UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 0-12015 HEALTHCARE SERVICES GROUP, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of inco ...

Healthcare Services Group, Inc. (NASDAQ:HCSG) Q1 2025 Results Conference Call April 23, 2025 8:30 AM ET Company Participants Ted Wahl - President and Chief Executive Officer Matt McKee - Chief Communication Officer Vikas Singh - Chief Financial Officer Conference Call Participants Andy Wittmann - Baird A.J. Rice - UBS Tao Qiu - Macquarie Operator Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Health ...

Healthcare Services (HCSG) came out with quarterly earnings of $0.23 per share, beating the Zacks Consensus Estimate of $0.18 per share. This compares to earnings of $0.22 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 27.78%. A quarter ago, it was expected that this provider of housekeeping, laundry and dietary services to health care facilities would post earnings of $0.20 per share when it actually produced earnings of $0. ...

Financial Performance - Revenue for the first quarter was reported at $447.7 million, representing a 5.7% increase compared to the prior year[5] - Net income for the quarter was $17.2 million, with diluted earnings per share (EPS) of $0.23[5] - Cash flow from operations, excluding changes in payroll accrual, was $32.1 million, an increase of $41.3 million over the prior year[5] - The company reiterated its expectation for mid-single digit revenue growth in 2025[6] Cash Flow and Forecast - The company raised its 2025 cash flow from operations forecast from $45.0 to $60.0 million to a new range of $60.0 to $75.0 million[5] - Cash and marketable securities totaled $143.9 million as of the end of the first quarter[4] Costs and Expenses - Cost of services was reported at $379.7 million, accounting for 84.8% of revenue, with a goal to manage this cost in the 86% range for 2025[6] - Selling, general and administrative (SG&A) expenses were reported at $45.0 million, with an adjusted SG&A of $46.4 million, or 10.4% of revenue[6] Shareholder Actions - The company has repurchased approximately $7.0 million of common stock during the first quarter, with a total of over $23.0 million repurchased since February 2023[4] Assets - Total assets increased to $822.9 million, up from $802.8 million at the end of 2024[17]

Core Viewpoint - The article emphasizes the importance of value investing and highlights Healthcare Services Group (HCSG) as a strong value stock based on various financial metrics [2][4][7] Company Overview - Healthcare Services Group (HCSG) currently holds a Zacks Rank of 2 (Buy) and an A for Value, indicating strong potential for value investors [4] - HCSG is trading at a P/E ratio of 12.05, significantly lower than the industry average of 21.80, suggesting it may be undervalued [4] - The stock's Forward P/E has fluctuated between 11.89 and 19.66 over the past year, with a median of 13.93 [4] Valuation Metrics - HCSG has a P/S ratio of 0.42, compared to the industry average of 0.94, indicating a potentially undervalued position based on sales [5] - The P/CF ratio for HCSG is 13, which is attractive relative to the industry's average P/CF of 13.16, further supporting the undervaluation thesis [6] - Over the past 52 weeks, HCSG's P/CF has ranged from 10.66 to 18.23, with a median of 14.20 [6] Investment Outlook - The combination of HCSG's favorable valuation metrics and strong earnings outlook positions it as one of the market's strongest value stocks [7]

