Healthcare Services Group, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Healthcare Services Group, Inc. 2020 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. At this time, I would like to hand the call over to your host today, Mr. Ted Wall, President and Chief Executive Officer. The matters discussed today on today's conference call include forward-looking statements about the business prospects of Healthcare Services Group, Inc., within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often preceded by words such as believes, expects, anticipates, plans, will, goal, may, intends, assumes, or similar expressions. Forward-looking statements reflect management's current expectations as of the date of this conference call and involve certain risks and uncertainties. Forward-looking statements are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments, and other factors that we believe are appropriate under the circumstances. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in the circumstances. Health Care Services Group thinks actual results could differ materially from those anticipated in each forward-looking statement as a result of various factors, and the forward-looking statements are not guarantees of performance. Some of the factors that could cause future results to materially differ from recent results or those projected in the forward-looking statements are included in our earnings press release issued prior to this call and our filings with the Securities and Exchange Commission, including the SEC's ongoing investigation. There can be no assurance that the SEC or another regulatory body will not make further regulatory inquiries or pursue further action that could result in significant costs and expenses, including potential sanctions or penalties, as well as distraction to management. The ongoing SEC investigation and or any related litigation could adversely affect or cause variability in our financial results. We are under no obligation and expressly disclaim any obligation to update or alter the forward-looking statements, whether as a result of such changes, new information, subsequent events, or otherwise. And presenters, you may begin.

Thank you, Sharon, and good morning, everyone. Matt McKee and I appreciate all of you joining us for today's conference call. This morning we released outstanding third quarter results and plan on filing our 10Q by the end of the week. During the quarter, our customers and their caregivers continue to meet the challenges of the pandemic with innovation, resolve, and compassion. Our HCSG heroes have been right there with them, on the front line since the beginning, tirelessly supporting our customers and helping to ensure the well-being of America's most vulnerable. The health and safety of our employees and the communities we serve will remain our highest priority. Our strong financial results underscore our ability to thrive in even the most challenging environments. We were particularly pleased with our service execution during the quarter as our relentless focus on customer satisfaction systems adherence, and regulatory compliance delivered extraordinary operational outcomes. While the pandemic continues to create uncertainty around near-term occupancy and cost trends, the industry is much better prepared for the fall and winter months with increased access to PPE, point-of-care testing, and enhanced operating protocols. Additionally, we continue to be encouraged by the government's ongoing financial support of the industry, which we view as a necessary bridge from the short-term challenges to a more stable operating environment and ultimately a vaccine and census recovery. As the industry continues to adjust to the new normal, we maintain our sharp focus on delivering strong operational and financial results in Q4. While the current environment necessitates a cautious view on growth, longer term, our outlook remains positive as our value proposition is more compelling than ever before. Above all, we remain committed to making decisions that best position us to deliver shareholder value. With those introductory comments, I'll turn the call over to Matt for a more detailed discussion on the quarter.

