Part I [Business](index=5&type=section&id=Item%201.%20Business) The company provides housekeeping, laundry, and dietary services to US healthcare facilities, with revenue split between its Housekeeping and Dietary segments - HCSG provides housekeeping, laundry, and dietary services to approximately **2,700 healthcare facilities** across the United States as of December 31, 2023[12](index=12&type=chunk) - **Genesis Healthcare, Inc.** is a significant customer, accounting for **10.9% ($181.4 million)** of consolidated revenues in 2023[21](index=21&type=chunk) - The company's bad debt provisions have increased, representing **2.1% of total revenues in 2023**, reflecting collection challenges in the long-term care industry[35](index=35&type=chunk) - As of December 31, 2023, the company employed approximately **33,400 people**, with a diverse workforce of **69% women** and **62% BIPOC**[40](index=40&type=chunk)[43](index=43&type=chunk) 2023 Revenue and Cost Structure by Segment | Segment | 2023 Revenue | % of Total Revenue | Key Cost Components (% of Segment Revenue) | | :--- | :--- | :--- | :--- | | **Housekeeping** | $766.7 million | 45.9% | Labor: 82.2%, Supplies: 7.0% | | **Dietary** | $904.7 million | 54.1% | Labor: 59.3%, Food Supplies: 34.2% | [Risk Factors](index=10&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from customer concentration, industry financial instability, and a material weakness in internal controls - A significant risk is customer concentration, with **Genesis Healthcare contributing 10.9%** of total consolidated revenues in 2023[54](index=54&type=chunk) - The company's collections are vulnerable to changes in government reimbursement rates and customer cash flow issues due to its healthcare industry focus[55](index=55&type=chunk) - A **material weakness in internal control** over financial reporting was identified in 2023 related to accrued payroll liabilities from employee vested vacation[65](index=65&type=chunk) - The company retains substantial risk through its high-deductible insurance plan for general liability and workers' compensation[60](index=60&type=chunk) - Service agreements are typically for one-year terms and are cancellable with **30 to 90 days' notice**, creating a risk of customer loss[61](index=61&type=chunk) [Unresolved Staff Comments](index=17&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[81](index=81&type=chunk) [Cybersecurity](index=18&type=section&id=Item%201C.%20Cybersecurity) The company's cybersecurity program is based on the NIST Framework and overseen by the Board's Audit Committee - The company's cybersecurity risk management is governed by an Information Security Policy based on the **NIST Cybersecurity Framework**[83](index=83&type=chunk) - Day-to-day cybersecurity risk management is handled by the Executive VP, Chief Compliance Officer, and the Senior VP of Information and Technology[86](index=86&type=chunk) - The Board of Directors' **Audit Committee oversees** the company's cybersecurity risk mitigation efforts[88](index=88&type=chunk) [Properties](index=19&type=section&id=Item%202.%20Properties) The company leases its corporate headquarters and regional offices, with no single property considered materially significant - The company leases its corporate offices in Bensalem, PA, and other regional offices in various states, with no individual property considered materially significant[89](index=89&type=chunk) [Legal Proceedings](index=19&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various legal proceedings incidental to its business but cannot currently estimate possible losses - The company is involved in various legal proceedings incidental to its business but is currently unable to reasonably estimate possible losses for certain claims[91](index=91&type=chunk) [Mine Safety Disclosures](index=19&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company's operations - Not applicable[93](index=93&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=20&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock trades on Nasdaq, and a share repurchase plan was active in Q4 2023 - As of the end of Q4 2023, **6.5 million shares** remain authorized for repurchase under the current plan[108](index=108&type=chunk) Equity Compensation Plan Information (as of Dec 31, 2023) | Plan Category | Securities to be Issued Upon Exercise (thousands) | Weighted-Average Exercise Price | Securities Remaining for Future Issuance (thousands) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 3,715 | $30.43 | 5,204 | Q4 2023 Share Repurchases | Period | Total Shares Repurchased | Average Price Paid | Aggregate Purchase Price (thousands) | | :--- | :--- | :--- | :--- | | Oct 2023 | 102,200 | $9.75 | $996 | | Nov 2023 | 406,200 | $9.81 | $3,983 | | Dec 2023 | — | $— | $— | | **Q4 Total** | **508,400** | **$9.80** | **$4,979** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Revenues decreased slightly in 2023, but lower service costs and higher SG&A expenses led to a 19.1% increase in pre-tax income - Consolidated selling, general and administrative expense, excluding deferred compensation plan changes, **increased by $10.6 million (7.1%)** in 2023 compared to 2022[131](index=131&type=chunk) - The effective tax rate increased to **27.7% in 2023** from 23.1% in 2022[135](index=135&type=chunk) - The company maintains a **$300 million bank line of credit**, with $25.0 million borrowed as of December 31, 2023, and was in compliance with all financial covenants[154](index=154&type=chunk)[157](index=157&type=chunk) - In February 2023, the Board authorized a share repurchase plan and **suspended the quarterly dividend** as part of a capital rebalancing strategy[151](index=151&type=chunk) Consolidated Financial Performance Summary (2023 vs. 2022) | Metric (in thousands) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | **Consolidated Revenues** | **$1,671,389** | **$1,690,176** | **(1.1)%** | | Housekeeping Revenues | $766,651 | $795,687 | (3.6)% | | Dietary Revenues | $904,738 | $894,489 | 1.1% | | **Costs of services provided** | **$1,456,643** | **$1,496,865** | **(2.7)%** | | **Income before income taxes** | **$53,056** | **$44,553** | **19.1%** | [Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to interest rate risk on its $147.5 million portfolio of cash and marketable securities - The company has **$147.5 million** in cash, cash equivalents, and marketable securities, which are subject to interest rate risk[168](index=168&type=chunk) - The market value of fixed-rate securities may be adversely impacted by rising interest rates, while floating-rate securities may produce less income if rates fall[169](index=169&type=chunk) [Financial Statements and Supplementary Data](index=34&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The auditor issued an adverse opinion on internal controls due to a material weakness, and prior period financials were revised for an accounting error - The independent auditor issued an **adverse opinion on the company's internal control** over financial reporting as of December 31, 2023, due to a material weakness[176](index=176&type=chunk)[185](index=185&type=chunk)[187](index=187&type=chunk) - The company **revised its 2022 and 2021 financial statements** to correct a prior period accounting error related to the estimate for accrued vacation[248](index=248&type=chunk)[251](index=251&type=chunk) Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total current assets | $571,696 | $508,632 | | Total assets | $790,652 | $720,836 | | Total current liabilities | $216,928 | $189,014 | | Total stockholders' equity | $456,616 | $418,279 | Consolidated Income Statement Highlights (in thousands) | Account | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Revenues | $1,671,389 | $1,690,176 | $1,641,959 | | Income before income taxes | $53,056 | $44,553 | $65,512 | | Net income | $38,386 | $34,243 | $48,543 | | Diluted EPS | $0.52 | $0.46 | $0.65 | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=75&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no disagreements with its accountants on accounting or auditing matters - None reported[354](index=354&type=chunk) [Controls and Procedures](index=75&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls were not effective as of year-end 2023 due to a material weakness in internal control - The CEO and PAO concluded that **disclosure controls and procedures were not effective** as of December 31, 2023[355](index=355&type=chunk) - A **material weakness** was identified related to controls over accrued payroll liabilities from employee vested vacation[359](index=359&type=chunk) - The company is implementing a remediation plan that includes enhanced controls, review processes, and reconciliations related to the vacation accrual[361](index=361&type=chunk) [Other Information](index=76&type=section&id=Item%209B.%20Other%20Information) The company amended its by-laws in February 2024 to align with the SEC's universal proxy rules - On February 13, 2024, the company amended its by-laws to address the **SEC's universal proxy rules (Rule 14a-19)** and enhance requirements for director nominees[366](index=366&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=78&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, officers, and governance is incorporated by reference from the 2024 proxy statement - Information is incorporated by reference from the **2024 definitive proxy statement**[371](index=371&type=chunk) - The company has adopted a code of ethics applicable to all employees, officers, and directors, which is available on its website[372](index=372&type=chunk) [Executive Compensation](index=78&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the 2024 proxy statement - Information is incorporated by reference from the **2024 definitive proxy statement**[373](index=373&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=78&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership is incorporated by reference from the 2024 proxy statement - Information is incorporated by reference from the **2024 definitive proxy statement**[374](index=374&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=78&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding related transactions and director independence is incorporated by reference from the 2024 proxy statement - Information is incorporated by reference from the **2024 definitive proxy statement**[375](index=375&type=chunk) [Principal Accountant Fees and Services](index=78&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding accountant fees and services is incorporated by reference from the 2024 proxy statement - Information is incorporated by reference from the **2024 definitive proxy statement**[376](index=376&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=79&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists filed exhibits and includes a schedule detailing the activity in the Allowance for Doubtful Accounts Schedule II — Allowance for Doubtful Accounts (in thousands) | Year | Beginning Balance | Charged to Costs and Expenses | Deductions | Ending Balance | | :--- | :--- | :--- | :--- | :--- | | **2023** | **$73,464** | **$35,604** | **$17,369** | **$91,699** | | 2022 | $65,584 | $31,969 | $24,088 | $73,464 | | 2021 | $67,801 | $10,483 | $12,700 | $65,584 | [Form 10-K Summary](index=79&type=section&id=Item%2016.%20Form%2010-K%20Summary) No Form 10-K summary is provided by the company - None[381](index=381&type=chunk)

