HCSG - Earnings call 3 2023 | Healthcare Services Group, Inc.

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Operator

Good morning. My name is Ralph, and I will be your conference operator today. At this time, I would like to welcome everyone to the Healthcare Services Group Third Quarter 2023 Earnings Conference 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. on prospects call Inc. of discussed about forward-looking matters business the Healthcare Instructions]. The today's include conference statements [Operator Services Group

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

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

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

Wahl, CEO, and conference. may your begin President Ted you

Theodore Wahl

our McKee quarter Thank I plan our quarter everyone. and first results and this We third remarks, discuss of I my appreciate key will opening highlights you filing by you, morning, and released and us today. the week. Today, third XX-Q our good morning accomplishments. in financial the end Matt joining on

quarter, Next, I restructuring perspective I'll and provide more then reporting. I'll client over the our Matt on will call update for to including our the our trends basis finally, detailed share to developments. a and an latest industry then I'll XXXX outlook. recent on And GAAP discussion then to share actions. quarter provide fourth turn non-GAAP on the

that quarter our accomplishments. third financial overview, highlights now key with I'd discuss So and to like

share, adjusted of share million, $X.XX $XXX respectively, XX.X% to reported loss share, income $X.X and and $XXX.X over QX share XX.X% net $XX.X million adjusted and we earnings per XXXX, our per $XXX million. reported expectations adjusted XXXX. of diluted million $X.XX of a X per diluted of and million per the loss For XX, and increase, and with September and revenue $XXX of line ended million We net in months revenue

we We million, flow cash reported operations XX.X% $X.X a And over of a reported cash $XX.X $XX QX XXXX. operations adjusted increase XXX.X% of adjusted XXXX. from QX of and EBITDA million, flow from increase over million

year progress We all priorities entered clear X the during of on second made substantial X the and with half quarter. the

The was manage services continuing at which of to did. XX%, first cost adjusted we

collecting we The and gained that bill, June. second the momentum was what on in strong May we building

new QX, shortfall our the of collections strongest In we delivered quarter. with adds business XX% of to the the cash we primarily year, modest over billed, of during related timing collecting the what

growth was third executing for our The quarter on up organic priority the strategy. was Adjusted revenue sequentially.

sales efforts recruiting are growing. as growth. And we our ourselves development management is and ready for pipeline up ramping Our

during moving clients X restructurings recent actions. to Now We had initiate client quarter. on long-term of restructuring some the the

customer actions, business As of entered part we've with facilities divested that the groups ensure report years We're retain to those these restructuring into partnership. agreements operators of to new to new more operators. their many and pleased new

facilities. these neutral expect and to As to a future positive on earnings we revenue a effect related result,

notably, of I least from restructurings. These for thing line very the one operators for downsizing add the in in risk. smaller is reasons, client us to AR the also are many operators. would a good shift Genesis sector, diversity large actions not shift is not ongoing which This with regional the is of that, multistate of

and footprint, leaner, financially. very healthier they their of regional positive to encouraged both by and having a towards most as direction work going be recent conversations We forward, our our with their continue regarding goal of partnership the organization operationally

latest developments. industry perspective share now to on like our the and trends I'd

steady occupancy have towards stabilizing we labor state-based increases and gradual market a contributed reimbursement and As improve recovery. select but look continue to fundamentals to XXXX, industry the

final front, the that period November expected the will XXXX. X, September open remain proposed A on staffing until is On which X, a rule, regulatory comment XX-day rule minimum CMS mid-XXXX. triggered

leaders, There and is the group access the a legislators, lead approach, growing implemented the a rule list future rural present ACA, industry the health for opposition particularly trade care and include nature rule, including closures of areas. bipartisan The to members, unfunded apparent MedPAC for mandate, that, like availability, to the facility associations one-size-fits-all disregard opposed if stakeholders of of the of counting. to the in ultimately would proposed, XX and certainty and nursing as and including senators realities their the reduce care, near reasons

period, the that From addition litigation, funded. resembles our some political and great current be a remains to of at as in there the administration, changes at would least any survive any on rule have rule be perspective, level, In uncertainty rule public comment whether final to ultimately implemented, would to an onslaught proposal. least

