8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 23, 2019

HEALTHCARE SERVICES GROUP INC

(Exact name of registrant as specified in its charter)

Commission File Number: 0-12015

Pennsylvania	23-2018365
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification number)

3220 Tillman Drive, Suite 300, Bensalem, Pennsylvania

(Address of principal executive office)

19020

(Zip Code)

Registrant's telephone number, including area code: 215-639-4274

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

( ☐ ) Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

( ☐ ) Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)vi

( ☐ ) Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR240.14d-2(b))

( ☐ ) Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value	HCSG	NASDAQ Global Select Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Item 2.02 Results of Operations and Financial Condition.

On July 23, 2019, Healthcare Services Group, Inc. (the "Company") issued a press release (the "Press Release") announcing its earnings for the three and six months ended June 30, 2019. A copy of the Press Release is being furnished hereto as Exhibit 99.1 and is hereby incorporated by reference to this Current Report.

The information furnished herein, including Exhibit 99.1 shall not be deemed "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended or the Exchange Act.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensation Arrangement of Certain Officers.

David Hurlock, the Company's Chief Operating Officer, provided notice of his resignation from his position effective as of July 31, 2019.

Item 8.01 Other Events.

The Press Release also announced the Company's second quarter 2019 quarterly cash dividend of $0.19875 per common share, payable on September 27, 2019 to shareholders of record at the close of business on August 23, 2019.

Item 9.01 Financial Statements and Exhibits.

( a ) Not applicable

( b ) Not applicable

( c ) Not applicable

( d ) Exhibits. The following exhibit is being furnished herewith:

99.1 Press Release and financial tables dated July 23, 2019, issued by Healthcare Services Group, Inc.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		HEALTHCARE SERVICES GROUP, INC.
Date: July 23, 2019	By:	/s/ John C. Shea
		Name: John C. Shea Title: Chief Financial Officer

EXHIBIT INDEX

Exhibit Number	Description
99.1	Press Release and financial tables dated July 23, 2019, issued by Healthcare Services Group, Inc.

EX-99

Exhibit 99.1

Healthcare Services Group, Inc. Reports Q2 Results, Cash Dividend Increase

BENSALEM, Pa., July 23, 2019 (BUSINESS WIRE) -- Healthcare Services Group, Inc. (NASDAQ:HCSG) (the “Company”) reported for the three months ended June 30, 2019 revenue of $462 million and net income of $18.2 million or $0.24 per basic and diluted common share.

Second Quarter Results

Revenue for the quarter was $462 million, down $14 million sequentially, primarily due to the Company exiting facilities in conjunction with operator transitions, including those related to the previously announced Chapter 11 reorganization of Senior Care Centers. Approximately one-half of that revenue step down is reflected in the current quarter. Dining & nutrition and housekeeping & laundry segment revenues were reported at $233 million and $229 million, respectively.

Direct cost of services was reported at $400 million, or 86.7%, and included approximately $4 million of elevated payroll costs primarily due to the facility transitions of account managers related to the aforementioned operator changes as well as the Company’s ongoing investment in its training and development ramp-up.

Selling, general and administrative (“SG&A”) was reported at 8.4% but after adjusting for the change in deferred compensation, actual SG&A was $37 million or 8%. During the quarter, SG&A was also impacted by approximately $2 million of legal and professional fees related to the previously announced SEC matter.

The Company reported an effective tax rate of 23% in the second quarter and expects its 2019 tax rate to approximate 21% to 23%, including the Worker Opportunity Tax Credit, but excluding other discrete items that impacted its 2018 rate.

Cash flow from operations for the quarter was $3 million, inclusive of the $21 million decrease in accrued payroll. DSO for the quarter was reported at 68 days.

CEO Comments

Ted Wahl, Chief Executive Officer, stated, “Over the past few months, we continued to make progress on our near term priorities of systems adherence, customer payment frequency and management development, in what is still a tough environment for the industry.