Financial Data and Key Metrics Changes - Adjusted EBITDA for Q4 2023 was $26.5 million, representing a 14.2% increase compared to Q4 2022 [2][31] - Cash flow from operations was $49.5 million, with adjusted cash flow from operations at $27.9 million, marking a 7.1% increase over Q4 2022 [2][10] - Revenue for Q4 2023 was reported at $423.8 million, with adjusted revenue at $425 million, aligning with expectations [23][29] - Net income was $22.6 million, with diluted earnings per share at $0.31; adjusted net income was $14.6 million, with adjusted diluted earnings per share at $0.20 [9][51] Business Line Data and Key Metrics Changes - Housekeeping & Laundry segment revenues were $191.4 million, with adjusted revenues at $191.7 million and a margin of 7.5% [8] - Dining & Nutrition segment revenues were $232.4 million, with adjusted revenues at $233.3 million and a margin of 6.2% [8] Market Data and Key Metrics Changes - The healthcare services industry added over 60,000 jobs in 2023, bringing the total workforce to 1.45 million, which is still 140,000 jobs below pre-pandemic levels [3] - Occupancy rates in the sector improved to 79.2%, just 100 basis points below pre-pandemic levels [3] Company Strategy and Development Direction - The company aims to manage adjusted cost of services at 86% and has made contract enhancements to better capture wage inflation and cost increases [5][30] - The focus for 2024 includes organic growth through hiring, training, and developing future manager candidates, as well as converting sales pipeline opportunities into new business [27][55] - The company is prioritizing cash collections as a lagging indicator of industry recovery, expecting improvements throughout 2024 [6] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to capitalize on growth opportunities in 2024, emphasizing a strong operational momentum and improved customer experience [5][28] - The company is optimistic about the industry's recovery, citing a favorable demographic tailwind and a solid reimbursement environment [52] Other Important Information - The company reported a DSO (Days Sales Outstanding) of 82 days for the quarter [32] - SG&A expenses were $46.3 million, with adjusted SG&A at $42.2 million, aiming for a range of 8.5% to 9.5% [59] Q&A Session Summary Question: Inquiry about new business pipeline and manager training - Management indicated that the new business ramp-up is expected to be non-linear, with a heavier contribution anticipated in the second half of the year [35] Question: Update on client restructurings - Management confirmed that the client restructurings noted in the previous quarter were resolved and no residual impact is expected in 2024 [39] Question: Discussion on capital allocation and growth areas - Management stated that organic growth remains the priority, while they continue to evaluate inorganic opportunities [55]

PART I [Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) Unaudited financial statements for Q3 2023 show a net loss, while nine-month net income declined, with total assets increasing to $750.7 million [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) As of September 30, 2023, total assets increased to $750.7 million, driven by receivables, while liabilities rose due to increased borrowings Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 (unaudited) | Dec 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $31,313 | $26,279 | | Accounts and notes receivable, net | $396,577 | $369,386 | | Total current assets | $533,363 | $508,632 | | Total assets | $750,716 | $718,334 | | **Liabilities & Equity** | | | | Borrowings under line of credit | $45,000 | $25,000 | | Total current liabilities | $187,774 | $178,619 | | Total liabilities | $308,983 | $292,162 | | Total stockholders' equity | $441,733 | $426,172 | [Consolidated Statements of Comprehensive (Loss) Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20%28Loss%29%20Income) The company reported a net loss of $5.5 million for Q3 2023, a decline from prior year, while nine-month net income decreased to $15.8 million Q3 Financial Performance (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Revenues | $411,388 | $414,488 | | Costs of services provided | $377,554 | $376,894 | | Selling, general and administrative | $39,047 | $35,803 | | Net (loss) income | $(5,494) | $322 | | Diluted (loss) earnings per share | $(0.07) | $0.00 | Nine-Month Financial Performance (in thousands, except per share data) | Metric | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | | Revenues | $1,247,549 | $1,266,156 | | Costs of services provided | $1,106,260 | $1,129,526 | | Selling, general and administrative | $120,523 | $100,820 | | Net income | $15,788 | $18,471 | | Diluted earnings per share | $0.21 | $0.25 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities significantly improved to $5.9 million for the nine months ended September 30, 2023, leading to a $5.0 million net cash increase Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(5,947) | $(31,060) | | Net cash (used in) from investing activities | $(1,910) | $2,872 | | Net cash from (used in) financing activities | $12,891 | $(22,973) | | **Net increase (decrease) in cash** | **$5,034** | **$(51,161)** | - The company paid no dividends in the first nine months of 2023, compared to $47.4 million in the same