Revenue and Financial Performance - Total revenues for 2024 reached $1,715,682, an increase of 2.0% compared to $1,671,389 in 2023[211]. - Net income for 2024 was $39,471, reflecting a growth of 2.8% from $38,386 in 2023[211]. - Basic earnings per share increased to $0.54 in 2024, up from $0.52 in 2023[211]. - The Company reported consolidated revenues of $765.4 million, $766.7 million, and $795.7 million for the years ended December 31, 2024, 2023, and 2022, respectively, from housekeeping services[264]. - Dietary services generated consolidated revenues of $950.3 million, $904.7 million, and $894.5 million for the years ended December 31, 2024, 2023, and 2022, respectively, indicating a growth of 5.8% from 2023 to 2024[265]. Accounts Receivable and Bad Debt - The company recorded bad debt provisions of $46.8 million for the year ended December 31, 2024, compared to $35.6 million in 2023 and $32.0 million in 2022, indicating an increase in credit risk exposure[60]. - The total net accounts receivable as of December 31, 2024, was $423.4 million, an increase from $408.3 million in 2023, reflecting a growth of 3.0%[273]. - The allowance for doubtful accounts increased by $17.6 million in 2024 due to outstanding invoices related to LaVie Care Centers, LLC, which filed for Chapter 11 bankruptcy protection[279]. - The allowance for doubtful accounts for notes receivable decreased from $10.880 million in 2023 to $6.657 million in 2024, reflecting a write-off of $4.275 million during the year[286]. - The Company utilizes financial modeling to determine an allowance for doubtful accounts, reflecting the best estimate of lifetime expected credit losses on accounts and notes receivable[235]. Assets and Liabilities - Total assets as of December 31, 2024, amounted to $802,772, a rise from $790,652 in 2023[208]. - Total current liabilities decreased to $192,547 in 2024, down from $216,928 in 2023, representing a reduction of 11.3%[208]. - The total accounts and notes receivable, net of allowances, was $100.782 million as of December 31, 2024, compared to $46.760 million in 2023[286]. - The total property and equipment at cost increased from $50.803 million in 2023 to $55.821 million in 2024, with significant increases in housekeeping and dietary equipment and computer hardware and software[296]. Cash and Cash Equivalents - As of December 31, 2024, the company had $135.8 million in cash, cash equivalents, restricted cash equivalents, marketable securities, and restricted marketable securities[184]. - Cash and cash equivalents at the end of 2024 were $60,131, compared to $54,330 at the end of 2023, marking an increase of 10.3%[213]. - Total cash and cash equivalents and restricted cash equivalents increased to $60.131 million as of December 31, 2024, compared to $54.330 million in 2023, reflecting a growth of about 10.3%[229]. Investment and Marketable Securities - The company’s investment portfolio includes municipal bonds, treasury bonds, and corporate bonds, which are subject to market fluctuations[54]. - The total marketable securities at fair value decreased to $50,535,000 in 2024 from $93,131,000 in 2023, a decline of 45.8%[318]. - The Company recorded unrealized losses of $500,000 on marketable securities for the year ended December 31, 2024, compared to unrealized gains of $1,600,000 in 2023[313]. - The total debt securities available-for-sale decreased from $95,466,000 in 2023 to $75,640,000 in 2024, reflecting a gross unrealized loss of $3,056,000[323]. Employee and Operational Insights - Approximately 35,300 employees were employed as of December 31, 2024, with 4,000 in corporate and field management[40]. - The company emphasizes employee health and safety, providing various health and welfare programs to support employee well-being[41]. - The company has a high deductible insurance program, retaining substantial risk associated with possible losses, which could impact financial results if claims exceed estimates[63]. Regulatory and Compliance Risks - The company is subject to various federal, state, and local laws and regulations, and changes in these regulations could increase operating costs and liability exposure[75]. - Changes in government regulations and reimbursement rates from Medicare and Medicaid could adversely affect the cash flows of the company's customers, impacting their ability to meet payment obligations[59]. - The company is subject to federal and state ESG requirements, which may lead to increased costs and operational changes to achieve compliance[83]. Cybersecurity and Technology - The company experienced a cybersecurity incident on October 9, 2024, involving unauthorized activity within its systems, although it is not expected to disrupt business operations[84]. - The company maintains insurance coverage for cyber risks, but it may be insufficient to cover all potential losses[86]. - The company is evaluating the implementation of generative artificial intelligence (Gen AI) technologies, which may present additional risks if not managed properly[87]. Shareholder and Equity Information - The Company issued 204 shares in connection with equity incentive plans in 2024, compared to 167 shares in 2023, representing a growth of approximately 22.2%[215]. - The Company increased the number of authorized shares of common stock from 100 million to 200 million on June 18, 2024[250]. - Share-based compensation expense for 2024 was $9,165,000, slightly increasing from $8,985,000 in 2023[324].

