Healthcare Services Group(HCSG) - 2024 Q1 - Quarterly Results

Performance Overview & Management Commentary HCSG reported strong Q1 2024 results, exceeding earnings and reaffirming full-year forecasts despite temporary cash collection challenges - The company delivered strong Q1 results, managing adjusted cost of services under the 86% target and growing new business and manager-in-training pipelines[2] - The February Change Healthcare cyberattack disrupted customer billing, impacting cash collections, though the company achieved 95% cash collections and views the impact as temporary[2] - The company reiterated its 2024 adjusted cash flow forecast of $40.0 million to $55.0 million, confident in recovering collection delays[2] - Positive industry fundamentals include improving workforce availability, 79% occupancy (near pre-pandemic levels), and a proposed 4.1% increase in Medicare rates for fiscal year 2025[2] Q1 2024 Financial Highlights HCSG reported Q1 2024 revenue of $423.4 million, with adjusted diluted EPS of $0.22 and adjusted EBITDA growth of 10.7% Q1 2024 Key Financial Metrics (in millions, except EPS) | Metric | GAAP | Adjusted | | :--- | :--- | :--- | | Revenue | $423.4 | $423.4 | | Cost of services | $358.9 | $357.3 | | Selling, general and administrative | $46.9 | $42.8 | | Earnings per share | $0.21 | $0.22 | | Cash flows used in operating activities | ($26.0) | ($9.2) | - Adjusted EBITDA increased by 10.7% to $28.9 million compared to Q1 2023[4] Detailed Financial & Operational Results Q1 2024 saw Dining & Nutrition as the primary revenue driver, with effective cost control reflected in 84.4% adjusted cost of services and 10.1% adjusted SG&A Q1 2024 Segment Performance | Segment | Revenue (in millions) | Margin | | :--- | :--- | :--- | | Housekeeping & Laundry | $190.5 | 9.7% | | Dining & Nutrition | $232.9 | 7.6% | - Adjusted cost of services was 84.4%, within the company's target range of 86%[7] - Adjusted SG&A was 10.1% of revenue, slightly above the company's goal of 8.5% to 9.5%[7] Financial Condition and Liquidity HCSG maintained a robust Q1 2024 balance sheet with a 2.8 to 1 current ratio and $129.6 million in cash, reiterating its full-year adjusted cash flow forecast - As of Q1 end, the company maintained a strong liquidity position with $129.6 million in cash and marketable securities and a $500.0 million credit facility[5] - The current ratio stood at 2.8 to 1 at the end of the first quarter[5] - The company reiterated its 2024 adjusted cash flow from operations forecast of $40.0 million to $55.0 million[5] Business Outlook HCSG forecasts Q2 2024 revenue between $420.0 million and $430.0 million and reaffirms its full-year adjusted cash flow from operations forecast - The company estimates Q2 2024 revenue will be in the range of $420.0 million to $430.0 million[7] - The company expects year-over-year revenue growth in 2024, with most new business additions anticipated in the second half[2] Financial Statements This section presents the unaudited consolidated statements of income and condensed consolidated balance sheets as of March 31, 2024 Consolidated Statements of Income Q1 2024 revenue grew to $423.4 million, leading to a net income increase to $15.3 million ($0.21 per diluted share) Q1 Income Statement Comparison (in thousands, except EPS) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Revenue | $423,433 | $417,230 | | Income from operations | $17,611 | $14,804 | | Net income | $15,309 | $11,671 | | Diluted EPS | $0.21 | $0.16 | Condensed Consolidated Balance Sheets As of March 31, 2024, total assets reached $803.9 million, driven by higher accounts receivable, with stockholders' equity increasing to $474.6 million Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and marketable securities | $104,906 | $147,461 | | Accounts and notes receivable, net | $407,140 | $383,509 | | Total current assets | $580,414 | $571,696 | | Total assets | $803,880 | $790,652 | | Total current liabilities | $209,375 | $216,928 | | Total stockholders' equity | $474,581 | $456,616 | Non-GAAP Financial Measures & Reconciliations HCSG uses non-GAAP measures, with Q1 2024 Adjusted EBITDA increasing to $28.9 million and adjusted cash flows from operations at ($9.2 million) - The company uses non-GAAP measures including adjusted cost of services, adjusted SG&A, adjusted net income, Adjusted EBITDA, and adjusted cash flows to evaluate operating performance[12][13] Reconciliation of GAAP Net Income to Adjusted EBITDA (in thousands) | Description | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | GAAP net income | $15,309 | $11,671 | | Adjustments (Taxes, Interest, D&A, etc.) | $9,488 | $8,306 | | EBITDA | $24,797 | $19,977 | | Other Adjustments (Share-based comp, etc.) | $4,118 | $6,137 | | Adjusted EBITDA | $28,915 | $26,114 | Reconciliation of GAAP to Adjusted Cash Flows from Operations (in thousands) | Description | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | GAAP cash flows used in operations | $(26,033) | $(16,290) | | Accrued payroll adjustment | $16,815 | $21,167 | | Adjusted cash flows (used in) provided by operating activities | $(9,218) | $4,877 | Cautionary Statement Regarding Forward-Looking Statements This section outlines inherent risks in forward-looking statements, including dependence on the healthcare industry, credit challenges, inflation, regulatory changes, and the need for new customer contracts - The report contains forward-looking statements based on current expectations, subject to various risks and uncertainties[9] - Key risks include dependence on the healthcare industry, credit and collection risks, workers' compensation claims, and changes in government regulations[9] - The company's ability to improve financial performance depends on securing new service agreements, retaining existing customers, and effective internal cost management[11]