period of 2022. Instead, it used **$6.2 million** for treasury stock purchases and increased short-term borrowings by **$20.0 million**[18](index=18&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide details on business segments, accounting policies, and significant customer concentration, with Dietary services contributing 53.9% of revenue - The company is organized into two reportable segments: Housekeeping (housekeeping, laundry, linen) and Dietary (dietary department services)[25](index=25&type=chunk) - For the nine months ended September 30, 2023, one customer, Genesis Healthcare, Inc., accounted for **$141.3 million**, or **11.3%** of consolidated revenues[47](index=47&type=chunk) - In Q2 2023, the company filed a claim for the Employee Retention Credit (ERC) for wages paid in 2020 and 2021, but has not recognized any related amounts as receipt is not yet reasonably assured[49](index=49&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q3 2023 net loss driven by a significant bad debt provision, and a decline in nine-month net income, while liquidity is supported by cash and a credit facility [Results of Operations - Three Months Ended September 30, 2023 and 2022](index=34&type=section&id=Results%20of%20Operations%20-%20Three%20Months%20Ended%20September%2030%2C%202023%20and%202022) Q3 2023 consolidated revenues decreased by 0.7% to $411.4 million, resulting in a net loss primarily due to a $9.1 million bad debt provision Q3 Revenue by Segment (in thousands) | Segment | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Housekeeping | $190,920 | $196,941 | (3.1)% | | Dietary | $220,468 | $217,547 | 1.3% | | **Consolidated** | **$411,388** | **$414,488** | **(0.7)%** | - A customer group's bankruptcy in Q3 2023 resulted in a **$9.1 million** increase to the bad debt provision, significantly impacting profitability[150](index=150&type=chunk) - Consolidated interest expense increased by **166.8%** to **$2.1 million** due to increased short-term borrowings and higher market interest rates[157](index=157&type=chunk) [Results of Operations - Nine Months Ended September 30, 2023 and 2022](index=37&type=section&id=Results%20of%20Operations%20-%20Nine%20Months%20Ended%20September%2030%2C%202023%20and%202022) Nine-month consolidated revenues decreased by 1.5% to $1.25 billion, with income before taxes falling 12.0% due to lower Housekeeping revenue and increased bad debt provisions Nine-Month Revenue by Segment (in thousands) | Segment | Nine Months 2023 | Nine Months 2022 | % Change | | :--- | :--- | :--- | :--- | | Housekeeping | $575,256 | $597,710 | (3.8)% | | Dietary | $672,293 | $668,446 | 0.6% | | **Consolidated** | **$1,247,549** | **$1,266,156** | **(1.5)%** | - Bad debt provision as a percentage of revenue increased to **2.6%** from **1.8%** year-over-year, driven by changes in the credit risk profile of two customer groups, which added **$13.8 million** to bad debt expense[165](index=165&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) As of September 30, 2023, the company maintained $121.3 million in liquid assets and a $300 million credit facility, while initiating a share repurchase plan after suspending dividends - The company maintains a **$300 million** bank line of credit, with **$45.0 million** in borrowings and **$85.7 million** in letters of credit outstanding as of September 30, 2023, leaving **$169.3 million** available[126](index=126&type=chunk)[127](index=127&type=chunk) - On February 14, 2023, the Board of Directors suspended the quarterly dividend and authorized a repurchase of up to **7.5 million** shares[180](index=180&type=chunk) - For the nine months ended September 30, 2023, the company repurchased **0.5 million** shares for **$6.2 million**[181](index=181&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is primarily exposed to interest rate risk on its $121.3 million investments, where rate fluctuations could impact fixed and floating-rate securities - The company's primary market risk is interest rate risk associated with its investments. The market value of fixed-rate securities may be negatively impacted by rising interest rates[193](index=193&type=chunk) [Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal controls during Q3 - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[195](index=195&type=chunk) - There were no changes in internal controls over financial reporting during Q3 2023 that have materially affected, or are reasonably likely to materially affect, these controls[196](index=196&type=chunk) PART II — OTHER INFORMATION [Legal Proceedings](index=46&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings in the ordinary course of business, with no expected material adverse effect on financial condition - The company is subject to various legal actions in the ordinary course of business but does not expect them to have a material adverse effect on its financial condition[200](index=200&type=chunk) - For certain pending litigation, the company is unable to reasonably estimate possible losses or determine if an unfavorable outcome is probable, reasonably possible, or remote[201](index=201&type=chunk) [Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred in the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - No material changes have occurred in the risk factors from the company's 2022 Form 10-K[203](index=203&type=chunk) [Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities](index=46&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The Board authorized a share repurchase plan for up to 7.5 million shares, with 345,612 shares repurchased for $4.0 