Thanks, Ted. Good morning, everyone. Revenue for the quarter was $435.9 million, with housekeeping and laundry and dining and nutrition segment revenues of $223.4 million and $212.5 million, respectively. Revenue included $9.3 million of COVID-related supplemental billings, primarily related to employee pay premiums, which were initiated by and passed through to customers. Net income for the quarter came in at $27.6 million, and earnings was 37 cents per share. Direct cost of services was $365.4 million, or 83.8%. The Q3 decrease in direct cost of services compared to Q2 was driven by lower levels of CECL bad debt expense as a result of our continued strong cash collections and more efficient management of labor and food purchasing as a result of census-driven cost reductions, the benefit of which was passed along to our customers as a credit to recurring billings. Overall, our goal remains to manage direct cost at or below 86%. Housekeeping and laundry and dining and nutrition segment margins were 11.1% and 9.2% respectively. SG&A was reported at $37.3 million, or 8.6%. After adjusting for the $3.2 million increase in deferred compensation, actual SG&A was $34.1 million, or 7.8%. And we expect SG&A to remain in the 7.5% to 8% range in the near term, as those costs are largely fixed, but continue to ultimately target SG&A of 7.5%, excluding any COVID or SEC-related costs, with the primary pathway to leverage that existing and top-line growth. Investment and other income for the quarter was reported at $4 million, but again, after adjusting for the $3.2 million change in deferred compensation, actual investment income was around $800,000. We reported an effective tax rate of 25.6% for the quarter and expect our tax rate for 2020 to be in the 24% to 26% range, including WOTC benefits. Cash flow from operations was $49.2 million. This includes an $18.7 million decrease in the accrued payroll, offset by a $17 million increase in deferred payroll taxes under the CARES Act. And because we previously called out the quarter-to-quarter impact of the 2020 payroll accruals, for Q4, we're expecting a payroll accrual of 12 days. Ultimately, that payroll accrual only relates to timing with the impact washing out through the full year. Additionally, we expect an incremental $15 million or so for payroll accrual in Q4, resulting from the payroll tax deferrals under the CARES Act to be paid back at the end of 2021 and 2022. As such, this amount is now classified under other long-term liabilities rather than other current liabilities. DSO for the quarter was 58 days, down two days from the previous quarter. And we are pleased with the ongoing strength of the balance sheet and the ability to support the business while continuing to return capital to our HCSG shareholders. We announced that the Board of Directors approved an increase in the dividend to $0.205 per share, payable on December 24, 2020. The cash flows and cash balance is supported, and with the tax rate in place for the foreseeable future, the cash dividend program continues to be the most tax-efficient way to get free cash flow and ultimately maximize return to shareholders. This will mark the 70th consecutive cash dividend payment since the program was instituted in 2003, and now the 69th consecutive quarterly increase, which is now a 17-year period that's included four three-for-two stock splits. We recognize the dividend is important to our shareholders, and we have increased it in line with our performance track record. With those opening remarks, we'd now like to open the call up for questions.

If you'd like to ask a question at this time, please press SAR, then the number 1 on your telephone keypad. If you'd like to withdraw your question, press the pound key. First question comes from Andrew Whitman with Baird.

Oh, great. Thanks for taking my questions. I guess, guys, given that the gross margins were up here so significantly, it would be probably helpful to drill into that a little bit more. And I was wondering if you could just quantify the benefit from bad debt and how much the comments on more efficient use of labor was driven by any contribution from the excess managers. I know that you started to kind of get the utilization of your managers better last quarter. Was there more pull-through of that, or what are the other kind of key drivers and quantification of any of those, if you could, including the one on bad debt in particular?

Hey, good morning, Andy. Yeah, and there was certainly some pull-through with some of the management capacity, as we talked about last quarter. But really, overall, I think we've called out our laser focus on customer service and experience in the past. And as part of that ongoing focus, it includes managing the services as efficiently as possible, especially in light of the census pressure that many of our customers are facing. So I think Maybe the simplest way to walk through the margin drivers would be first and foremost just calling out what I think is a powerful testament to our operational team and that unwavering commitment that they have to our operational imperative. Customer satisfaction, systems adherence, regulatory compliance, and budget to actual performance. That has been and will continue to be a tailwind. to our overall results, operationally and otherwise. Beyond that, if you were to use Q2 as a baseline, if you pull out about $17 million or so of cost and the $17 million or so of revenue, that would put you right around 85% cost of services. And then, again, with Q2 as that baseline, once you factor in the $3 million, and you asked about the change in the bad debt quarter to quarter, about $3 million less of CECL bad debt expense, As a result of those continued strong cash collections Matt highlighted, you know, you've got a pretty clear idea of how we landed below that target, well below that target of 86%. Got it.

That's helpful. And then I guess my follow-up question is on free cash flow. I think last quarter you mentioned that you thought you'd come in about $15 to $20 million. You did better than that. I saw the DSO at... 58. You haven't been in the 50s here for a while, so that's good. Was there anything besides the AR collections there that drove the upside to the quarter in terms of the cash flow performance versus what you were expecting earlier?

No, that was really the primary driver. You know, we came in nearly $20 million higher on the cash collection side than we maybe otherwise would have expected. You know, our goal continues to be to collect what we bill each and every quarter. Here we are five of the last six where we've done just that. again, largely due to the leadership and the work of the financial services team in implementing the weekly payment initiative, which has been transformational to this part of the business. You know, here we are today with over 60% of our customers paying us at a frequency of greater than monthly. And then certainly in this environment, Andy, having timely conversations with clients, particularly over the past couple quarters, as some of them have found themselves maybe in stronger cash positions than they have in years past with some of the funding. Although, again, we're committed to continuing to follow the path that we've been on in terms of contract integrity and ensuring the customer lives up to not just the operational side of that contract integrity, but also the financial one.

