Healthcare Services Group(HCSG) - 2023 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements (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 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 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] | 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] Liquidity and Capital Resources 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] - 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][178] - 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][180] Quantitative and Qualitative Disclosures About Market Risk 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] - 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] Controls and Procedures 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] - 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] PART II — OTHER INFORMATION Legal Proceedings 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] - 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] Defaults Upon Senior Securities The company reports no defaults upon senior securities - The company reports no defaults upon senior securities[200] Mine Safety Disclosures The company reports no mine safety disclosures - The company reports no mine safety disclosures[201] Other Information The company reports no other information for this item - The company reports no other information for this item[202] Exhibits 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]