million during Q3 2023 Q3 2023 Share Repurchases | Period | Shares Repurchased | Average Price Paid | Total Cost (in thousands) | | :--- | :--- | :--- | :--- | | July 2023 | 58,601 | $12.53 | $734 | | August 2023 | 102,011 | $12.34 | $1,259 | | September 2023 | 185,000 | $10.68 | $1,977 | | **Total Q3** | **345,612** | **$11.49** | **$3,970** | - As of the end of Q3 2023, approximately **7.0 million** shares remain authorized for repurchase under the current plan[204](index=204&type=chunk) [Other Information](index=46&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q3 2023 - No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement during Q3 2023[208](index=208&type=chunk) [Exhibits](index=47&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including required certifications from the Principal Executive Officer and Principal Financial Officer - Exhibits filed include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[209](index=209&type=chunk)

Financial Data and Key Metrics Changes - For Q3 2023, the company reported revenue of $411.4 million and adjusted revenue of $424 million, aligning with expectations of $420 million to $430 million [4] - The net loss was $5.5 million, translating to a diluted loss per share of $0.07, while adjusted net income was $12.5 million, with adjusted diluted earnings per share of $0.17, reflecting a 13.9% and 13.3% increase respectively over Q3 2022 [4] - Adjusted EBITDA for the quarter was $23.3 million, a 10.2% increase compared to Q3 2022, and cash flow from operations was $2.9 million, with adjusted cash flow from operations at $18 million, marking a 208.9% increase over Q3 2022 [4][15] Business Line Data and Key Metrics Changes - Revenue from the Housekeeping & Laundry segment was $190.9 million, while the Dining & Nutrition segment generated $220.5 million [30] - Adjusted revenues for these segments were $194.6 million and $229.4 million respectively, with segment margins of 5.4% for Housekeeping & Laundry and 0.9% for Dining & Nutrition [30] - Adjusted segment margins were 7.2% for Housekeeping & Laundry and 4.7% for Dining & Nutrition [30] Market Data and Key Metrics Changes - The company experienced strong cash collections, achieving over 98% of billed amounts in Q3, primarily affected by the timing of new business adds [5][19] - Days Sales Outstanding (DSO) for the quarter was 82 days, with adjusted DSO at 79 days, showing a four-day improvement over the previous quarter [15] Company Strategy and Development Direction - The company is focused on three priorities: managing adjusted cost of services at 86%, improving cash collections, and executing an organic growth strategy [5][11] - The company anticipates a neutral-to-positive effect on future revenue and earnings from recent client restructuring actions, which involve divesting facilities to new operators [6] - The company is optimistic about industry fundamentals improving, with a stabilizing labor market and reimbursement increases contributing to occupancy recovery [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the fourth quarter and 2024 outlook, raising expectations for cash flow from operations to a range of $35 million to $45 million for the second half of 2023 [12] - The company noted ongoing uncertainty regarding regulatory changes, particularly the proposed minimum staffing rule by CMS, which has faced significant opposition [9][11] - Management emphasized the importance of visibility in business operations and the positive momentum heading into Q4 [19][37] Other Important Information - The company introduced supplemental non-GAAP financial tables to enhance transparency and align reporting with management's view of the business [14] - Adjusted cost of services was reported at $366.2 million, or 86.4%, consistent with the company's target [31] Q&A Session Summary Question: Impact of client restructurings on revenue - Management indicated that the recent restructurings did not significantly impact revenue for the quarter, but they expect future opportunities from new operators [35] Question: Guidance for cash flow from operations - The revised cash flow guidance for the second half of the year is a GAAP number, reflecting increased confidence due to improved collections and industry recovery [36][44] Question: Margins in housekeeping and dining segments - Management acknowledged a decrease in margins for both segments and attributed it to various operational factors, while maintaining confidence in overall margin management [45][46] Question: Sales pipeline and demand outlook - The sales pipeline is ramping up, with strong demand anticipated as the company prepares for growth in 2024 [54]

PART I — FINANCIAL INFORMATION [Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements for the period ended June 30, 2023, accompanied by detailed notes on significant accounting policies and financial components [Consolidated Financial Statements](index=5&type=section&id=Consolidated%20Financial%20Statements) As of June 30, 2023, total assets increased to **$761.8 million**, net income for the six months rose to **$21.3 million**, and net cash used in operating activities decreased to **$8.9 million** | | June 30, 2023 ($) | December 31, 2022 ($) | | :--- | :--- | :--- | | **Total Current Assets** | 549,086 | 508,632 | | **Total Assets** | 761,758 | 718,334 | | **Total Current Liabilities** | 189,664 | 178,619 | | **Total Liabilities** | 311,169 | 292,162 | | **Total Stockholders' Equity** | 450,589 | 426,172 | | | Three Months Ended June 30, 2023 ($) | Three Months Ended June 30, 2022 ($) | Six Months Ended June 30, 2023 ($) | Six Months Ended June 30, 2022 ($) | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | 418,931 | 424,857 | 836,161 | 851,668 | | **Income before income taxes** | 11,410 | 8,250 | 28,966 | 24,031 | | **Net Income** | 8,598 | 6,820 | 21,282 | 18,149 | | **Diluted EPS** | 0.12 | 0.09 | 0.29 | 0.24 | | | Six Months Ended June 30, 2023 ($) | Six Months Ended June 30, 2022 ($) | | :--- | :--- | :--- | | **Net cash used in operating activities** | (8,887) | (21,164) | | **Net cash (used in) from investing activities** | (637) | 4,158 | | **Net cash from (used in) financing activities** | 11,907 | (22,107) | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the company's accounting policies, segment information, revenue recognition, receivables, share-based compensation, and line of credit, including an increased allowance for doubtful accounts and Dietary segment's larger revenue share - The company is organized into two reportable segments: Housekeeping (housekeeping, laundry, linen and other services) and Dietary (dietary department services)[28](index=28&type=chunk) | Segment | Revenue (Six Months Ended June 30, 2023, $) | % of Total | | :--- | :--- | :--- | | Housekeeping | 384.3 million | 46.0% | | Dietary | 451.8 million | 54.0% | | Allowance for Doubtful Accounts | Six Months Ended June 30, 2023 ($) | | :--- | :--- | | **Beginning Balance (Dec 31, 2022)** | 73,464 | | **Bad Debt Expense** | 18,170 | | **Write-Offs (net)** | (11,972) | | **Ending Balance (June 30, 2023)** | 79,662 | - As of June 30, 2023, the company had **$40.0 million** in borrowings under its **$300.0 million** bank line of credit and was in compliance with all financial covenants[123](index=123&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, including a Q2 2023 revenue decrease offset by improved net income, and details liquidity, capital resources, and the shift to a share repurchase strategy [Results of Operations](index=31&type=section&id=Results%20of%20Operations) Q2 2023 saw a **1.4%** consolidated revenue decrease to **$418.9 million**, while net income increased **38.3%** to **$11.4 million**, driven by improved cost management despite Housekeeping revenue decline | Metric | Q2 2023 ($) | Q2 2022 ($) | % Change | | :--- | :--- | :--- | | **Consolidated Revenues** | 418.9M | 424.9M | (1.4)% | | - Housekeeping | 190.8M | 199.1M | (4.1)% | | - Dietary | 228.1M | 225.8M | 1.0% | | **Income Before Taxes** | 11.4M | 8.3M | 38.3% | | Metric | H1 2023 ($) | H1 2022 ($) | % Change | | :--- | :--- | :--- | | **Consolidated Revenues** | 836.2M | 851.7M | (1.8)% | | - Housekeeping | 384.3M | 400.8M | (4.1)% | | - Dietary | 451.8M | 450.9M | 0.2% | | **Income Before Taxes** | 29.0M | 24.0M | 20.5% | - The decrease in bad debt provision as a percentage of revenues in Q2 2023 was driven by the absence of a significant customer receivership event that occurred in Q2 2022, which had resulted in a **$7.1 million** increase to the provision in that period[147](index=147&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2023, the company maintained strong liquidity with **$121.8 million** in cash and **$359.4 million** in working capital, shifting its capital allocation strategy to share repurchases from dividends - As of June 30, 2023, the company had cash, cash equivalents and marketable securities of **$121.8 million** and working capital of **$359.4 million**[172](index=172&type=chunk) - On February 14, 2023, the Board of Directors suspended the quarterly dividend and authorized the repurchase of up to **7.5 million** shares; during the six months ended June 30, 2023, the company repurchased **0.2 million** shares for **$2.2 million**[177](index=177&type=chunk)[178](index=178&type=chunk) - The company had **$40.0 million** in borrowings under its **$300 million** line of credit as of June 30, 2023, and was in compliance with all financial covenants, including a Funded Debt to EBITDA ratio of **1.32** (vs. limit of <3.50)[179](index=179&type=chunk)[180](index=180&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk on its **$121.8 million** investment portfolio, where fair value could be adversely affected by interest rate changes - The company's main market risk is interest rate risk on its investment portfolio of **$121.8 million** in cash, cash equivalents, and marketable securities[189](index=189&type=chunk) - The market value of fixed-rate securities may be adversely impacted by an increase in interest rates, while floating-rate securities may produce less income if interest rates fall[190](index=190&type=chunk) [Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal controls over financial reporting during the quarter - Management, including the Principal Executive Officer and Principal Financial Officer, concluded that the company's disclosure controls and procedures were **effective** as of June 30, 2023[192](index=192&type=chunk) - No changes occurred in the company's internal controls over financial reporting during Q2 2023 that have materially affected, or are reasonably likely to materially affect, these controls[193](index=193&type=chunk) PART II — OTHER INFORMATION [Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various ordinary course legal proceedings, with management not expecting a material adverse effect, though outcomes for some claims remain unestimable - The company is subject to various claims and legal actions in the ordinary course of business, including labor, contract, and personal injury matters[195](index=195&type=chunk) - For certain pending litigation claims, the company is unable to reasonably estimate possible