QX enter as clear outlook far priorities. the As quarter with in fourth our XXXX, X we for

of manage of cost our in continuing services is first adjusted target with The to XX%. line

The the from for raising second flow expectations QX. second from million to what $XX collecting $XX we is is to $XX million. bill, on our momentum June of in million half gained building and We're now operations $XX May, million what cash to strong XXXX

priority growth to third organic strategy. is execute continuing The our on

year estimated million. our ending positive expect the and range adjusted on trends We cash strong revenue and million into is $XXX continue note $XXX look to to business new XXXX. forward a operating to Our QX collection

a I'll discussion those for turn reporting. quarter, with GAAP call our the detailed Matt the on So over to comments, including for introductory non-GAAP basis more to

Matthew McKee

good and morning, Thank you, Ted, everyone.

even The that release the supplemental noticed supplemental who to saw management non-GAAP views with our have business. providing tables. you into how this rationale visibility is morning, trends increase will For schedules the closely transparency reporting greater enhance those business and by financial introduced period-to-period for we you might align comparability press current the of to

Dining Housekeeping & X.X% million, Laundry was revenues segment $XXX.X Nutrition Housekeeping and quarter. Laundry million revenue were & million. million, with respectively. the $XXX Nutrition So & context, Housekeeping million, move detailed I'd & Adjusted were respectively. and on and Adjusted and now Nutrition Dining Revenue that Dining $XXX.X $XXX.X like revenues Laundry X.X%, was more $XXX.X discussion Laundry & were segment $XXX.X respectively. to & respectively. a X.X%, of to and and X.X% segment margins & Dining & margins Adjusted Nutrition were segment and and Housekeeping million

Cost the of of adjusted or to we of to range. million. of cost was the is cost million within SG&A was range. services target continue Adjusted with manage services manage within of goal XX% our company's X.X%, X.X% XX.X%, services in was continue adjusted And $XXX.X to line our SG&A targeted Adjusted range or XX%. SG&A in was to $XX.X X.X%. million And that targeted $XX.X expect million. to $XXX.X

cash adjusted were million, operations and Third flow quarter from respectively. $X.X cash $XX.X and million flow

to mentioned million Ted opening operations million to X-day remarks, XX $XX quarter. days. cash $XX from for DSO in last million improvement we flow XX million. half XXXX from over Adjusted As raised was a DSO the $XX days, his to expectations our for $XX was second quarter

But in Also, it that as from accrual. point adjust we we But flow part the in be of our out still of adjusted since impact operations, would payroll reported included cash our change for the third had in QX accrual to will we results, of days payroll to the again, the that XXXX That fourth X relates the is XX the quarter-to-quarter quarter accrual compares in had the XXXX. we only that of quarter and days. payroll timing. days XX

the those now to with questions. up like we'd So remarks, opening open call for

Operator

RBC [Operator Markets. Dodge comes Sean from first from Instructions] Our Capital question the of line

Sean Dodge

a contracts guess X restructurings. of the Maybe Did revenue with I the of were just of help was the in reported. of new numbers, squaring, that with facilities the contribute either I'm just the we adjusted the of jumping-off Ted, revenue the revenue those you into you impact about Should signed the that and but the point of is looking adjusted quarter? kind starting agreements $XXX revenue bit said for think operators. QX? some new million you little any divested

Theodore Wahl

the -- down a way And was -- step for temporary Sean. revenue. is, on was restructuring, the accounted as in really terms there in of no onetime it other impact than It that

In both groups. restructuring that of was of to terms divestiture we these go-forward, part facilities of believe of the large going opportunity there's because be activities of more the a

provide be a to we grow within forward, smaller, the and why positive going new perspective, operators to to earnings future. expect, And us that's it nimbler and neutral So organizations from they event. a revenue

