opportunities to the is and case, we're really districts business with prepared may as quarters and for going as regions have far curve, being implications specific challenges.

managing building So and toward been the capacity indicated inflection that. of along of on But perhaps very come the opportunities been as extremely point have that an management the management to with in total, as Andy, most far here year. board our the in as as not quite capacity toward very geographic And that confident likely we growth, organization we've focused much our aligns the they're half year feel we continuum. that back on having half the back well

Andy Wittmann

good. to hit then comment could like the to line? really still the I is on, Great, having already you've What the facilities guess, decide that's if do you the you could first over guess, feel that which maybe Do just be, needs I already, little quarter wanted as XXX more -- of like to to been that, XXX where XXX, today? the confidence needs a broadly, we on to those half there, guess sit to that's here maybe that that that I And I range add is gave been target? with? and more as there other is question just I the the go. just bit growth, does started Or you customers sounds to the when you maybe obviously, trigger? to just made to What during second guess of XXX to a follow pull if customers the comment here would dialogue transition Ted, this them unable are you that that need happen happen hump? top business helpful. growth, suggests rest pipeline's that the up understand to to level revenue sequential for get think a you're Do the

Ted Wahl

that we or Yes, confidence to I mix, around have a high a the going if conviction think able didn't we XXX, it's we obviously of in of XXX have wouldn't in the terms that to that be to degree we Andy, deliver provided conviction were range. range

the focus. we hand that Where cases, the a the end guess, of different you It's robust, I prospective the has successfully remains the we'll analysis services a it's In quarter on that hire, of that and our it that'll I historically, And ability the as had do the in pipeline's bigger every customer where we we it's question commentarial in ever every pipeline, group, we've assessments of recent new customer and out greatest management business. pulling to gating many we a quarter. factor it's own be this to here, we factor single to towards able business started to as have develop, of combination is about quarter-to- QX it So already the then of train, have haven't candidates today. but development. quarters talked the it. We've throughout ads trigger? front in off there, strength do gating as growth that business always new the be about a the and internal a have forum. own I what’s center deploy for and to growth The or function and circumstances talked conversation of to mode set are collaboration. It's our Matt's it'll and demand amount just we have years bench true and a piggyback depth? about the have that to be take had as know, much customer and pivoting on opportunities imagine management

our we're a with a And speaking efforts and able group management demand. That's specific the generally nothing capacity assessment. prospective growth a the hump, match So by it's on up put client over the necessarily where execute customer strategy. to client development of as process as catalyst just to where

Operator

Tanquilut with from Brian is question Jefferies. next The

Unidentified Analyst

Hi, morning. good

You taking Brian, thank on my question. for you Tazi for have

to So my right? do in both dining X.X%. with first had question segments, at margins at X.X%, has You housekeeping

throughout alleviation mode to think as margins, So both in see of growth curious for to second to in see we and year especially the about line. you half particularly into bottom that for to what your the just order you the the year, for segments, needs translation pivot happen

Ted Wahl

Tazi, Yes, question. it's great a

range operations. be whether specifically, new a an I times pre-COVID, other it had margin a day ads, quarter-to-quarter, were to would based if different be for that always say, movement, quarter-to-quarter we there's the of about largely but from during field in the there's X% execution. every alluded quarter, dining, Even levels segment talk that to month-to-month you don't context margin timing seasonality EVS think year. have some And at just with margins business on those perspective, it it add in because to again track that some a to trend they're variability. X% supplemental And considerations There's not growth our our billings, holidays from with and X% there's, as number of to due degree back to the material, really edges. range expect going the of we are could each for sometimes in the the we happening it's buyouts a you for that would to union it's around look and and around in some perspective, just around create, expectations I and compression XX% and additional or and segment for even we whether XXXX.