losses or determine if an unfavorable outcome is probable, reasonably possible, or remote[196](index=196&type=chunk) [Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes to risk factors were reported since the company's Annual Report on Form 10-K for the year ended December 31, 2022[198](index=198&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Board authorized a repurchase of up to **7.5 million** shares in February 2023, with no shares repurchased during Q2 2023, leaving **7.3 million** shares authorized under the plan - A share repurchase plan for up to **7.5 million** shares was authorized in February 2023; no shares were repurchased during the three months ended June 30, 2023, leaving **7.3 million** shares authorized for repurchase[199](index=199&type=chunk) [Defaults Upon Senior Securities](index=41&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities - The company reports no defaults upon senior securities[200](index=200&type=chunk) [Mine Safety Disclosures](index=41&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company reports no mine safety disclosures - The company reports no mine safety disclosures[201](index=201&type=chunk) [Other Information](index=41&type=section&id=Item%205.%20Other%20Information) The company reports no other information for this item - The company reports no other information for this item[202](index=202&type=chunk) [Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the Amended and Restated 2020 Omnibus Incentive Plan, Sarbanes-Oxley Act certifications, and iXBRL formatted financial data - Key exhibits filed with this report include the Amended and Restated 2020 Omnibus Incentive Plan, Sarbanes-Oxley Act Section 302 and 906 certifications, and iXBRL data files[203](index=203&type=chunk)

Financial Data and Key Metrics Changes - Revenue for Q2 2023 was $418.9 million, with GAAP net income of $8.6 million or $0.12 per share, and adjusted EBITDA of $26.3 million [25][9] - Direct cost of services was reported at $367.7 million, or 87.8%, with a target of managing direct costs at 86% excluding CECL [9][5] - SG&A was reported at $41.4 million, with an actual SG&A of $39.1 million or 9.3%, and the company expects 2023 SG&A to be between 8.5% to 9.5% [9][25] Business Line Data and Key Metrics Changes - Housekeeping and laundry segment revenues were $190.8 million with a margin of 8.7%, while dining and nutrition segment revenues were $228.1 million with a margin of 5.5% [9][25] - The company experienced a slight decline in housekeeping revenue quarter-on-quarter due to normal course exits, while dining saw a step up from new business ads [55][56] Market Data and Key Metrics Changes - The company noted improvements in industry fundamentals, a stabilizing labor market, and state-based reimbursement increases contributing to occupancy recovery [7][5] - Specific states like Florida, Illinois, Pennsylvania, Texas, and Ohio have seen reimbursement increases, although the impact varies by state [43][42] Company Strategy and Development Direction - The company is focused on three priorities for the second half of the year: managing direct costs at 86% excluding CECL, improving cash collections, and realizing business development efforts for new facility starts [28][26] - The management expressed confidence in the growth mode pivot for the second half of 2023 and into 2024, emphasizing the importance of management capacity in supporting growth [17][37] Management's Comments on Operating Environment and Future Outlook - Management highlighted the positive momentum in cash collections in May and June following a shortfall in April, indicating a strong outlook for Q3 and the back half of the year [26][30] - There is ongoing uncertainty regarding minimum staffing requirements, but management remains hopeful that CMS will consider the impact on operators before finalizing any rules [7][51] Other Important Information - Cash flow from operations for the quarter was $7.4 million, impacted by increases in accrued payroll and accounts receivable [30][9] - The company is targeting free cash flow of $25 million to $30 million for the back half of the year [58][9] Q&A Session Summary Question: What is the outlook for collections and DSO? - Management indicated that DSO for the quarter was 83 days and they are actively working to recapture delayed payments from April, expecting improvements in collections [32][30] Question: How is the new business pipeline and management training program performing? - Management acknowledged that the ability to grow has historically depended on having sufficient management capacity and training, and they are now focused on aligning this capacity with growth opportunities [14][17] Question: What is the confidence level for revenue growth in the second half of the year? - Management provided a revenue range of $420 million to $430 million for Q3, indicating that this includes both existing business and new business ads [27][45] Question: How are CECL reserves expected to stabilize? - Management expects CECL adjustments to moderate as cash collections improve, indicating a more normalized approach moving forward [49][41] Question: What is the company's capital allocation strategy? - The company remains focused on internal investments and organic growth, while also exploring selective inorganic opportunities [42][51]

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, 2023 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) Pennsylvania 23-2018365 (State or ot ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 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 ...

