Healthcare Services Group(HCSG) - 2025 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited H1 2025 financial statements show a $15.1 million net loss, primarily due to a significant bad debt provision Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | 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 | | Goodwill | $80,042 | $75,529 | | Total assets | $802,200 | $802,772 | | Liabilities & Equity | | | | Total current liabilities | $213,932 | $192,547 | | Total liabilities | $325,162 | $302,845 | | Total stockholders' equity | $477,038 | $499,927 | - Total assets remained relatively stable, while total stockholders' equity decreased by approximately $22.9 million from year-end 2024, primarily due to net loss and treasury stock purchases[13] Consolidated Statements of Comprehensive (Loss)/Income Q2 2025 vs Q2 2024 Performance (in thousands, except per share) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Revenues | $458,491 | $426,288 | | Costs of services provided | $455,533 | $384,742 | | (Loss) income before taxes | $(41,888) | $(1,986) | | Net (loss) income | $(32,366) | $(1,788) | | Diluted (loss) income per share | $(0.44) | $(0.02) | H1 2025 vs H1 2024 Performance (in thousands, except per share) | Metric | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Revenues | $906,153 | $849,721 | | Costs of services provided | $835,224 | $743,653 | | (Loss) income before taxes | $(17,994) | $19,328 | | Net (loss) income | $(15,138) | $13,521 | | Diluted (loss) income per share | $(0.21) | $0.18 | - The company experienced a significant shift from net income in H1 2024 to a net loss in H1 2025, primarily due to a substantial increase in the 'Costs of services provided', which includes a large bad debt provision[15] Consolidated Statements of Cash Flows Six Months Ended June 30, Cash Flow Summary (in thousands) | Cash Flow Category | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $56,288 | $(9,714) | | Net cash used in investing activities | $(16,820) | $(16,039) | | Net cash (used in) provided by financing activities | $(16,455) | $970 | - Cash flow from operations improved significantly to $56.3 million in H1 2025 from a use of $9.7 million in H1 2024, largely driven by a high non-cash bad debt provision of $73.4 million and the receipt of $20.0 million in deferred Employee Retention Credits (ERC)[18] - Financing activities used $16.5 million in cash, primarily for purchases of treasury stock amounting to $14.7 million[18] Notes to Consolidated Financial Statements - The company operates in two reportable segments: Housekeeping (laundry, linen, etc.) and Dietary department services, primarily serving the healthcare industry[27] - On July 9, 2025, Genesis Healthcare, Inc. filed for Chapter 11 bankruptcy, resulting in a $61.2 million bad debt expense recognized during the three and six months ended June 30, 2025[72] - During the six months ended June 30, 2025, the company received $20.0 million in Employee Retention Credit (ERC) refunds from the IRS, recorded as a deferred liability and not yet recognized as income[161] Segment Revenue and Profit (Loss) for Q2 2025 (in thousands) | Segment | Revenues | Segment Profit (Loss) | | :--- | :--- | :--- | | Housekeeping | $205,743 | $1,662 | | Dietary | $252,748 | $(25,471) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2025 revenue growth and liquidity, noting a $61.2 million bad debt expense impacted profitability Results of Operations - Consolidated revenues for Q2 2025 increased by 7.6% year-over-year, driven by a 7.7% increase in Housekeeping and a 7.4% increase in Dietary revenues[172][177] - Consolidated costs of services provided for Q2 2025 increased by 18.4% YoY, primarily due to recognizing $61.2 million in bad debt expense related to a large customer bankruptcy, with a 7.4% increase excluding this impact[178] Segment Expenses as a % of Segment Revenue - Q2 2025 vs Q2 2024 | Segment | Key Expense | 2025 | 2024 | | :--- | :--- | :--- | :--- | | Housekeeping | Bad debt expense | 12.1% | 5.5% | | | Total segment expenses | 99.2% | 92.3% | | Dietary | Bad debt expense | 18.7% | 9.1% | | | Total segment expenses | 110.1% | 99.9% | Liquidity and Capital Resources - As of June 30, 2025, the company had cash, cash equivalents, and marketable securities of $134.5 million and working capital of $318.4 million[210] - Net cash from operating activities was $56.3 million for the first six months of 2025, a significant improvement from a $9.7 million use of cash in the same period of 2024, largely due to non-cash bad debt charges and ERC refunds[211][212] - The company repurchased 1.2 million shares of its common stock for $14.6 million in the first six months of 2025 under its Repurchase Plan[215] - The company has a $300 million bank line of credit, with no borrowings as of June 30, 2025, and was in compliance with all financial covenants[217][218] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company holds $164.1 million in cash and marketable securities, subject to interest rate risk from fixed and floating-rate investments - The company's primary market risk exposure is interest rate risk associated with its investments in fixed-rate and floating-rate securities[229] - As of June 30, 2025, the company had $164.1 million in cash and cash equivalents, restricted cash equivalents, and marketable securities[228] Item 4. Controls and Procedures Management concluded disclosure controls and internal financial reporting controls were effective as of June 30, 2025, with no material changes - Management concluded that the company's internal control over financial reporting was effective as of June 30, 2025[230] - No changes occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[231] PART II — OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings in the ordinary course of business, not expecting a material adverse financial effect - The company is subject to various claims and legal actions in the ordinary course of business but does not expect them to have a material adverse effect on its financial condition[233] - For certain pending litigation, the company is currently unable to reasonably estimate possible losses or determine if an unfavorable outcome is probable or remote[234] Item 1A. Risk Factors No material changes occurred to the risk factors previously disclosed in the company's 2024 Form 10-K - As of June 30, 2025, no material changes have been made to the Risk Factors disclosed in the company's 2024 Form 10-K[236] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 522,696 shares for $7.5 million in Q2 2025, with 4.9 million shares remaining for repurchase Share Repurchases for Q2 2025 | Period | Shares Repurchased | Average Price Paid | Aggregate Purchase Price (in thousands) | | :--- | :--- | :--- | :--- | | April 2025 | — | $— | $— | | May 2025 | — | $— | $— | | June 2025 | 522,696 | $14.38 | $7,515 | | Q2 Total | 522,696 | $14.38 | $7,515 | - As of June 30, 2025, the company has 4.9 million shares remaining for repurchase under its authorized Repurchase Plan[237] Item 5. Other Information No directors or officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2025 - No directors or officers adopted, terminated, or modified a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[241] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and iXBRL financial data - The report includes certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[242]