Unidentified Analyst

me. really Thanks. then helpful. That's And last just for question

in out like when these at any maybe you as CECL we to, think reserves times CECL kind talked pretty your guess, the think I but and volatile, is curious Just where had I talk settle out see and other how about expect adjustments. about AR P&L? of could this you sustainability formulaic, around at Can adjustments? you taper about thoughts adjustments

Ted Wahl

front, that's the And call, into has not recovered. the the take why a cash more back step modest the volatility expectation and discussed for is around a don't environment, why ahead. coming it still times see in this volatility. we CECL. why your flow year, our primary first recovering highlighted especially year I quarter, expected but the That's collections on previous But expected and Yes, collections on the year. just know, fits half And maybe this question, was We the that Tazi, to at industry would we provided and it of starts some the to and into the even in heels QX norm strong that's some CECL of quarters yet be estimates. to we cash in current that new expect on coming the very reason years we we've

said, successful that flexibility. it think any customer XX, our overall, executing I we public our in of But to environment, And efforts. June, a expected less expiration the year. with in emergency our the And were of half really we impacted which health is own why the liquidity and strong specific impact maximize than health on momentum to back clients on was base really the and quarter as the specifically emergency, we saw this to their May negative April looking that into that, was difficult highlighted heading we May and strategies feared. public especially that

year, So question believe or the we longer what a it's continue in sort more probably actual normalized. improve, an side expect collecting and flow to of adjustment, way make whether what charge the it become of write-offs because actually getting term We'll would adjustment adjusted absolutely be indicative collections the back as would write-offs, to CECL we your cash business and we a cash of as actual of upward again, adjustment would them which downward expect see half CECL, effective consistently of and specifically, built, is we But, expect irrespective to to to for of we moderate moderate. HCSG. do a table terms a the back EBITDA do P&L in to we're around more the more

Operator

with The Jack next William question Malek is from Blair.

Unidentified Analyst

risk? increase how morning, curious Are to site about more exposure any coming Yes. from getting good And for specific might the potential into this Any to gauge headwind? Is potential staffing doing additional morning. you're comfort comfort just analogies Ryan kind you rule of how on over client the conversations? thinking Jack Hi, that finalized you're this requirements? insight

Ted Wahl

administration without likely say a recognizing there proposed inevitable I'd a industry the related a good I it view/ the five three litigation years, No period industry this staffing appropriate it facilities. would is changes likely narrow, on it's into the minimum staff unfunded alluded is the and months a it and if it. to, would be right year point, within there although, were waiver of it's would industry of it's but high have it is the that of that it rural phase funded, really it soon, is from the was would probably well would that meaning that year, and industry process, believe I ground. this five would that perspective survive that think the have would a be leaned and if all be up periods, the in and care it's at to robust range, is very plan And remain received. is all framework. assuming to an then especially there realities a not recognition labor mandate, fully assessment has Jack, Yes, patient as question. now. our an later staffing latest it do political for minimum you and on be our perspective we've pilot certainly announced constraints, alert, to requirement with with the around the expected to for But of come stakeholders would in type talk And And only, phasing likely heard certainly appropriate

the here, tuned. But perspective. be we'll minimum hoe in come meantime, a see. from going but to to to and roads I of would more Jack, There's stay say wait lot a there's So staffing

reimbursement before, recovery The certainty just the but bring to look about providers mind. to in of a degree talked moment. ways us does environment, the but in just our the think around providing to a I industry, regulatory value peace not for uncertainty to out for that and the financial it And there, business. also more force back the fact environment, theme their operational is this proposition central create we've of to is

just of types variables new, creates industry, all the provide. but some are minimum which within demand the services that with not staffing the that of we're the for necessarily able So other of requirements, not to

Unidentified Analyst

that's super allocation I a switching Okay, little insightful. guess Appreciate Any bit. on just capital that. update your strategy? gears