Financial Data and Key Metrics Changes - For Q4 2024, the company reported revenue of $437.8 million, net income of $11.9 million, and diluted EPS of $0.16, which included new business startup costs [6][16] - Cash flow from operations was reported at $36.2 million, with actual cash flow from operations excluding payroll accrual changes at $27 million [16][17] - The company expects 2025 cash flow from operations excluding payroll accrual changes to be in the range of $45 million to $60 million [12][13] Business Line Data and Key Metrics Changes - Housekeeping and laundry revenue was $192.7 million with a margin of 10.2%, while dining and nutrition revenue was $245.1 million with a margin of 4.7% [14] - Cost of services was reported at $379.2 million, or 86.6%, which includes new business startup costs [14][15] - SG&A was reported at $44.8 million, or 10.1%, after adjusting for deferred compensation [15] Market Data and Key Metrics Changes - The industry is experiencing a steady increase in workforce availability, with over 100,000 jobs added since the beginning of 2023 [7] - Occupancy rates have risen to 80%, aligning with pre-pandemic levels, and there has been a stable reimbursement environment with a 4.2% increase in Medicare rates for fiscal year 2025 [8] Company Strategy and Development Direction - The company’s top three strategic priorities for 2025 include driving organic growth, managing costs, and optimizing cash flow [10][11] - The company aims for mid-single digit revenue growth in 2025, with a Q1 revenue estimate of $440 million to $450 million [10][14] - The company plans to focus on internal investments, high-quality inorganic growth opportunities, and opportunistic share repurchases [20][22][23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to manage costs within targeted ranges and highlighted the importance of operational execution [33] - The sentiment regarding the new administration remains positive, with expectations of collaborative changes in reimbursement and regulatory frameworks [9][64] - The company anticipates that demand for services will increase due to demographic trends, particularly as baby boomers age [7][8] Other Important Information - The company ended 2024 with cash and marketable securities of $135.8 million and an undrawn $500 million credit facility [19] - The company has repurchased $16 million of its common stock since February 2023, with over 6 million shares remaining under the repurchase authorization [23] Q&A Session Summary Question: Comments on strong cash flows and Eagle's performance - Management acknowledged the strong cash flows and excitement around the performance [26][27] Question: Expectations for startup costs and cost of sales target - Management indicated that startup costs will vary based on the timing of new business additions and expressed confidence in managing costs within the targeted range [30][33] Question: Cash flow performance and bridging to 2025 guidance - Management noted that higher than expected new business adds impacted cash flow, but they expect stronger cash flow in the second half of 2025 [39][40] Question: Credit quality and collection trends - Management reported positive trends in credit quality and a decrease in Days Sales Outstanding (DSO) [54][56] Question: Impact of federal bureaucracy on customer payments - Management stated there were no immediate impacts on payment timeliness and expressed optimism about future collaborative changes [61][64] Question: Revenue movement from Q4 to Q1 and new business contributions - Management clarified that new business added in Q4 would carry over into Q1, with no significant seasonal patterns affecting new business wins [70][75] Question: Expectations around labor and food inflation - Management is monitoring inflation trends and noted that wage growth has stabilized, allowing for the passing of inflation costs through contracts [79][84] Question: Growth contributions from different segments - Management indicated that the primary growth driver for 2025 will be in the healthcare segment, with opportunities in environmental services and education [90][92]

Group 1: Earnings Performance - Healthcare Services (HCSG) reported quarterly earnings of $0.16 per share, missing the Zacks Consensus Estimate of $0.20 per share, and down from $0.20 per share a year ago [1] - The earnings surprise for this quarter was -20%, while the previous quarter saw an earnings surprise of 18.75% with actual earnings of $0.19 per share against an expectation of $0.16 [2] - Over the last four quarters, the company has surpassed consensus EPS estimates three times [2] Group 2: Revenue Performance - The company posted revenues of $437.81 million for the quarter ended December 2024, exceeding the Zacks Consensus Estimate by 0.79%, compared to $423.84 million in the same quarter last year [3] - Healthcare Services has topped consensus revenue estimates two times over the last four quarters [3] Group 3: Stock Performance and Outlook - Shares of Healthcare Services have declined approximately 6.1% since the beginning of the year, contrasting with the S&P 500's gain of 3.2% [4] - The current consensus EPS estimate for the upcoming quarter is $0.20 on revenues of $435.9 million, and for the current fiscal year, it is $0.84 on revenues of $1.76 billion [8] - The Zacks Industry Rank indicates that the Business - Services sector is currently in the bottom 30% of over 250 Zacks industries, which may impact stock performance [9] Group 4: Estimate Revisions and Future Expectations - The estimate revisions trend for Healthcare Services is mixed, leading to a Zacks Rank 3 (Hold) for the stock, suggesting it is expected to perform in line with the market in the near future [7] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [6]

