Healthcare Services Group, Inc.

Hello and welcome to the HCSG 2025 Third Quarter Earnings Call. The matters discussed on today's conference call include forward-looking statements about the business prospects of Healthcare Services Group Inc. For Healthcare Services Group Inc.' 's most recent forward-looking statement notice, please refer to the press release issued this morning, which can be found on our website, www.hcsg.com. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties, and important factors, including those discussed in the risk factors, MD&A, and other sections of the annual report on Form 10-K and Healthcare Services Group Inc.' 's other SEC filings, and is indicated in our most recent forward-looking statements notice. Additionally, management will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in this morning's press release. I would now like to turn the conference over to Ted Wall, CEO. You may begin.

Good morning, everyone, and welcome to HCSG's third quarter 2025 earnings call. With me today are Matt McKee, our Chief Communications Officer, and Vikas Singh, our Chief Financial Officer. Earlier this morning, we released our third quarter results and plan on filing our 10-2 by the end of the week. Today, in my opening remarks, I'll discuss our Q3 highlights, share our perspective on the overall business environment, and discuss our strategic priorities for Q4. Matt will then provide a more detailed discussion on our Q3 results, and Vikas will provide an update on our balance sheet and capital allocation progression. We will then open up the call for Q&A. So with that overview, I'd like to now discuss our Q3 highlights. We delivered strong third quarter results marked by year-over-year and sequential increases in revenue, earnings, and cash flow. and we have carried that positive momentum into the fourth quarter. New client wins and high retention rates drove our top-line growth, and our field-based team's operational excellence led to quality service outcomes and consistent margins. Cash collection trends remain positive, and our balance sheet is strong. I'd now like to share our perspective on the overall business environment. Current headlines are shaped by partisan discourse regarding the government shutdown and speculation about the potential impacts of the ABBA. However, mandatory spending programs like Medicare and Medicaid remain insulated from the federal shutdown disruption, and the foundational benefits of the ABBA for the industry, specifically the exemption from provider tax cuts, the elimination of the minimum staffing requirement, and the $50 billion Rural Health Transformation Fund remain intact. So while these headlines may generate sentiments of economic uncertainty, the underlying fundamentals of our core market of long-term and post-acute care continue to gain strength, highlighted by the multi-decade demographic tailwind that is now beginning to work its way into the system. The most recent operating trends are positive as well, evidenced by steady occupancy, increasing workforce availability, and a stable reimbursement environment. Looking ahead, we are optimistic that the administration and Congress will continue to prioritize the changing and expanding needs of our nation's most vulnerable, with a shared focus on the modernization and rationalization of regulations and the potential for policy that better aligns with the operational realities of the industry and provider community we service. As we enter Q4, our top three strategic priorities remain driving growth by developing management candidates, converting sales pipeline opportunities, and retaining our existing facility business, managing costs through field-based operational execution and prudent spend management at the enterprise level, and optimizing cash flow with increased customer payment frequency, enhanced contract terms, and disciplined working capital management. We are confident that continuing to execute on our strategic priorities supported by our robust business fundamentals will enable us to drive growth while delivering sustainable, profitable results. So with those introductory comments, I'll turn the call over to Matt for a more detailed discussion on the quarter.

Thanks, Ted, and good morning, everyone. Revenue was reported at $464.3 million, an 8.5% increase over the prior year. Segment revenues for environmental was reported at $211.8 million. Dietary services was reported at $252.5 million. We estimate Q4 revenue in the range of $460 to $470 million. Cost of services was reported at $367.9 million, or 79.2%. The cost of services includes a benefit of $34.2 million, or 7.4%, primarily related to the ERC. That's partially offset by the previously announced Genesis charge of $2.7 million, or 60 basis points. So when you combine those two items, Cost of services includes a $31.5 million or 6.8% benefit. And our goal is to manage cost of services in the 86% range. SG&A was reported at $50.5 million. After adjusting for the $3.7 million increase in deferred compensation, SG&A was $46.8 million or 10.1%. And SG&A includes $2.1 million or 50 basis points of professional fees related to the ERC. We expect to manage SG&A in the 9.5% to 10.5% range in the near term based on investments that we've made and spoken about in previous quarters with the longer term goal of managing those costs into the 8.5% to 9.5% range. Segment margins for environmental and dining services were reported at 10.7% and 5.1% respectively. Segment margin for environmental services included $1.2 million or 60 basis points related to the previously announced Genesis charge. Segment margins for the dietary services includes $1.5 million or 60 basis points related to the previously announced Genesis charge. Other income was reported at $11.4 million After adjusting for the $3.7 million increase in deferred compensation, other income was $7.7 million. And other income includes $5.3 million of interest income related to the ERC. Net income and diluted earnings per share were reported at $43 million and 59 cents per share. Diluted earnings per share includes a 39 cent benefit, primarily related to the ERC. Again, partially offset by the previously announced Genesis charge of 3 cents per share. So all told, diluted earnings per share includes a 36 cent per share benefit. Cash flow from operations was reported at $71.3 million. After adjusting for the $15.8 million decrease in the payroll accrual, cash flow from operations was $87.1 million. Cash flow from operations includes a $31.8 million benefit related to ERC. I'd now like to turn the call over to Vikash for discussion on our balance sheet and capital allocation progression.