Exceeds Earnings and Cash Flow Expectations, Revenue In-Line
-
Revenue of
$423.8 million ; adjusted revenue(1) of$425.0 million , in-line with expectations. -
Net income and diluted EPS of
$22.6 million and$0.31 ; adjusted net income(1) and adjusted diluted EPS(1) of$14.6 million and$0.20 . -
Adjusted EBITDA(1) of
$26.5 million , a 14.2% increase over Q4 2022. -
Cash flow from operations of
$49.5 million ; adjusted cash flow from operations(1) of$27.9 million , a 7.1% increase over Q4 2022.
Fourth Quarter Highlights
|
GAAP |
Adjusted( 1) |
|||
Revenue |
$ |
423.8 |
$ |
425.0 |
|
Cost of services |
$ |
350.4 |
$ |
362.6 |
|
Selling, general and administrative |
$ |
46.2 |
$ |
42.2 |
|
Earnings per share |
$ |
0.31 |
$ |
0.20 |
|
Cash flows provided by operating activities |
$ |
49.5 |
$ |
27.9 |
-
Revenue was
$423.8 million ; adjusted revenue was$425.0 million , in-line with the Company’s expectations of$420.0 million to$430.0 million . The Company estimates Q1 revenue in the range of$420.0 million to$430.0 million . -
Housekeeping & laundry and dining & nutrition segment revenues were
$191.4 million and$232.4 million , respectively; adjusted housekeeping & laundry and dining & nutrition segment revenues were$191.7 million and$233.3 million , respectively. - Housekeeping & laundry and dining & nutrition segment margins were 7.5% and 6.2%, respectively; adjusted housekeeping & laundry and dining & nutrition segment margins were 7.7% and 6.6%, respectively.
-
Cost of services was
$350.4 million ; adjusted cost of services was$362.6 million , or 85.3%. The Company’s goal is to continue to manage adjusted cost of services in the 86% range. -
SG&A was
$46.2 million ; adjusted SG&A was$42.2 million , or 9.9%. The Company’s goal continues to be achieving adjusted SG&A in the 8.5% to 9.5% range. -
Diluted EPS was
$0.31 per share; adjusted diluted EPS was$0.20 per share.
Balance Sheet and Liquidity
The Company’s primary sources of liquidity are cash and cash equivalents, its revolving credit facility, and cash flow from operating activities. As of the end of the fourth quarter, the Company had a current ratio of 2.6 to 1, cash and marketable securities of
The Company repurchased over one million shares, or
Conference Call and Upcoming Events
The Company will be attending and participating in the Oppenheimer 34th Annual
The Company will host a conference call on
(1) Adjusted results are non-GAAP financial measures and exclude the impact of certain items. See the tables within "Reconciliations of Non-GAAP Financial Measures" for more information. |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This release and any schedules incorporated by reference into it may contain forward-looking statements within the meaning of federal securities laws, which are not historical facts but rather are based on current expectations, estimates and projections about our business and industry, and our beliefs and assumptions. Words such as “believes,” “anticipates,” “plans,” “expects,” “estimates,” “will,” “goal,” and similar expressions are intended to identify forward-looking statements. The inclusion of forward-looking statements should not be regarded as a representation by us that any of our plans will be achieved. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Such forward-looking information is also subject to various risks and uncertainties. Such risks and uncertainties include, but are not limited to, risks arising from our providing services to the healthcare industry and primarily providers of long-term care; the impact of and future effects of the COVID-19 pandemic or other potential pandemics; having a significant portion of our consolidated revenues contributed by one customer during the year ended
These factors, in addition to delays in payments from customers and/or customers in bankruptcy, have resulted in, and could continue to result in, significant additional bad debts in the near future. Additionally, our operating results have been, and would continue to be, adversely affected by continued inflation particularly if increases in the costs of labor and labor-related costs, materials, supplies and equipment used in performing services (including the impact of potential tariffs and COVID-19) cannot be passed on to our customers.