Okay, good. I'll leave it there, guys. Thanks. Take care.

Next question comes from A.J. Rice with Credit Suisse.

Hi. So I'm trying to understand, again, on the gross margin, which seems to be the main place of the outperformance in the quarter, when you think about moving forward then, the lower level of bad debt, which is a portion of it, certainly not all of it, do you think that the drivers that led to that level of uptick in gross margin are going to stay in place as you go into the fourth quarter and think about next year.

Yeah, I think with respect to kind of the segment margins, AJ, I would kind of call out the dining margin there, specifically some of the contract restructuring that we did in the back half of 2018 and into 2019. And we'll continue to evaluate on an ongoing basis, but those adjustments have made us a bit lighter, a bit nimbler, and have provided a real strong base from which to grow. And we have outstanding leaders on the registered dietician side of the business who've really taken our RD team and services to a whole other level, which contributes not only to client satisfaction and patient resident outcomes, but also to the bottom line. So the reality is we're less focused on some of the quarter-to-quarter variability and really taking that long view, making decisions and taking steps that really best position the company for the future, and we'll continue to have that discipline. So as to the sustainability of those margins and we'll continue to drive efficiencies, continue to assess the impact of COVID and census. And although one quarter certainly does not a trend make, our goal is to always manage the services as efficiently as possible. So 86 remains the target, but we're, of course, committed to identifying ongoing opportunities for improvement as well.

Okay. I guess I'm just starting to figure out, I know, you know, you have – sort of a bandwidth where you're sharing some of the upside with your customers and all. I'm trying to, and, you know, you're marching within a target range. I'm just trying to figure out is there something about that that's changed, and we're now going to operate, especially, like you said, in dietary, the higher level of profitability that has been true in the past, or is there something about, you know, the dynamics of what's happening in the midst of this pandemic and so forth that that have allowed you to step up on this quarter, but we should expect some moderation as we go forward. I guess I don't really – I'm not sure I understand where you're landing on that, or is it too early to tell?

It's too early to tell. One quarter does not a trend make, I think, is what Matt said, and I couldn't agree more with that. You know, we've done a lot of work, particularly on the dining side, over the past couple years. Matt called out the contract restructurings. that we've done, all the revamping of our registered dietician team, the leadership that we have in place there. So there's a lot that goes into it, not the least of which is execution. But too early to tell, we'll be in a position maybe after another quarter or so to be able to more confidently say, Yeah, we'll be able to sustain these margins, but again, we're committed to always identifying opportunities, and we couldn't be more pleased with where we came out today. And then in terms of your comment about sharing, really any efficiencies that we've identified as they're passed along to customers, we're always looking for ways to manage the services more efficiently for them, right, to make us a more attractive partner on either the housekeeping or dining sites. So as census recovers, when census recovers, you know, the hope would be that we've not only identified efficiencies on the way down, but, you know, on the way up, maybe we're able to do things even more effectively or efficiently than we were prior to. So, again, too early to tell, but in terms of, you know, sustainability to a precise degree,

number or percentage but you know certainly we are on the right path uh from an operational and financial perspective sure uh you guys you mentioned uh obviously the importance of the covet uh uh or cares act money uh relative to the underlying customer base supporting them uh and that census sounds like it's still somewhat pressured do you have a sense of uh how the industry is doing, your underlying customer base, long-term care facilities, relative to what they were faced with in the second quarter, how much of a rebound that occupancy rates or whatever your underlying customer base has seen. And then I know that was partly the question on the gating factor of getting back on the growth trajectory is, A, they were dealing with the crisis and they weren't really to make major changes of outsourcing dining or – or even to the extent of the housekeeping. And it sounded like there was a little bit of your side of it, wanting to see how people fared coming out of this pandemic. Are we at that point now where you feel like you can assess, or is it still going to be a couple more quarters before we're at a point where you really sort of see how the underlying customer base looks coming out of all of this?

