Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Healthcare Services Group Inc (HCSG, Financial) reported revenue of $426.3 million, in line with expectations.
- The company achieved over 96% cash collections during the quarter, showing improvement compared to last quarter and the same period last year.
- HCSG is raising its Q3 and Q4 revenue estimates to $425 to $435 million and $430 to $440 million, respectively.
- The industry fundamentals are trending positively, with a slow but steady increase in workforce availability and rising occupancy levels.
- HCSG remains confident in its ability to deliver meaningful long-term shareholder value, supported by strong business fundamentals and strategic priorities.
Negative Points
- HCSG reported a net loss and diluted loss per share of $1.8 million and $0.02, respectively, including the impact of client restructuring charges.
- Cash collections fell short of the Q2 target, although they showed improvement compared to previous periods.
- The company faced delays in receiving supplemental funding for clients affected by the Change Healthcare cyber attack, impacting cash flow.
- The LaVie Care Centers' Chapter 11 filing negatively impacted HCSG's second-quarter results.
- Cost of services was reported at 90.2%, above the company's targeted range, indicating higher operational costs.
Q & A Highlights
Q: Can you reaffirm the full year cash collections target of $40 to $55 million and provide more details on what you expect for Q3?
A: Yes, we reaffirm our 2024 cash collections target of $40 to $55 million. We achieved over 96% cash collections in Q2, showing improvement from last quarter and the same period last year. The delays in CMS' supplemental funding affected our Q2 collections, but we expect to make up the shortfall in the back half of the year. We aim to increase payment frequency and remain disciplined in decision-making for new and existing business.
Q: Is the revenue growth you're guiding to mostly from dining cross-sell, and are you fully staffed with enough managers to drive this growth?
A: The near-term growth will largely come from dining cross-sell, but we are also committed to driving new environmental services opportunities and education. Management development is crucial, and we are focused on ensuring we have the necessary management capacity to support growth.
Q: Does the guidance assume that the LaVie facilities will continue with HCSG?
A: Yes, we expect to continue providing services to LaVie facilities and do not anticipate any impact on go-forward revenues, earnings, or collections. The restructuring should ultimately strengthen the partnership.
Q: Can you provide an update on Medicaid rate increases in key states like Florida?
A: Florida is due for a nearly double-digit increase in Medicaid rates. Other states like Kentucky, North Carolina, Illinois, Pennsylvania, and Texas are also seeing positive reimbursement trends. We monitor these trends closely as they impact our decision-making.
Q: Can you elaborate on the $9.8 million of aged receivables and whether these write-downs will continue?
A: The aged receivables are primarily due to timing-related delays in cash collections. As our cash collections accelerate, we expect this to normalize and potentially reverse in future quarters. The write-downs are non-cash and temporary.
Q: Why did you change the approach to adjusted EBITDA and not provide adjusted EPS guidance this quarter?
A: We engaged with stakeholders and the SEC regarding non-GAAP reporting and concluded that items like bad debt and insurance adjustments should be excluded from non-GAAP metrics. We will continue to provide detailed disclosures for these items to enhance transparency.
Q: What is your outlook on SG&A expenses and achieving the 8.5% to 9.5% target range?
A: The leverage exists in top-line growth, and we have made investments in employee engagement, marketing, and technology. While we can't specify a timeline, we remain confident that growth will help us achieve the SG&A target range.
Q: Can you quantify how much of the cash flow target is tied to Change Healthcare-related receivables and other factors?
A: The anticipated carryover of Change Healthcare-related delays is expected to be recaptured in the back half of the year. We are off to a strong start in July and expect positive trends to continue, aiming for $50 to $65 million of adjusted cash flow in the second half.
Q: What are the current trends in hourly wage increases and food inflation?
A: Wage growth has stabilized and returned to pre-pandemic trends. We have recalibrated contracts to capture wage inflation in real-time. Food inflation has also stabilized, with modest deflation in Q2, which will be passed through to clients in Q4.
Q: What are your early thoughts on 2025 and long-term sustainable growth?
A: While we need to finish the year to provide specific guidance, we see mid-single-digit top-line growth over the next three to five years. We expect some years to achieve high single-digit growth, driven by industry recovery and positive trends.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