In addition, we believe that to improve our financial performance we must continue to obtain service agreements with new customers, retain and provide new services to existing customers, achieve modest price increases on current service agreements with existing customers and/or maintain internal cost reduction strategies at our various operational levels. Furthermore, we believe that our ability to sustain the internal development of managerial personnel is an important factor impacting future operating results and the successful execution of our projected growth strategies. There can be no assurance that we will be successful in that regard.
USE OF NON-GAAP FINANCIAL INFORMATION
To supplement HCSG’s consolidated financial information, which are prepared in accordance with generally accepted accounting principles in
The Company is presenting adjusted revenues, adjusted segment revenues, adjusted segment margins, adjusted costs of services provided, adjusted selling, general and administrative expense, adjusted net income, adjusted diluted earnings per share, adjusted cash flows provided by (used in) operations, earnings before interest, taxes, depreciation and amortization ("EBITDA"), and EBITDA excluding items impacting comparability ("Adjusted EBITDA"). We cannot provide a reconciliation of forward-looking non-GAAP measures to GAAP due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation. The presentation of non-GAAP financial measures is not meant to be considered in isolation or as a substitute for financial statements prepared in accordance with GAAP.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands, except per share data) |
||||||||||||
|
For the Three Months Ended |
|
For the Year Ended |
|||||||||
|
|
|
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Revenues |
$ |
423,840 |
|
$ |
424,020 |
|
$ |
1,671,389 |
|
$ |
1,690,176 |
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services |
|
350,383 |
|
|
366,810 |
|
|
1,456,643 |
|
|
1,496,865 |
|
Selling, general and administrative |
|
46,249 |
|
|
39,524 |
|
|
166,772 |
|
|
140,344 |
|
Income from operations |
|
27,208 |
|
|
17,686 |
|
|
47,974 |
|
|
52,967 |
|
Other income (expense), net: |
|
3,833 |
|
|
2,372 |
|
|
5,082 |
|
|
(8,414 |
) |
Income before income taxes |
|
31,041 |
|
|
20,058 |
|
|
53,056 |
|
|
44,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
8,443 |
|
|
3,899 |
|
|
14,670 |
|
|
10,310 |
|
Net income |
$ |
22,598 |
|
$ |
16,159 |
|
$ |
38,386 |
|
$ |
34,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
$ |
0.31 |
|
$ |
0.22 |
|
$ |
0.52 |
|
$ |
0.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
$ |
0.31 |
|
$ |
0.22 |
|
$ |
0.52 |
|
$ |
0.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of common shares outstanding |
|
73,817 |
|
|
74,342 |
|
|
74,288 |
|
|
74,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of common shares outstanding |
73,879 |
74,367 |
74,340 |
74,351 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands) |
|||||
|
|
|
|
||
Cash and cash equivalents |
$ |
54,330 |
|
$ |