Healthcare Services Group, Inc. (NASDAQ:HCSG) Q4 2022 Earnings Conference Call February 15, 2023 8:30 AM ET Company Participants Ted Wahl - President and CEO Matt McKee - Chief Communications Officer Conference Call Participants Sean Dodge - RBC Capital Markets Tao Qiu - Stifel Andy Wittmann - Baird A.J. Rice - Credit Suisse Jack Melick - William Blair Taji Phillips - Jefferies Operator Good morning, and welcome to the Healthcare Services Group 2022 Annual Earnings Call. At this time, all lines are in liste ...

Financial Data and Key Metrics Changes - Revenue for Q1 2022 was reported at $426.8 million, with direct cost of services at $373.3 million, representing 87.5% of revenue, which is above the historical target of 86% [10][13] - Net income for the quarter was $11.3 million, translating to earnings of $0.15 per share [13] - Cash outflow from operations was $30.2 million, primarily due to a $27.2 million increase in accounts receivable and a $24.9 million increase in accrued payroll [13][91] Business Line Data and Key Metrics Changes - Housekeeping and laundry segment revenues were $201.7 million, while dining and nutrition segment revenues were $225.1 million [10] - Segment margins for housekeeping and laundry were 10.1%, and for dining and nutrition, they were 4.2% [11] Market Data and Key Metrics Changes - The company noted positive facility census trends, with occupancy increasing from 72.5% to 73.6% over an eight-week period [72] - The company expects to exit the year with cost of services aligned with the historical target of 86% [7][102] Company Strategy and Development Direction - The company is focused on modifying service agreements to account for inflation and aims to complete these modifications by the end of Q2 2022 [7][102] - There is an emphasis on operational efficiency and management development to support business growth [48][49] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term growth outlook, citing favorable demographics and the value proposition of their services [9] - The company is actively engaged with clients to address inflation-related issues and is optimistic about achieving their financial targets [24][70] Other Important Information - The board approved an increase in the dividend to $0.2125 per share, marking the 76th consecutive cash dividend payment [15][16] - The company is not actively pursuing M&A opportunities but remains open to opportunistic acquisitions, particularly in the education space [76][78] Q&A Session Summary Question: Progress on service contract modifications - Management indicated that they are making good progress on modifying service agreements, with a goal to exit the year with cost of services at 86% [24][70] Question: One-time impacts on margins - Management clarified that there were no significant one-time impacts on margins for the quarter, attributing improvements to operational efficiencies [26] Question: Impact of food costs and supplemental billing revenue - Management noted that there was no benefit from supplemental billing revenue and discussed the lag in food cost adjustments due to inflation [33][84] Question: DSO and client payment ability - Management stated that while there are challenges, they have not seen systematic issues with client payments, attributing the increase in DSO primarily to timing [40][96] Question: Genesis contract pricing modifications - Management confirmed that the sunsetting of pricing adjustments contributed approximately $2.5 million in Q1 [44] Question: Management development and staffing - Management emphasized the importance of management development and noted that they are focused on recruiting and training to support business operations [48][49] Question: Client pushback on price increases - Management acknowledged that while there is some pushback from clients, most recognize the increased costs of doing business and appreciate the value of their partnership [57][61] Question: Dividend philosophy and cash balances - Management reiterated that dividend decisions are evaluated quarterly, with a focus on sustainability and organic growth as priorities [98]