Mr. Wahl added, “We worked through hundreds of facility operator changes, sometimes under difficult circumstances, and there was an unusually high number of new facility operators with whom were unable to come to agreeable terms and ultimately, exited. We saw that reflected in the revenue step down this past quarter. Additionally, the high number of facility operator changes also impacted some of new business activity and opportunities, as our field-based leaders focused their attention on facility operator transitions and retention, as opposed to new business openings.”

Mr. Wahl concluded, “Looking ahead, the Patient Driven Payment Model and 2.5% increase in Medicare reimbursement, both starting in October, along with improving occupancy trends will go a long way in strengthening the industry heading into 2020. For the rest of the year, we will continue to focus on the customer experience and our other near term priorities to ensure we are well positioned for the long term growth opportunity that awaits, which is compelling.”

Other Recent Developments and Highlights

During the second quarter, the Company continued to make progress on its near-term priorities:

•2Q19 normalized cost of services were below 86% and housekeeping & laundry and dining & nutrition segment margins, which were impacted by the elevated payroll cost noted above, were reported at 10.8% and 4.2%, respectively.

•Cash collections exceeded billings for the quarter, as the Company has successfully transitioned over 55% of its customers to an accelerated payment model.

•Increased the quality and quantity of management candidates during the quarter, in both segments and across the majority of divisions.

Dividend

The Company’s Board of Directors declared a quarterly cash dividend of $0.19875 per common share, payable on September 27, 2019 to shareholders of record at the close of business on August 23, 2019. This represents the 65th consecutive quarterly

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Exhibit 99.1

cash dividend payment, as well as the 64th consecutive increase since the initiation of quarterly cash dividend payments in 2003.

Other Matters

The Company announced it further expanded the role and responsibilities of Andrew W. Kush, Executive Vice-President & Chief Administrative Officer (“CAO”), to include oversight of the Company’s field-based operations. Mr. Kush will be focused on ensuring the Company is optimizing its talent, expertise and leadership across its customer service delivery-related functions. Prior to his appointment to CAO, Mr. Kush served as Senior Vice President of Human Resources & Risk Management. Mr. Kush also serves as President of HCSG Insurance Corp.

The Company also announced that David Hurlock, Chief Operating Officer, will be leaving the Company at the end of the month.

Conference Call and Upcoming Events

The Company will host a conference call on Wednesday, July 24, 2019, at 8:30 a.m. Eastern Time to discuss its results for the three months ended June 30, 2019. The call may be accessed via phone at 877-395-7164. The call will be simultaneously webcast under the “Events & Presentations” section of the Investor Relations page on the Company’s website, www.hcsg.com.

A replay of the webcast will also be available on our website for one year following the date of the earnings call.

The Company also announced that it will be attending and presenting at CL King’s 17th Annual Best Ideas Conference at the Omni Berkshire Place Hotel in New York on September 19, 2019.

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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 Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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,” “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 exclusively to the healthcare industry, primarily providers of long-term care; having a significant portion of our consolidated revenues contributed by one customer during the six months ended June 30, 2019; credit and collection risks associated with the healthcare industry; risks associated with the ongoing Securities and Exchange Commission investigation into our earnings per share calculation practices and related litigation; our claims experience related to workers’ compensation and general liability insurance; the effects of changes in, or interpretations of laws and regulations governing the healthcare industry, our workforce and services provided, including state and local regulations pertaining to the taxability of our services and other labor-related matters such as minimum wage increases; the Company's expectations with respect to selling, general, and administrative expense; continued realization of tax benefits arising from our corporate reorganization and self-funded health insurance program; risks associated with the reorganization of our corporate structure; realization of our expectations regarding the impact of the Tax Cuts and Jobs Act on our tax rates and financial results; and the risk factors described in Part I of our Form 10-K for the fiscal year ended December 31, 2018 under “Government Regulation of Clients,” “Competition” and “Service Agreements and Collections,” and under Item IA. “Risk Factors” in such Form 10-K.

