Healthcare Services Group(US:HCSG)2025-07-23 11:10markdown [Performance Overview and Outlook](index=1&type=section&id=Performance%20Overview%20and%20Outlook) HCSG's Q2 results surpassed growth expectations driven by new client wins and higher retention; despite a significant non-cash charge from the Genesis HealthCare restructuring impacting net income, the company raised its full-year 2025 cash flow forecast and announced a new $50.0 million share repurchase plan, signaling confidence in its strategic priorities and future growth - Q2 growth exceeded expectations due to new client wins and higher retention, with positive momentum continuing into the second half of the year[3](index=3&type=chunk) - The company reiterates its expectation for mid-single-digit revenue growth for the full year 2025[5](index=5&type=chunk)[6](index=6&type=chunk) - The **2025** cash flow from operations forecast (excluding payroll accrual changes) was raised from **$60.0-$75.0 million** to **$70.0-$85.0 million**[5](index=5&type=chunk)[13](index=13&type=chunk) - A new 12-month, **$50.0 million** share repurchase plan has been announced[1](index=1&type=chunk)[5](index=5&type=chunk) [Second Quarter Financial Performance](index=1&type=section&id=Second%20Quarter%20Financial%20Performance) HCSG's Q2 2025 revenue grew 7.6% to $458.5 million, but a $61.2 million non-cash charge from Genesis restructuring led to a $32.4 million net loss, significantly impacting cost of services and segment margins, with future targets for cost of services at 86% and SG&A between 9.5% and 10.5% Q2 2025 Key Financial Metrics | Metric | Value | Note | | :--- | :--- | :--- | | Revenue | $458.5M | +7.6% YoY | | Net (Loss) | ($32.4)M | Includes $0.65/share non-cash charge | | Diluted EPS | ($0.44) | Includes $0.65/share non-cash charge | | Cash Flow from Operations | $28.8M | - | | Adjusted Cash Flow from Ops* | $8.5M | +$10.9M YoY | Q2 2025 Revenue by Segment | Segment | Revenue (in millions) | | :--- | :--- | | Environmental Services | $205.8 | | Dietary Services | $252.7 | | **Total Revenue** | **$458.5** | - Cost of services was **99.4%** of revenue, heavily impacted by a **$61.2 million (13.4%)** non-cash charge from the Genesis restructuring. The company's goal is to manage this in the **86%** range for the second half of 2025[6](index=6&type=chunk) - SG&A was reported at **$49.2 million**. Adjusted for deferred compensation, actual SG&A was **$44.5 million** or **9.7%**. The near-term management goal is **9.5%** to **10.5%**[6](index=6&type=chunk) - Segment margins were significantly impacted by the Genesis restructuring charge: Environmental Services margin was **0.8%** and Dietary Services margin was **(10.1%)**[6](index=6&type=chunk) [Balance Sheet and Capital Allocation](index=2&type=section&id=Balance%20Sheet%20and%20Capital%20Allocation) As of Q2 end, HCSG maintained strong liquidity with $164.1 million in cash and marketable securities and a $500.0 million credit facility, accelerating its share buyback program with plans to repurchase $50.0 million in common stock over the next 12 months, reflecting a balanced capital allocation strategy - The company's liquidity sources include cash from operations, **$164.1 million** in cash and marketable securities, and a **$500.0 million** revolving credit facility expiring in November 2027[7](index=7&type=chunk) - The company plans to repurchase **$50.0 million** of its common stock over the next 12 months under its February 2023 authorization[8](index=8&type=chunk) Share Repurchase Activity | Period | Amount Repurchased | | :--- | :--- | | Q2 2025 | $7.6 million | | Year to Date 2025 | $14.6 million | - Management believes the current stock valuation offers a unique opportunity to return significant capital to shareholders via buybacks while continuing to invest in growth initiatives[9](index=9&type=chunk) [Corporate Information](index=2&type=section&id=Corporate%20Information) HCSG will host a conference call on July 23, 2025, to discuss Q2 results and present at the Baird 2025 Global Healthcare Conference in September, leveraging its nearly 50 years of experience as a leading healthcare services provider - A conference call to discuss Q2 2025 results is scheduled for Wednesday, July 23, 2025, at 8:30 a.m. Eastern Time[10](index=10&type=chunk) - The company will present at the Baird 2025 Global Healthcare Conference on September 10, 2025[11](index=11&type=chunk) [Financial Statements](index=4&type=section&id=Financial%20Statements) This section provides detailed unaudited consolidated financial statements for the three and six months ended June 30, 2025, including Consolidated Statements of (Loss) Income, Condensed Consolidated Balance Sheets, and Reconciliations of Non-GAAP Financial Measures like