I think in terms of occupancy, pretty wide range of what we're seeing. And, you know, we've seen some areas of recovery, other areas of continued pressure. You know, the data that we're seeing within our customer base and obviously within the industry, are suggesting, you know, a 10% to 15%. But you have some areas, some geographies that are unimpacted, others that are more pronounced, particularly in the Northeast and Mid-Atlantic. And then there's differences between segments, you know, the long-term care segment of the patient population or resident population, and then the post-acute side with the patient population. So there's variability there. In terms of how, KJ, I think you were... asking about revenue. I think in this environment, it's difficult to forecast revenue for the next month, let alone the next quarter or year. I think heading into Q4, we're thinking of revenue really in two categories, and you alluded to them, our existing business and new business opportunities. For existing business, again, in this environment, census is unpredictable. But if there is continued census decline or erosion, we're committed to being as flexible as possible in reducing our labor and supply costs and then passing along those efficiencies to our customer. And I think conversely, when and if census recovers, depending on the timing, our staffing and supply costs will increase, again, as will our revenue. The second category for us heading into the quarter would be the new business and how that impacts revenue. It's pretty straightforward as to why it's more difficult to add new business in this environment. The reality is the industry has strict rules for visitors. Some operators are reluctant to make any changes for fear of disruption. In some of those geographies I referred to earlier that are less impacted where Demand for our services is literally through the roof, which it is in many parts of the country. The current environment necessitates that we take that more cautious view. And we're going to continue to be disciplined in that regard. So, you know, they're really the revenue puts and takes that are in play. So until we cross that bridge ultimately from you know, where we are today to stabilization and then ultimately the vaccine and census recovery. I think revenue is going to be more difficult to forecast. It doesn't mean we're not going to grow, and it doesn't mean we're not going to take advantage of opportunities as they present themselves, but there's just other factors that are different than years past that impact, you know, in any given quarter of the top line.

Maybe one last question just on your cash and market with securities. You've obviously built that up nicely here today. You're at about $200 million. Is this environment just better to have more cash on the balance sheet, or does it make you think in terms of maybe share repurchase or up in the dividend in any way? There's just some thoughts about that.

Yeah. We're going to continue to evaluate our capital allocation strategy, which we do on an ongoing basis. But I would say organic growth, AJ remains number one on that list, followed closely by the dividend, which we believe after organic growth is the most tax-efficient way to return that value to shareholders. Again, I know we've talked about this before. There's no payout ratio per se, so nothing within kind of our dividend program would preclude us from increasing the dividend further. But we are staying true to those guideposts of consistency and sustainability of the dividend over the long term. And here we are this quarter, 70 consecutive and counting. So we have explored and we'll continue to explore some of the other alternatives that are out there. But, again, for the moment, heading into Q4 and next year, deeply committed to continued organic growth and the dividend.

All right. Thanks a lot. Thank you, AJ.

Next question comes from Sean Dodge with RBC Capital Markets.

Thanks. Good morning. Ted, you mentioned the deployment of most of the spare managers. Now, where are you from a new manager development standpoint? Are you continuing to recruit and train new ones? Is it kind of business as usual there? Or given the uncertain state of things, have you paused a lot of that activity for the time being?

No, that's business as usual. And, again, we continue to deploy managers within the existing business and in those new business opportunities that we bring on board. And, again, that's why I wanted to at least share some of the insights into revenue and what impacts revenue in this environment that's different than other environments, namely census. So we could be adding business, but because we're providing existing customers with census-related relief, It may not be reflected in the top line, but it doesn't mean we're not growing.

Got it. Okay. You talked before about some of the adjustments you've made to services for some clients that were experiencing big declines in occupancy. Where do you stand with that? Now, you mentioned continuing to be flexible there. Has there been more of that in some of the regions that are experiencing spikes in cases? And maybe the ones that you've adjusted early on, are any of those recovering? Have you staffed any of kind of the early adjusted facilities back up to more of a normal level? normal, I guess, density?

