Healthcare Services Group, Inc.

Thank you for standing by and welcome to the Healthcare Services Group, Inc.' 's fourth quarter 2025 earnings conference 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 as 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. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one in your telephone keypad. I'd now like to turn the call over to Ted Wall, President and CEO. You may begin.

Good morning, everyone, and welcome to HCSG's fourth 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 fourth quarter results and plan on filing our 10-K by the end of the week. Today, in my opening remarks, I'll discuss our 2025 highlights, share our perspective on the general business environment, discuss our strategic priorities for the year ahead, and provide details on our new $75 million share repurchase plan. Matt will then provide a more detailed discussion on our Q4 results, and then Vikas will provide an update on our more recent contract enhancements, liquidity position, 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 2025 highlights. I am extremely pleased with our fourth quarter performance, which capped a strong year for Healthcare Services Group. Against the backdrop of solid industry fundamentals, we exceeded our initial 2025 expectations for revenue, earnings, and cash flow, driven by disciplined execution of our strategic priorities. Year-over-year revenue was up over 7%, with our campus division reaching a significant milestone in its growth journey, achieving over 100 million in revenue. We successfully managed cost of services in SG&A within our targeted ranges, and we generated significant free cash flow. We also returned over $60 million of capital through our share repurchase program and ended the year with a strong balance sheet and ROIC profile, underscoring our focus on value-creating capital deployment. I'd like to now share our perspective on the general business environment. Industry fundamentals continue to gain strength, highlighted by the multi-decade demographic tailwind that is now beginning to work its way into the long-term and post-acute care system. In 2026, the first baby boomers will turn 80 years old, and by the year 2030, all 70 million plus boomers will be over the age of 65, with the oldest being in their mid-80s, the primary age cohort for long-term and post-acute care utilization. We expect that the demand and opportunities for service providers in this space, especially for those with compelling value propositions, durable business models, and market-leading positions to only increase in the months and years ahead. The most recent industry operating trends remain positive as well, highlighted by steady occupancy, increasing workforce availability, and a stable reimbursement environment. We remain optimistic that the administration will continue to prioritize the rationalization of regulations and policy to better align with the changing and expanding needs of our nation's most vulnerable and the provider communities we service. Looking ahead to 2026, our top three strategic priorities remain, driving growth, by developing management candidates, converting sales pipeline opportunities, and retaining our existing facility business, managing cost 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 optimistic about our trajectory and expect mid-single-digit revenue growth in the year ahead. We remain 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. Finally, in conjunction with our earnings release, we announced the completion of our $50 million 12-month share repurchase plan. five months ahead of schedule. We also announced plans to further accelerate the pace of our share buybacks in 2026 and intend to repurchase $75 million of our common stock over the next 12 months. Over the past few years, we have continued to strengthen our balance sheet and expect strong cash flow generation over the next 12 months and beyond. We have demonstrated a prudent and balanced approach to capital allocation, including first and foremost, investing in our growth initiatives. The current valuation of our shares relative to our long-term growth potential presents a compelling opportunity to return meaningful capital to shareholders through the buyback. So, with those introductory comments, I'll turn the call over to Matt.

Thanks, Ted, and good morning, everyone. Revenue was reported at $466.7 million. a 6.6% increase over the prior year. Segment revenues and margins for environmental services were reported at $210.8 million and 12.6%. Segment revenues and margins for dietary services were reported at $255.9 million and 7.2%. As far as the cadence of our 2026 growth, while we don't provide full-year revenue guidance broken out by quarter, Our 2026 growth plans are oriented as follows. Q1 revenue in the $460 to $465 million range, with a step-up in Q2 revenue, and then sequential revenue growth in the second half of the year compared to the first half of the year, culminating in mid-single-digit revenue growth for the full year 2026. Cost of services was recorded at $394.6 million, or 84.6%. Cost of services benefited from strong service execution, workers' comp and general liability efficiencies, and lower bad debt expense. Our 2026 goal is to manage the cost of services in the 86% range. SG&A was reported at $46.2 million, but after adjusting for the $.4 million increase in deferred compensation, SG&A was $45.8 million, or 9.8%. Our 2026 goal is to manage SG&A in the 9.5% to 10.5% range 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. The effective tax rate for the fourth quarter was reported as a 9.4% benefit, and the effective tax rate for the year was reported as a 13% expense. Effective tax rates include an $8.3 million or 12 cents per share benefit related to the treatment of certain ERC receipts recognized in the third quarter. The company, in consultation with third-party experts, has determined its tax position with respect to these receipts. We expect our 2026 effective tax rate to be approximately 25%. Net income and diluted earnings per share were reported at $31.2 million and 44 cents per share. Net income and diluted earnings per share included an $8.3 million or 12 cents per share benefit related to the tax treatment of certain ERC receipts, as previously mentioned. Cash flow from operations was reported at $17.4 million. After adjusting for the $19 million decrease in the payroll accrual, cash flow from operations was $36.4 million. I'd now like to turn the call over to the costs.