Revenue Performance - Q4 2024 revenue was reported at $437.8 million, an increase from $423.8 million in Q4 2023, representing a growth of 3.4% year-over-year[19]. - The company expects mid-single digit revenue growth in 2025, with Q1 revenue projected to be between $440.0 million and $450.0 million[6]. Net Income and Earnings Per Share - Net income for Q4 2024 was $11.9 million, with diluted EPS of $0.16, compared to $23.5 million and $0.32 in Q4 2023, indicating a decrease of 49.3% in net income[19]. - GAAP net income for Q4 2024 was $11,920,000, a decrease from $23,508,000 in Q4 2023[22]. - For the year ended December 31, 2024, GAAP net income was $39,471,000, an increase from $38,386,000 in 2023[22]. Cash Flow - Cash flow from operations for Q4 2024 was $36.2 million, while actual cash flow, excluding payroll accrual changes, was $27.0 million[6]. - GAAP cash flows provided by operations for Q4 2024 were $36,204,000, a decrease from $49,445,000 in Q4 2023[22]. - Adjusted cash flows provided by operations for Q4 2024 were $26,957,000, slightly down from $27,882,000 in Q4 2023[22]. Cost Management - The cost of services for Q4 2024 was reported at $379.2 million, representing 86.6% of revenue, with a goal to manage this cost in the 86% range for 2025[7]. - Selling, general and administrative expenses (SG&A) were reported at $44.8 million, or 10.1% of revenue, with a target to reduce this to between 8.5% and 9.5% in 2025[7]. Assets and Securities - As of the end of Q4 2024, the company had cash and marketable securities totaling $135.8 million and a $500.0 million credit facility[5]. - Total assets as of December 31, 2024, were $802.8 million, an increase from $790.7 million at the end of 2023[20]. Profitability and Strategic Goals - The company aims to enhance profitability and maximize cash flow through strategic execution and strong business fundamentals into 2025 and beyond[3]. - The company has repurchased over $5.0 million of its common stock in 2024, continuing a share repurchase program initiated in February 2023[6]. Depreciation and Amortization - Total depreciation and amortization for the year ended December 31, 2024, was $14,585,000, compared to $14,344,000 in 2023[22]. - The right-of-use asset depreciation for Q4 2024 was $2,000,000, compared to $1,800,000 in Q4 2023[22]. Adjusted EBITDA - Adjusted EBITDA for Q4 2024 was $20,177,000, compared to $38,752,000 in Q4 2023, representing a decline of 48.0%[22]. - Adjusted EBITDA as a percentage of revenue for Q4 2024 was 4.6%, down from 9.1% in Q4 2023[22]. Payroll Adjustments - The company reported a decrease in accrued payroll adjustments, reflecting changes of $(9,247,000) for Q4 2024 and $(21,563,000) for Q4 2023[22]. - The company anticipates continuing to retain 100% of the funds received from SERP participants, impacting future cash flows[22].

Market Overview - The Middle East & Africa Pharmaceuticals Market was valued at USD 30.07 billion in 2024 and is projected to reach USD 42.42 billion by 2030, with a compound annual growth rate (CAGR) of 6.10% [2][11]. Key Market Drivers - The market growth is driven by the region's growing population, increasing prevalence of chronic diseases, and rising healthcare expenditure [2][3]. - The demand for pharmaceutical products is increasing due to the higher incidence of chronic diseases such as diabetes, cardiovascular disorders, and cancer [3]. - Government initiatives aimed at improving healthcare infrastructure and access further support market expansion [3]. Key Market Trends - Technological advancements and a shift towards personalized medicine are contributing to the market's growth, providing opportunities for pharmaceutical companies to innovate [3]. - Saudi Arabia emerged as the dominant country in the Middle East & Africa Pharmaceuticals market in 2024, driven by its strong economy and significant healthcare expenditure [4]. - The Vision 2030 initiative in Saudi Arabia emphasizes enhancing the healthcare sector through reforms and investments in healthcare infrastructure and digital health technologies [5]. Key Players - Notable companies in the Middle East & Africa Pharmaceuticals Market include Julphar, Bayer Middle East FZE, Niner Pharmaceuticals LLC, Pfizer Gulf FZ-LLC, Novo Nordisk Pharma Gulf FZ LLC, Roche Pharmaceutical Middle East FZCO, AstraZeneca FZ LLC, Hikma UAE, Merck Serono Middle East Fz-Ltd., and Abbott Laboratories SA [8][12]. Market Segmentation - The report segments the market by drug type, product type, application, distribution channel, and country [9][10].