These factors, in addition to delays in payments from clients and/or clients in bankruptcy or clients with which we are in litigation to collect payment, have resulted in, and could continue to result in, significant additional bad debts in the near future. Additionally, our operating results would be adversely affected if unexpected increases in the costs of labor and labor-related costs, materials, supplies and equipment used in performing services (including the impact of potential tariffs) could not be passed on to our clients.

In addition, we believe that to improve our financial performance we must continue to obtain service agreements with new clients, retain and provide new services to existing clients, achieve modest price increases on current service agreements with existing clients and 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.

Healthcare Services Group, Inc. is the largest national provider of professional housekeeping, laundry and dietary services to long-term care and related health care facilities.

Company Contacts:
Theodore Wahl	Matthew J. McKee
President and Chief Executive Officer	Chief Communications Officer
215-639-4274
investor-relations@hcsgcorp.com

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HEALTHCARE SERVICES GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in thousands, except per share data)

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Revenues	$	462,101	$	501,587	$	938,212	$	1,002,149
Operating costs and expenses:
Cost of services provided	400,485		436,287		827,750		905,283
Selling, general and administrative	38,609		34,118		79,710		67,895
Income from operations	23,007		31,182		30,752		28,971
Other income, net:
Investment and other income 1	610		2,134		4,757		2,950
Income before income taxes	23,617		33,316		35,509		31,921
Income tax expense	5,431		7,502		8,167		6,035
Net income	$	18,186	$	25,814	$	27,342	$	25,886
Basic earnings per common share	$	0.24	$	0.35	$	0.37	$	0.35
Diluted earnings per common share	$	0.24	$	0.35	$	0.37	$	0.35
Cash dividends declared per common share	$	0.19875	$	0.19375	$	0.39625	$	0.38625
Basic weighted average number of common shares outstanding	74,352		73,982		74,327		73,947
Diluted weighted average number of common shares outstanding	74,619		74,487		74,669		74,606

1.Includes the net impact of the premiums and costs related to the voluntary benefits program, administered by the Company's wholly-owned captive insurance subsidiary which were reclassified for prior period numbers when the premiums were recorded as revenues with the related costs included as part of cost of services provided.

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HEALTHCARE SERVICES GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

	June 30, 2019		December 31, 2018
Cash and cash equivalents	$	16,156	$	26,025
Marketable securities, at fair value	79,533		76,362
Accounts and notes receivable, net	346,765		341,838
Other current assets	66,549		63,911
Total current assets	509,003		508,136
Property and equipment, net	29,603		12,900
Notes receivable - long-term	41,956		43,043
Goodwill	51,084		51,084
Other intangible assets, net	24,435		26,518
Deferred compensation funding	34,065		29,113
Other assets	19,985		21,809
Total Assets	$	710,131	$	692,603
Accrued insurance claims - current	$	22,385	$	20,696
Other current liabilities	129,006		142,695
Total current liabilities	151,391		163,391
Accrued insurance claims - long-term	62,815		58,904
Deferred compensation liability	34,193		29,528
Lease liability - long-term portion	12,084		—
Stockholders' equity	449,648		440,780
Total Liabilities and Stockholders' Equity	$	710,131	$	692,603

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XML

Document	Jul. 23, 2019
Cover page.
Document Type	8-K
Document Period End Date	Jul. 23, 2019
Entity Registrant Name	HEALTHCARE SERVICES GROUP INC
Entity File Number	0-12015
Entity Incorporation, State or Country Code	PA
Entity Tax Identification Number	23-2018365
Entity Address, Address Line One	3220 Tillman Drive
Entity Address, Address Line Two	Suite 300
Entity Address, City or Town	Bensalem
Entity Address, State or Province	PA
Entity Address, Postal Zip Code	19020
City Area Code	215
Local Phone Number	639-4274
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Title of 12(b) Security	Common Stock, $.01 par value
Trading Symbol	HCSG
Security Exchange Name	NASDAQ
Entity Emerging Growth Company	false
Amendment Flag	false
Entity Central Index Key	0000731012