EBITDA and adjusted cash flow from operations [Consolidated Statements of (Loss) Income](index=4&type=section&id=Consolidated%20Statements%20of%20%28Loss%29%20Income) For Q2 2025, HCSG reported revenue of $458.5 million, up from $426.3 million in the prior year, but a significant increase in cost of services resulted in an operating loss of $46.2 million and a net loss of $32.4 million, or ($0.44) per share, compared to a net loss of $1.8 million, or ($0.02) per share, in Q2 2024 Consolidated Statements of (Loss) Income (in thousands, except per share data) | | For the Three Months Ended June 30, | For the Six Months Ended June 30, | | :--- | :--- | :--- | :--- | :--- | | | **2025** | **2024** | **2025** | **2024** | | **Revenue** | **$458,491** | **$426,288** | **$906,153** | **$849,721** | | Cost of services | 455,533 | 384,742 | 835,224 | 743,653 | | Selling, general and administrative | 49,163 | 44,437 | 94,129 | 91,348 | | **(Loss) income from operations** | **(46,205)** | **(2,891)** | **(23,200)** | **14,720** | | (Loss) income before income taxes | (41,888) | (1,986) | (17,994) | 19,328 | | **Net (loss) income** | **$(32,366)** | **$(1,788)** | **$(15,138)** | **$13,521** | | **Diluted (loss) income per common share** | **$(0.44)** | **$(0.02)** | **$(0.21)** | **$0.18** | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, HCSG's balance sheet shows total assets of $802.2 million, stable compared to December 31, 2024, with cash and cash equivalents increasing to $82.8 million and net accounts receivable decreasing to $292.2 million, while total liabilities increased to $325.2 million and stockholders' equity decreased to $477.0 million Condensed Consolidated Balance Sheet Highlights (in thousands) | | **June 30, 2025** | **December 31, 2024** | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $82,818 | $56,776 | | Accounts receivable, net | $292,210 | $330,907 | | Total current assets | $532,294 | $556,652 | | **Total assets** | **$802,200** | **$802,772** | | **Liabilities & Equity** | | | | Total current liabilities | $213,932 | $192,547 | | Total liabilities | $325,162 | $302,845 | | Stockholders' equity | $477,038 | $499,927 | | **Total liabilities and stockholders' equity** | **$802,200** | **$802,772** | [Reconciliations of Non-GAAP Financial Measures](index=6&type=section&id=Reconciliations%20of%20Non-GAAP%20Financial%20Measures) This section reconciles GAAP net income to non-GAAP measures like EBITDA and Adjusted EBITDA, showing Q2 2025 GAAP net loss of $32.4 million reconciled to an EBITDA of ($38.9) million and an Adjusted EBITDA of ($36.3) million, also reconciling GAAP cash flow from operations to an adjusted figure of $8.5 million excluding payroll accrual changes Reconciliation of GAAP Net (Loss) Income to Adjusted EBITDA (in thousands) | | For the Three Months Ended June 30, | | :--- | :--- | :--- | | | **2025** | **2024** | | GAAP net (loss) income | $(32,366) | $(1,788) | | Income tax (benefit) provision | (9,522) | (198) | | Interest, net | (1,976) | 184 | | Depreciation and amortization | 5,001 | 3,679 | | **EBITDA** | **$(38,863)** | **$1,877** | | Share-based compensation | 2,541 | 2,113 | | **Adjusted EBITDA** | **$(36,322)** | **$3,990** | Reconciliation of GAAP Cash Flow from Operations (in thousands) | | For the Three Months Ended June 30, | | :--- | :--- | :--- | | | **2025** | **2024** | | GAAP cash flows provided by (used in) operations | $28,787 | $16,319 | | Accrued payroll | (20,256) | (18,677) | | **Cash flows from operations (excluding the change in payroll accrual)** | **$8,531** | **$(2,358)** | [Disclosures](index=3&type=section&id=Disclosures) This section contains important disclosures, including cautionary statements on forward-looking information and the use of non-GAAP financial measures, identifying risks such as credit issues, inflation, and the need for new service agreements, while clarifying that non-GAAP measures like Adjusted EBITDA and adjusted cash flow from operations supplement GAAP reporting for performance evaluation - The release contains forward-looking statements based on current expectations, which are subject to various risks and uncertainties, including those related to the healthcare industry, credit risks, and regulatory changes[14](index=14&type=chunk) - Key business risks include customer payment delays, restructurings leading to bad debts, inflation impacting labor and supply costs, and the necessity of obtaining new customer agreements[15](index=15&type=chunk)[16](index=16&type=chunk) - The company uses non-GAAP financial measures, such as net cash flow from operations (excluding payroll accrual) and Adjusted EBITDA, to supplement GAAP reporting and evaluate operating performance[17](index=17&type=chunk)[18](index=18&type=chunk)