Sean Dodge

then, that you adjusted number? the is then the Okay. And maybe what the through to could GAAP? $XX Great. gives for from half confidence And the the $XX visibility million... have on range million, into an be to $XX if guidance us the will by, the just year, operations walk for cash you that that, raise that Or the of million second you

Theodore Wahl

year half sharing last it presented of we how presenting expectations, we're quarter with and just in second and consistent the terms number. our GAAP before be To quarter the of a

moved revised has $XX to million our million. million to $XX -- range from $XX that's So $XX to million

in a And around before. that we've number, of I our it's of function think conviction terms talked about what

the on even QX provided and it a first front, about, estimates fully strong the talked expected collections which we in is flow heels recovered. for modest the is hasn't the starts especially While industry the still into fits year, We of beginning recovering, the on the coming more we year, some cash half last of the of year, why year.

to we continued in the strong but shortfall second quarter, I with But it and really that collected and the the XX% modest this had and was during intra-quarter. we momentum, mentioned over related we opening third startups of starting quarter the the quarter June, in really of And billed. what remarks, some May

positive including Visibility thing have a any we momentum visibility, is QX, and business, big in So heading into ours. Sean.

of the we're investors I and gain our gives what visibility is to our future performance, signals that and and us all trying conviction. send into to So I are our that's to stakeholders Matt continuing think

Sean Dodge

progress in congratulations quarter. the the Okay. Great. And on

Theodore Wahl

it, appreciate I No, Sean.

Operator

Your of from Wittmann from Baird. Andy next question the comes line

Andrew J. Wittmann

of item maybe taking for you wanted the It It revenue I there's talked just looks the bad And prior like considered $XX.X guess, recognition little question just me million a I what judging how the reconciliation, Matt, debt just time just the to guess, debt question, of in guess, tell call get kind that component like factors my X a also into the much I was to that's here. dig it write-downs bit here. bad to there's Gentlemen, the I of million, in some would from be, appreciate XX.X the the I'd seems color. here $ more you I it's Can write-down? you but just, footnote. a

Theodore Wahl

with Ted the way was the accounting the smaller Sean, this guidance that's top $XX.X relationship About line think the is would just existing there -- debt. organized. and operation the of There's bad is leaner works. balance with million the customer a speaking. that much And -- impacting have function I impacted partial a still ongoing still

So existing quarter. they're because in as an a step still accounted for the onetime customer, down revenue that's

has operators. then divested as And to been full bad that's because restructuring for And a that's in X other accounted separate former conversely, customer, debt. the

from So onetime but issue. it's just the same the our of noncash, terms perspective. impact, Legacy in P&L, geography

Andrew J. Wittmann

Got it.

going So of adjusted revenue a of then question kind some ongoing given back the about Or that I of that is view, on you've bad that's a unique of from an the million going quarter? of process you're idea circumstance point guess debt debt, add basis? $X is got expect this of to that the we this should to to is this bad metric report

Theodore Wahl

in some services if that that revenue reduction that's in to billed, if rules going a possibility you're again, to getting XXX, to, adjusted you're in adjustment of to provide to it's -- you would than we bad believe wanted had continue paid than I to for less not an of the negotiation would you're pretty believe you would in existing expected then are clear. ASC it's most, revenue. circumstance-driven. accounting just a quarters, because, previously the rather record be about accepting that least with at X We I expense. expect what terms revenue that But most a and be and as introduce customer level it debt

theme action incident in with for an would in moving like we we expect forward. extent or the like be to account the future, it wouldn't that to guidance. But So that recurring an happens a otherwise, the accordance

Andrew J. Wittmann

of the this all item here. sense. confidence flow makes year Was increased in gives heard that makes some that maybe, collecting that answer then your just the the here of I prior guidance sense. before the one or May, visibility to we the -- happen in to That about one confidence the there you and past on that's the here, question on and bad Ted, there happened balance quarter increase? Okay. And cash maybe mean, just Was expected an for other the debt since this