Ted Wahl

nothing No, perspective, be number to go We exploring that the remain inorganic it we But we any investment eye towards to we to our that to strategically capital within opportunities. path, remain in. the active active internal expected very that one buyback There's opportunities buybacks to QX, in be will company. from open activities And front, buybacks. down to an approach selective, drivers. our in it did but for and continues organic fold allocation to very can growth take We keep the priority we inorganic we a that's opportunistic a continues in have continue and build not on something announce. continue investment selectively looking

Operator

with next Company. the is from Bill The question Benchmark Sutherland

Bill Sutherland

curious, reimbursement question. guys. contracts? Can called Hey, the kind the see of a you on level? to starting have benefits in morning, of that are Thanks give good a those number us the facilities little higher states morning. you out PR state Just we that for The this a based state at color that

Matt McKee

for really, facilities. states a fees with are of density wins, us those XX months, respect there's states of to past some the high number Yes, our and been client Bill over based

had think I degrees, more state right, that You Illinois, Texas not historically increase the just and increase was best mean, may a Ohio in operating an a instance, of there, dollar there's Ohio. for win, Florida, from above state particular Pennsylvania as the perspective. variability recently, what expected, classify although a about substantial right. And has PPD was there's pretty a one reimbursement Ohio been state

time. the that Texas, were than in did quite with it's Since fact, in I'll increase, say was operators been fact state for, hoping but of that some increase. Texas what contrast get get You an an it less did,

and So as providers you that could on but secure put technically, that deemed still board, were an was win increase that to the able a insufficient. it

state but in a which mixed, was was that a industry quite was operators in where was bit looking prior the state, rate New sub and in be what massively proposed, certainly York, of than Another lag bit That higher a really increase. increasing reimbursement for rate time X.X% costs would was initially what from light increase. the for reimbursement there

So it's a mixed is that reimbursement Bill, the to, important for perspective, certainly operator. state bag, facility overall an based pay the but attention and something at and regulatory the trickle us, levels how and from more much we obviously, and based and that down impacts

has able inclusive occupancy. component So staff one mix, of they're how effect to payer assessment, their as it's on and that overall that occupancy, financial overall of and manage nursing departments well. the And

Bill Sutherland

a Is more the there? I'm just noticed couple that rate. renewal was I just curious quarter-on-quarter. housekeeping a down exits bit Okay. about revenue involved

Matt McKee

Bill, did that's course exit more normal that Yes, we business. exits. right, we as some would We would -- classify

which of So nothing substantial, quarter. in rate the was full the run reflected

a saw a And bit revenue, that was of nothing there. substantial. talking we're the dining, I that of segment just we business up step a couple Again, ads. note about would While level new

So both fully and exit the in were really, dining run the housekeeping for the quarter. ads, reflected rate the revenue

Bill Sutherland

numbers. your expansion in getting the the education, that overall you're Is reflecting that right? Okay. are And in you're contract,

Matt McKee

they're That's and correct, also and segment dining laundry, then reflected, Bill, respectively housekeeping as well. in

Bill Sutherland

there, of and uplift? is half the back that Okay, part

Matt McKee

It is. correct. That's

Bill Sutherland

for doing right look year, full free think mentioned one, cash still in Okay. least $XX way that's you million last And like to about the the then it.

Matt McKee

$XX still to Yes, year, specifically, targeting I that think range. looking to million $XX half the of we're the million back

the cash flow. we to if on the could back that fall So is in but just where range range, or obviously year number depending million $XX on impact free have that million we for target you $XX no an shared, of half exceed our that

Operator

no back have questions I'll time. to it further for at turn We presenters this the closing remarks. any

Ted Wahl

and thank broader shareholders. In about controllables, the growth on to strategic ongoing our months priorities control challenges value deliver Chris. our that long- the remain term ahead. economy, our to executing confident in our you, We industry and realistic remain Great, to drive the ability focused on and with

So to the today Services thank of Healthcare on joining. behalf for call of us Matt and hosting and Chris Group, all I you at to wanted everyone for thank

Operator

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

disconnect. now may You

Healthcare Services (HCSG) 26 Jul 232023 Q2 Earnings call transcript