Yeah, one factor, Sean, that I'd point to as a significant driver, it may be obvious in some regards, but geography, right? There's a key differences in different parts of the country and providers that Ted had mentioned in the Northeast and the Mid-Atlantic and even the Pacific Northwest or a state like Minnesota have been significantly impacted by COVID, whereas other geographies like the Southeast and Southwest, although there's been some ebbs and flows, continue to show improvement and increased elective procedures and census is moving in a positive direction. The other component, of course, that Ted had alluded to was the difference within even a specific facility in true long-term care resident population and that sort of elective procedure, elective surgery-related post-acute patient within the walls of that facility. And most customers have a mix of both long-term residents and short-term rehab patients, but typically are more weighted in one direction or the other. And overall, though, we likely will see additional near-term occupancy pressure until a vaccine, right? I mean, that's the most significant milestone that lies ahead, but ultimately do expect a recovery industry-wide as it relates to census because of, of course, the demographic trends and the needs-based nature of this industry. So as it relates to healthcare services group and our billings, Sean, it's a mixed bag, really heavily dependent upon everything that I just touched on. primarily geography, but also specific kind of patient mix within the walls of the facility. So while we do see some ongoing downward adjustments in some geographies, and there's some timing-related issues there as well, right, from the time that a customer experiences a census dip to the time we're able to adjust our cost structure and then ultimately pass that down along to the customer by way of a billing adjustment, there can be a bit of a lag, which suggests that, you know, we may see some ongoing pressure in that downward direction, but at the same time in other geographies, we'll likely see ongoing recovery, which we are, in fact, seeing in some areas to date, but again, perhaps with a bit of a lag as it relates to ultimately us adjusting our cost structures and corresponding billing to customers.

Okay. Very helpful. Thank you again.

Next question comes from Ryan Daniels with William Blair.

Hey, guys, and let's speak out for Ryan. Thanks for taking my question. So you said kind of the management recruitment is pretty much business as usual. I was wondering, as far as recruitment goes, has anything changed there in that dynamic? Have you seen, you know, a little bit harder to find talent or maybe potentially easier? Just, you know, wondering if anything's changed there.

If you're speaking specifically about kind of management-level recruiting, Nick, you know, again, for us, we're back to business as usual, which, just to remind everybody, means that all of those recruiting and targeting efforts are happening at the local levels, which is a good thing, right? That's the model that we've built. That's what we've relied upon for years. So inasmuch as there's a need in a particular geography that's more pronounced locally, than another, they will take the appropriate steps to appropriately recruit, interview, now more than ever provide as much of a transparent view into our world as possible. But we're not hearing of challenges in hiring folks into the management training program. I think you have to assign Part of that dynamic to the overall labor environment, right? I mean, you know, still a challenging labor market in many parts of the country, slower recovery in some geographies than in others. So in as much as that serves us well and, you know, creates a larger expanded pool of candidates, that's been beneficial. But I would say... You know, we've not seen any significant challenges in hiring the management employees, and that trickles down to the line staff employees as well, where obviously hugely important for us in normal course and certainly even greater importance during a pandemic for us to be able to fully staff every facility and staff it appropriately, adjusting up and down as is appropriate based on census. And we've been fortunate that we've been able to attract staff hire and retain employees at the line staff levels as well.

Great, thanks. And then kind of going on DSOs, so I guess how much would you say this improvement in DSOs and I guess the lack of any sort of big issues with some of your clients related to kind of permanent assistance? And then, you know, as that sort of dries up, would you expect kind of a – or recommencing of what was kind of happening prior to the virus?

Yeah, I'm not sure I understand your question. You know, I know we've collected what we've billed five of the last six quarters. And, you know, we have over 60% of our customers paying us at a frequency of greater than monthly, the vast majority of which are weekly. So, you know, most of this were causing, and if you look at the trends prior to this year and into the first quarter, it was evident the direction we were going from a cash collection perspective. That's not to say that there's not going to be a quarter where we fall short of what our goal could be, but in terms of the systems that we have in place, the team that we have leading it, and the notion of contract integrity with our customers, that's all here to stay. Opportunistically, if a customer does have, as a result of funding, maybe some benefit that we've accommodated them in the past and they're willing and able to true up, maybe in arrearages, that may exist to a lesser degree. But again, the majority of it is DSO-related, and I think that's reflected in the numbers.

Got you. So the general, you know, positive trend we've seen, you know, this year, regardless of kind of government assistance, that trend should coincide.