Theodore Wahl

that can the the said, with hand, we -- confidence. about and have it. before strategy, No. important promissory would And been in which an work to degree nothing But our our there on gives on notable or billings add as was to collections they're talked quarter a overall intra-quarter in continue collection of plans, notes tactic that It's we tailwind unusual. really that whether with and specific us our to customers this

and was large again, payment more promissory proactive we even was in with, working, disciplined -- perhaps Andy, strategy the importantly, notes, It a what and it our increased then really frequency, the and function intra-quarter our collecting of use largely environment. coupled the bill, decision-making, recovering of

that take and is month X% CMS realized. state-based hold. to recover to continues increase benefits occupancy starting would census, by, goes that are first the October reimbursement the the quarter be Every

of have industry. confluence for -- environmentally a think So events that a make I you stronger a strengthening

Operator

the Your Blair. Ryan from comes question next from Daniels of line William

Jack Senft

is for This on Senft Ryan Jack Daniel.

to Just In to margins, looks even on terms basis. the & Was curious anything that just here an click this there seasonality? out like Nutrition you of it with call last or can and then to of kind if anything & both Dining caused adjusted Laundry on segment the restructurings quarter from attributed decrease? double decreased it possibly Is that. Housekeeping do

Matthew McKee

management business part ramp-ups, more operational each month-to-month, business are and the latter or on exit, and be the our than really new some of to depending always There's a former, our other every that development adds Jack. operations. considerations execution movement timing Yes, as day happening quarter-to-quarter, within going of field-based

X.X% X.X%. in are expect Year-to-date, our XXXX, variability. a quarter-to-quarter of around degree with those levels to margins track we'd segment and again, And adjusted that for at

drivers, adherence, compliance remain our range continue is in to we budget regulatory cost targeted. continue trends services and overall ability adjusted positive to all we've XX% in are margin that customer which overall, related system of why So which we discipline, have operational to experience, near-term manage to confident of that

Jack Senft

Okay. Perfect. ramping with prepared pipeline the you that well which a quick then growth In correlates I this nicely, too. just remarks, guys sales you mode think up noted follow-up, was your obviously phase. And entering really

like touch if and in Just curious can in you're and if sales you you as a deeper of pipeline, in dive what bit kind XXXX. seeing touch can demand terms head kind you -- and on on the of just of terms of into

Matthew McKee

our than even Yes. question strongly We proposition appreciate that because, more as we've resonate continues ever has historically. previously, value it discussed to

absolutely in like whom So the relationships. demand that increased have rate, be new allows existing necessarily our suggest services to but demand more certainly that increased to for much yields would in greater an instances, selective growth expand to partnerships demand the not with we to is there. establish and determining And us many

of management also are management able our within we our that of now. new all operating So sales side to on full is the organization the capacity demand right pipeline organization We've the onboard the have field-based such develop be an the operations for capacity facilities, to built certainly services at both to strong. which and

-- So we do demand opportunities. business growth into will we new turn and anticipate new the business

half first our to growth to year. So given talk such to continue year-over-year half compared that line that of see growth to and expect have sequential relative expectation about expectation trajectory year, XXXX top of the that, did year growth second this demonstrate XXXX we we that for the every we into the the

Operator

Brian, the next is Jefferies. line line Brian your Tanquilut from open. question of Your comes from

some Wahl at back over no I for this turn are time. will call remarks. closing further the questions Ted to final there And

Theodore Wahl

you, Great. Rob. Okay. Thank

ahead, control the on our our and we value confident deliver focused we growth remain look broader As drive industry ability the our that controllables, to realistic about within in executing shareholders. challenges priorities long-term to strategic remain and and to on economy,

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

Operator

call. conference Thank your participation. today's concludes This for you

disconnect. now may You

Healthcare Services (HCSG) 25 Oct 232023 Q3 Earnings call transcript