26,279 |
Marketable securities, at fair value |
|
93,131 |
|
|
95,200 |
Accounts and notes receivable, net |
|
383,509 |
|
|
336,777 |
Other current assets |
|
40,726 |
|
|
50,376 |
Total current assets |
|
571,696 |
|
|
508,632 |
|
|
|
|
||
Property and equipment, net |
|
28,774 |
|
|
22,975 |
Notes receivable — long-term, net |
|
24,832 |
|
|
32,609 |
|
|
75,529 |
|
|
75,529 |
Other intangible assets, net |
|
12,127 |
|
|
15,946 |
Deferred compensation funding |
|
40,812 |
|
|
33,493 |
Other assets |
|
36,882 |
|
|
31,652 |
Total Assets |
$ |
790,652 |
|
$ |
720,836 |
|
|
|
|
||
Accrued insurance claims — current |
$ |
22,681 |
|
$ |
23,166 |
Other current liabilities |
|
194,247 |
|
|
165,848 |
Total current liabilities |
|
216,928 |
|
|
189,014 |
|
|
|
|
||
Accrued insurance claims — long-term |
|
61,697 |
|
|
65,541 |
Deferred compensation liability — long-term |
|
41,186 |
|
|
33,764 |
Lease liability — long-term |
|
11,235 |
|
|
8,097 |
Other long term liabilities |
|
2,990 |
|
|
6,141 |
|
|
|
|
||
Stockholders' equity |
|
456,616 |
|
|
418,279 |
Total liabilities and stockholders' equity |
$ |
790,652 |
|
$ |
720,836 |
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (Unaudited) |
||||||||||||||||
Reconciliation of GAAP revenue to adjusted revenue (in thousands) |
|
For the Three Months Ended |
|
For the Twelve Months Ended |
||||||||||||
|
|
|
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|||||
GAAP revenue |
|
$ |
423,840 |
|
$ |
424,020 |
|
$ |
1,671,389 |
|
$ |
1,690,176 |
||||
Client restructurings1 |
|
|
1,159 |
|
|
— |
|
|
13,788 |
|
|
10,000 |
||||
Adjusted revenue |
|
$ |
424,999 |
|
$ |
424,020 |
|
$ |
1,685,177 |
|
$ |
1,700,176 |
Reconciliation of GAAP costs of services to adjusted costs of services (in thousands) |
|
For the Three Months Ended |
|
For the Twelve Months Ended |
||||||||||||
|
|
|
|
|||||||||||||
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
GAAP costs of services |
|
$ |
350,383 |
|
|
$ |
366,810 |
|
|
$ |
1,456,643 |
|
|
$ |
1,496,865 |
|
Client restructurings1 |
|
|
— |
|
|
|
— |
|
|
|
9,093 |
|
|
|
— |
|
Bad debt expense adjustments2 |
|
|
(347 |
) |
|
|
(6,856 |
) |
|
|
(15,069 |
) |
|
|
(24,948 |
) |
Self-insurance adjustments3 |
|
|
12,534 |
|
|
|
9,805 |
|
|
|
12,534 |
|
|
|
9,805 |
|
Adjusted costs of services |
|
|
362,570 |
|
|
|
369,759 |
|
|
|
1,463,201 |
|
|
|
1,481,722 |
|
Adjusted costs of services as a percentage of Adjusted revenues |
|
|
85.3 |
% |
|
|
87.2 |
% |
|
|
86.8 |
% |
|
|
87.2 |
% |
Reconciliation of GAAP selling, general and administrative ("SG&A") to adjusted SG&A (in thousands) |
|
For the Three Months Ended |
|
For the Twelve Months Ended |
||||||||||||
|
|
|
|
|||||||||||||
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
GAAP SG&A |
|
$ |
46,249 |
|
|
$ |
39,524 |
|
|
$ |
166,772 |
|
|
$ |
140,344 |
|
(Gain)/loss on deferred compensation in SG&A4 |
|
|
(4,055 |
) |
|
|
(2,147 |
) |
|
|
(6,685 |
) |
|
|
9,177 |
|
Adjusted SG&A |
|
$ |
42,194 |
|
|
$ |
37,377 |
|
|
$ |
160,087 |
|
|
$ |
149,521 |
|