Yeah, that's our expectation, you know, when we look out over Q4 and into next year again. Our goal is simply said to collect what we bill, and that hasn't changed. To the extent we're over that, we'll call it out, like we saw this past quarter and prior quarters, not just Q2, but also, you know, in Q4 of last year, Q3 of last year, we will call that out. But otherwise, our goal is very simply said, again, to collect what we bill.

Awesome. Great. Thanks, guys.

Thank you.

Next question comes from Brian Tenkillock with Jefferies.

I guess I'll just follow up on that last question from Brian and the first question as well. You know, you called out bad debt as a driver of margin expansion for the quarter. If you don't mind just quantifying that and, you know, how you're thinking about that as it relates to, you know, CARES Act funds or as your clients get squeezed on the cash side again, do you think that there's variability in that bad debt accrual as we think about 2021?

Yeah, I would say we don't think there could be. We know there's bad debt or variability in bad debt expense because of the very nature of the new accounting guidance, CECL, that was implemented at the beginning of the year. So us and all companies, I think, to a degree, have maybe a higher level of variability in that particular line item. It's really driven off of collections for us, collecting what we build based off of a track record of years. So as better performing years come into the trailing periods and and worst performing years fall off, that could have one type of impact. And conversely, if there's a poor performing year that comes in and a better performing year falls off, that could have an impact the other way. But by and large, CECL is what's driving and the accounting guidance is what's driving a more, I'd say, mechanical, less subjective bad debt expense, again, for us and for the rest of the public company universe. that adopted it.

I understand that. Any quantification you can give on that for the quarter?

Yeah, I mentioned that earlier. We had bad debt expense of right around a million dollars. Got it.

Okay. And then I guess my last question, since your last earnings call, obviously your largest client called it out and said the industry or they need government funding to remain solvent or be a going concern. So, what are those conversations like with Genesis, and how are you thinking about the risks that you face as they struggle financially?

Well, Genesis is a great partner. We have incredibly frequent communication with them, and they've continued to pay us within terms. So, you know, they're They're, I believe, on, you know, they have a great leadership team and a management team that's committed to executing on their plan. We're going to continue to monitor that situation closely. But beyond that, there's really no updates to report. All right, got it. Thank you. Take care.

Next question comes from James Terilliger with Northland Capital. Hey, guys, can you hear me?

Yeah, we've got you, James.

Okay, great. So nice quarter considering all the impacts of COVID. My first question, and I missed part of the call, so I apologize for that. Very quickly, when you look at the COVID supplement that's in the press release, how is that split between housekeeping and food services?

It's about a 60-40 split, James, of that $9 or so million, 60 to housekeeping and 40 to dining.

Okay, good. And secondly, I guess this one's for you, Ted. And again, I want you to speak from the macro level and not as an individual customer. How is the health of the nursing home? If I look back to 2019, it seemed like it was turning and then we got hit by COVID. You've mentioned the CARES Act before. We're waiting on another stimulus from the federal government on a daily basis. How are your nursing home customers doing? And And how do you view your customers from the macro level in terms of their health, not one individual customer?

Yeah, well, I think the industry, just the highest level at that macro level, look, the industry – shall remain a vital and ongoing part of the health care continuum. And if you just look at what will be an ever-growing demographic pie, skilled nursing, in particular nursing homes that you called out, is going to be an absolutely critical component of that continuum, along with home health, along with independent and assisted living, along with the other points of care. So at the highest level, you know, it's got a bright future ahead of it, the industry. Clearly, you know, it's gotten the industry, SNF specifically, have gotten their share of bad press over the past few months. I think, you know, to go micro a little bit, I have to say often underreported is the exceptional care, James, that's provided by the vast majority of caregivers and facilities. And we happen to have a front row seat for these many inspiring stories. But I think it is yet to be determined if that heightened focus, if the attention that the industry has had, what's going to be the impact on the regulations or the regulatory environment, and what are the resulting reporting requirements going to be. I would only add, if that's the put, I'd say the take would be the focus that the industry has gotten has also shined a light on how important, critically important, adequate funding and responsible reimbursement programs are to patient and resident care. And I think, you know, skilled nursing has always, I thought, been left behind in terms of priorities, and I think that's going to change going forward. So I think in so much as there's an evolution in the regulatory and or reporting landscape, I believe there's enough political will at this point that there would be a corresponding evolution. situated, are value propositions more compelling than ever before, in spite of some of the headlines about, again, the future of the industry.

