HEALTHCARE SERVICES GROUP INC Q4 FY2024 earnings call

Q4 Highlights: 2024 was a transitional year with Q4 revenue of $437.8M, net income $11.9M, diluted EPS $0.16, and cash flow from operations $36.2M. ### Industry Trends: Industry fundamentals strong with demographic tailwind, positive operating trends (workforce, occupancy, reimbursement), regulatory outlook on CMS staffing rule, positive sentiment on new administration. ### 2025 Priorities: - Drive growth: Mid-single digit revenue growth, Q1 revenue $440M-$450M. - Manage costs: Cost of services in 86% range, SG&A 8.5%-9.5%. - Optimize cash flow: $45M-$60M cash flow from operations excluding change in payroll accrual.

For the three months ended December 31, 2024, revenue was $437.8 million. Housekeeping and laundry revenue was $192.7 million, representing 44% of total revenue, with a margin of 10.2%. Dining and nutrition revenue was $245.1 million, representing 56% of total revenue, with a margin of 4.7%. Cost of services was $379.2 million, or 86.6%. Reported SG&A was $44.8 million; after adjusting for a $4 million increase in deferred compensation, actual SG&A was $44.4 million, or 10.1%. Net income was $11.9 million, and diluted EPS was $0.16. Cash flow from operations was $36.2 million, and actual cash flow from operations excluding the change in payroll accrual was $27.0 million.

Revenue: Expect mid-single digit growth in 2025, with Q1 revenue range $440M-$450M. ### Cash Flow: Estimate 2025 actual cash flow from operations excluding change in payroll accrual in range of $45M to $60M. ### Capital Allocation: Prioritize organic growth, inorganic growth opportunities, and opportunistic share repurchases.

• Regulatory uncertainties, including potential changes to CMS staffing rule. - Impact of new administration on reimbursement and regulation. - Timing of new business adds affecting margins and cash flow. - Inflationary pressures on labor and food costs.

Q: Strong cash flows in Q4 and questions about startup costs and margin expectations.

A: Startup costs vary with new business timing; confident in managing cost of services within 86% range, cash flow driven by strong collections.

Q: How does payroll accrual impact cash flow?

A: Q1 change in payroll accrual has -$8M effect, Q2 +$20M, Q3 -$17M, Q4 -$17M.

Q: Credit quality and startup costs by segment?

A: Favorable credit trends, majority startup costs in dining, with cost of services bearing most.

Q: Labor and food inflation and growth drivers?

A: Monitoring inflation, mid-single digit growth driven by healthcare segment, cross-sell opportunities in dining.

Q: Client retention and long-term growth?

A: >90% client retention in 2024, mid-single digit long-term growth outlook.