Healthcare Services Group, Inc. Reports Q3 Results, Cash Dividend Increase
Healthcare Services Group, Inc. (NASDAQ:HCSG) (the “Company”) reported for the three months ended September 30, 2019 revenue of $455 million, net income of $18.3 million or $0.25 per basic and diluted common share and cash flow from operations of $60 million. The Company declared a quarterly cash dividend of $0.20 per share, its 66th consecutive quarterly cash dividend.
Third Quarter Results
Revenue for the quarter was $455 million, with dining & nutrition and housekeeping & laundry segment revenues reported at $230 million and $225 million, respectively. New business added during the quarter was offset, in part, by the recent exit from facilities affiliated with a New York-based ownership group, as the Company maintains discipline in credit-related decisions. The Company provided both services in the majority of the facilities and expects an incremental revenue impact of $15 million in Q4.
Direct cost of services was reported at $398 million, or 87.4%. The temporary cost increase related to payroll for account managers who have either recently completed the management training program or transitioned out of a facility that the Company is no longer servicing. Additional costs were related to start-up inefficiencies for new business added during the quarter. The Company expects a decreasing impact from each, as account managers continue to be assigned to new facilities at which they are budgeted and the new business additions operate on budget.
Selling, general and administrative was reported at $33 million, or 7.3%, with minimal impact from the change in deferred compensation.
The Company reported an effective tax rate of approximately 23% in the third quarter and expects a 2019 tax rate of 21% to 23%, including the Worker Opportunity Tax Credit but excluding other discrete items that impacted its 2018 rate.
Cash flow from operations was $60 million for the quarter, primarily due to cash collections exceeding billings and a $24 million increase in accrued payroll. DSO was reported at 70 days, up a day from Q2 due to the decrease in notes receivable previously classified as long term, now due in less than 12 months and included as part of current accounts and notes receivable.
Ted Wahl, Chief Executive Officer, stated, “As the industry works toward stabilization, we continue to take actions that position the Company for long-term growth. Having management capacity facilitated the new business adds we saw earlier in the quarter, although that momentum was somewhat tempered by our recent exit from a group of facilities, as we maintained discipline in credit-related decisions.”