No, you're right on the front lines providing care for a high-risk patient population. As much as the headlines are bad, I've got lots of stories myself from friends and family members who have been very pleased with the care at their age within these particular institutions. My last question, so I thank you for that, Keller. My last question is really on, and I think you said it earlier in the call, that the census recovery or the occupancy rates, which is something I focused on within your customers, can you quantify, and I know it's a tough question from the macro perspective, can you quantify any type of degree of hit that these facilities have been hit in terms of their census or occupancy with the factors associated with COVID? From a macro level?

Yeah, if you're looking for, and again, there's significant variability, geography to geography, even operator to operator, even within the same geography, depending on the type of patient mix, resident population, there can be variability. Overall, James, there's been about a 10% to 15%. impact closer to 10% you know but again depending on depending on the report or the the data that one is is looking at I think maybe maybe to help bridge that answer a bit to how we get back I think the keys to making sure you know between now and when census recovery happens which is inevitable you know there's really a few different keys but consistent point-of-care testing is one of them. That's been in place, and that has been a game changer for the industry. Certainly, access and availability of PPE, which I must say is substantially better than what it was six months ago. And what we've talked about really throughout the call is adequate funding. And I think even more recently, there's been a few different developments on the funding side that You know, just to highlight to you, because again, it's bridging the gap to census recovery. You know, one would be the $20 billion increase or phase three provider relief, which is more targeted funding for operators that have experienced, you know, those significant COVID losses. And then just over the past few weeks, there's been a couple developments by CMS that's, again, going to target those providers or really disproportionately benefit those providers that were really impacted by COVID, especially in the Northeast and Mid-Atlantic. The first is postponing the Medicare advance payments that now do not have to be repaid until the end of the first quarter. which is a major cash flow benefit for providers, especially those who got hit early on. And the other extends the three-day hospital stay waiver, and we all know how impactful that is until the end of January. So, again, stimulus, too, could be another opportunity for the industry, and I believe the industry, from everything I understand, is going to be included in that in a potentially significant way. But testing, PPE, and funding are those keys to to bridging that gap between now and a vaccine.

Okay, well, great. I'll jump back in queue, but again, guys, nice quarter considering the COVID environment that you're operating in. Thanks, guys.

Thanks, James.

Next question comes from Mitra Ramgopal with Sedoti.

Yes, hi. Good morning. Just wanted to get a sense as you look to bring on new business and the conversations you're having with potential customers, if you're sensing a change in the mindset or greater willingness to outsource in a post-COVID world.

I'd say the important add-on there to your question, Mitchell, was the post-COVID world, right? I'd say without a doubt as it relates to demand for our services and more specifically our increasingly appealing value proposition, COVID has shown a very bright light on that, right? If you think about delivering outcomes in operational outcomes, regulatory outcomes, and financial outcomes, right? You know, that's right in line with what we've always done, and in many regards, the market is moving to us. When you think about healthcare-level cleaning, of course, in the healthcare facilities that we're servicing, but, you know, really across... the country in many other industries, right? You think about retail, you think about dining, you think about education, and healthcare level cleaning and disinfection, infection prevention, infection control will become the new norm. So in many instances and through a wide lens, Mitra, that value proposition resonates more than ever. So while in this moment of you know, in the midst of a pandemic and approaching influenza season with an election looming. As you can imagine, there's not a significant appetite among our prospective customers to disrupt, potentially disrupt their operations and engage with the new outsourcing partner in this very moment. But certainly, as we look out to the time horizon that you called out, which would be post-COVID, you know, we couldn't feel better about our prospect's for continuing to cultivate and build that pipeline of significant new business opportunities.

Okay.

Thanks for taking the question.

Thanks, Mitra.

And at this time, I will turn the call over to Mr. Ted Wall.

Okay. Thank you. Looking ahead, we will continue to innovate in managing our business and remaining flexible in responding to our client partners' evolving service level, staffing, and supply chain needs. And above all, we remain committed to making decisions that best position us to deliver shareholder value. So again, on behalf of Matt and all of us at Healthcare Services Group, I wanted to thank Sharon for hosting the call today, and thank you to everyone for participating.

This concludes today's conference call. You may now disconnect.