Adjusted SG&A as a percentage of adjusted revenues |
|
|
9.9 |
% |
|
|
8.8 |
% |
|
|
9.5 |
% |
|
|
8.8 |
% |
Reconciliation of GAAP net income to adjusted net income (in thousands) and earnings per share to adjusted diluted earnings per share |
|
For the Three Months Ended |
|
For the Twelve Months Ended |
||||||||||||
|
|
|
|
|||||||||||||
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
GAAP net income |
|
$ |
22,598 |
|
|
$ |
16,159 |
|
|
$ |
38,386 |
|
|
$ |
34,243 |
|
(Gain)/loss on deferred compensation, net |
|
|
(27 |
) |
|
|
(13 |
) |
|
|
39 |
|
|
|
108 |
|
Client restructurings1 |
|
|
1,159 |
|
|
|
— |
|
|
|
22,881 |
|
|
|
10,000 |
|
Bad debt expense adjustments2 |
|
|
347 |
|
|
|
6,856 |
|
|
|
15,069 |
|
|
|
24,948 |
|
Self-insurance adjustments3 |
|
|
(12,534 |
) |
|
|
(9,805 |
) |
|
|
(12,534 |
) |
|
|
(9,805 |
) |
Tax effect of adjustments5 |
|
|
3,007 |
|
|
|
576 |
|
|
|
(7,038 |
) |
|
|
(5,853 |
) |
Adjusted net income |
|
$ |
14,550 |
|
|
$ |
13,773 |
|
|
$ |
56,803 |
|
|
$ |
53,641 |
|
Adjusted net income as a percentage of adjusted revenues |
|
|
3.4 |
% |
|
|
3.2 |
% |
|
|
3.4 |
% |
|
|
3.2 |
% |
GAAP diluted earnings per share |
|
$ |
0.31 |
|
|
$ |
0.22 |
|
|
$ |
0.52 |
|
|
$ |
0.46 |
|
Adjusted diluted earnings per share |
|
$ |
0.20 |
|
|
$ |
0.19 |
|
|
$ |
0.76 |
|
|
$ |
0.72 |
|
Weighted-average shares outstanding - diluted |
|
|
73,879 |
|
|
|
74,367 |
|
|
|
74,340 |
|
|
|
74,351 |
|
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (Unaudited) |
||||||||||||||||
Reconciliation of GAAP net income to EBITDA and adjusted EBITDA (in thousands) |
|
For the Three Months Ended |
|
For the Twelve Months Ended |
||||||||||||
|
|
|
|
|||||||||||||
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
GAAP net income |
|
$ |
22,598 |
|
|
$ |
16,159 |
|
|
$ |
38,386 |
|
|
$ |
34,243 |
|
Income tax provision |
|
|
8,443 |
|
|
|
3,899 |
|
|
|
14,670 |
|
|
|
10,310 |
|
Interest, net |
|
|
509 |
|
|
|
256 |
|
|
|
1,628 |
|
|
|
(1,131 |
) |
Depreciation and amortization6 |
|
|
3,779 |
|
|
|
3,756 |
|
|
|
14,344 |
|
|
|
15,316 |
|
EBITDA |
|
$ |
35,329 |
|
|
$ |
24,070 |
|
|
$ |
69,028 |
|
|
$ |
58,738 |
|
Share-based compensation |
|
|
2,192 |
|
|
|
2,058 |
|
|
|
8,985 |
|
|
|
9,214 |
|
(Gain)/loss on deferred compensation, net |
|
|
(27 |
) |
|
|
(13 |
) |
|
|
39 |
|
|
|
108 |
|
Self-insurance adjustments3 |
|
|
(12,534 |
) |
|
|
(9,805 |
) |
|
|
(12,534 |
) |
|
|
(9,805 |
) |
Client restructurings1 |
|
|
1,159 |
|
|
|
— |
|
|
|
22,881 |
|
|
|
10,000 |
|
Bad debt expense adjustments2 |
|
|
347 |
|
|
|
6,856 |
|
|
|
15,069 |
|
|
|
24,948 |
|
Adjusted EBITDA |
|
$ |
26,466 |
|
|
$ |
23,166 |
|
|
$ |
103,468 |
|
|
$ |
93,203 |
|
Adjusted EBITDA as a percentage of adjusted revenue |
|
|
6.2 |
% |
|
|
5.5 |
% |
|
|
6.2 |
% |
|
|
5.5 |
% |
Reconciliation of GAAP cash flows provided by (used in) operations to adjusted cash flows provided by (used in) operations (in thousands) |
|
For the Three Months Ended |
|
For the Twelve Months Ended |
|||||||||||
|
|
|
|
||||||||||||
|
|
2023 |
|
|
|
2022 |
|
|
2023 |
|
|
|
2022 |
|
|
GAAP cash flows provided by (used in) operating activities |
|
$ |
49,445 |
|
|
$ |
22,893 |
|
$ |
43,498 |
|
|
$ |
(8,167 |
) |
Accrued payroll adjustments7 |
|
|
(21,563 |
) |
|
|
3,148 |
|
|
(4,186 |
) |
|
|
23,859 |
|
Adjusted cash flows provided by operating activities |
|
$ |
27,882 |
|
|
$ |
26,041 |
|
$ |
39,312 |
|
|
$ |
15,692 |
|
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (Unaudited) |
||||||||||||||||
Reconciliation of GAAP segment margins to adjusted segment revenue and segment margins (in thousands) |
|
For the Three Months Ended |
|
For the Twelve Months Ended |
||||||||||||
|
|
|
|
|||||||||||||
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
GAAP revenue - housekeeping |
|
$ |
191,395 |
|
|
$ |
197,977 |
|
|
$ |
766,651 |
|
|
$ |
795,687 |
|
Client restructurings1 -housekeeping |
|
|
349 |
|
|
|
— |
|
|
|
4,065 |
|
|
|
2,289 |
|
Adjusted revenue - housekeeping |
|
$ |
191,744 |
|
|
$ |
197,977 |
|
|
$ |
770,716 |
|
|
$ |
797,976 |
|
|
|
|
|
|
|
|
|
|
||||||||
GAAP revenue - dietary |
|
$ |
232,445 |
|
|
$ |
226,043 |
|
|
$ |
904,738 |
|
|
$ |
894,489 |
|
Client restructurings1 -dietary |
|
|
810 |
|
|
|
— |
|
|
|
9,723 |
|
|
|
7,711 |
|
Adjusted revenue - dietary |
|
$ |
233,255 |
|
|
$ |
226,043 |
|
|
$ |
914,461 |
|
|
$ |
902,200 |
|
|
|
|
|
|
|
|
|
|
||||||||
Segment margins: |
|
|
|
|
|
|
|
|
||||||||
GAAP housekeeping |
|
|
7.5 |
% |
|
|
8.7 |
% |
|
|
8.0 |
% |
|
|
9.2 |
% |
GAAP dietary |
|
|
6.2 |
% |
|
|
4.3 |
% |
|
|
4.8 |
% |
|
|
3.2 |
% |
Adjusted housekeeping |
|
|
7.7 |
% |
|
|
8.7 |
% |
|
|
8.5 |
% |
|
|
9.4 |
% |
Adjusted dietary |
|
|
6.6 |
% |
|
|
4.3 |
% |
|
|
5.8 |
% |
|
|
4.1 |
% |
1. |
Client restructurings include changes to contracts with existing customers for which the Company has either recorded a reduction to revenue or an increase to bad debt expense due to clients entering bankruptcy, receivership, or out-of-court workouts. |
|
2. |
Bad debt expense adjustments reflect the difference between GAAP bad debt expense (CECL) and historical write-offs as a percentage of adjusted revenues, both of which are based on the same seven year look-back period. |
|
3. |
Self-insurance adjustments reflect changes in the accrued insurance claims liability after considering our updated actuarial estimates for projected incurred losses on past claims. |
|
4. |
Gain/loss on deferred compensation, net represents the changes in fair market value on deferred compensation investments. The impact of offsetting investment portfolio gains are included in the “Other income (expense), net” caption on the Consolidated Statements of Income. |
|
5. |
The tax impact of adjustments is calculated using the Company’s effective tax rate for each period end. |
|
6. |
Depreciation and amortization includes right-of-use asset depreciation of |
|
7. |
Accrued payroll adjustments reflect changes in accrued payroll for the three and twelve months ended |
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President and Chief Executive Officer
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