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HEALTHCARE SERVICES GROUP INC

HEALTHCARE SERVICES GROUP INCHCSGEarnings & Financial Report

Nasdaq · Health Care · Services-Nursing & Personal Care Facilities

Tenet Healthcare Corporation is an American for-profit multinational healthcare services company based in Dallas. Through its brands, subsidiaries, joint ventures, and partnerships including United Surgical Partners International (USPI), the company operates 65 hospitals and over 450 healthcare facilities. Tenet also runs Conifer Health Solutions, which provides healthcare support services to health systems and other clients.

What changed in HEALTHCARE SERVICES GROUP INC's 10-K — 2023 vs 2024

Top changes in HEALTHCARE SERVICES GROUP INC's 2024 10-K

174 paragraphs added · 151 removed · 133 edited across 6 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

52 edited+14 added−5 removed51 unchanged
Revenues generated from Genesis were included in both operating segments. Any extended discontinuance of revenues, or significant reduction, from this customer could, if not replaced, have a material impact on our operations.
Revenues generated from Genesis were included in both operating segments. Any extended discontinuance, or significant reduction, of revenues from this customer could, if not replaced, have a material impact on our operations.
Increases in market interest rates could adversely affect our payment obligations with respect to our variable-rate line of credit and adversely affect our liquidity and earnings. In addition, the Company relies on its portfolio of marketable securities for balance sheet support, and the value of the portfolio can be materially affected by declines in market prices.
Increases in market interest rates could adversely affect our payment obligations with respect to our variable-rate line of credit and adversely affect our liquidity and earnings. In addition, the Company relies on its portfolio of marketable securities and restricted marketable securities for balance sheet support, and the value of the portfolio can be materially affected by declines in market prices.
If our relationship with, or the business of, Sysco were to be disrupted, we would have to arrange alternative distributors and our operations and cost structure could be adversely affected. Risks Related to Operating Our Business We have a Paid Loss Retrospective Insurance Plan for general liability and workers’ compensation insurance.
If our relationship with, or the business of, Sysco were to be disrupted, we would have to arrange alternative distributors and our operations and cost structure could be adversely affected. Risks Related to Operating Our Business We have a Paid Loss Retrospective Insurance Plan for auto, general liability and workers’ compensation insurance.
We may choose to initiate, or may become subject to, litigation as a result of a proxy contest or matters arising from a proxy contest, which would serve as a further distraction to our Board of Directors and management and would require us to incur significant additional costs.
We may choose to initiate, or may become subject to, litigation as a result of a proxy contest or matters arising from a proxy contest, which would serve as a further distraction to our Board of Directors and senior management and would require us to incur significant additional costs.
A proxy contest would require us to incur significant legal and advisory fees, proxy solicitation expenses and administrative and associated costs and require significant time and attention by our Board of Directors and management, diverting their attention from the pursuit of our business strategy.
A proxy contest would require us to incur significant legal and advisory fees, proxy solicitation expenses and administrative and associated costs and require significant time and attention by our Board of Directors and senior management, diverting their attention from the pursuit of our business strategy.
In addition, if Genesis fails to abide by current payment terms it could increase our accounts receivable balance and have a material adverse effect on our financial condition, results of operations, and cash flows. No other single customer or customer group represented more than 10% of consolidated revenues for the years ended December 31, 2023, 2022, and 2021.
In addition, if Genesis fails to abide by current payment terms it could increase our accounts receivable balance and have a material adverse effect on our financial condition, results of operations, and cash flows. No other single customer or customer group represented more than 10% of consolidated revenues for the years ended December 31, 2024, 2023, and 2022.
Because many of our customers’ revenues are highly reliant on Medicare, Medicaid and other third-party payors’ reimbursement funding rates and mechanisms, the overall effect of these laws and trends in the long-term care industry have affected and could adversely affect our customers’ cash flows, and their ability to make payments to us on agreed upon payment terms.
Because many of our customers’ revenues are highly reliant on Medicare, Medicaid and other third-party payers’ reimbursement funding rates and mechanisms, the overall effect of these laws and trends in the long-term care industry have affected and could adversely affect our customers’ cash flows, and their ability to make payments to us on agreed upon payment terms.
Dietary supplies, to a much greater extent than Housekeeping supplies, are impacted by commodity pricing factors, including the impact of tariffs, which in many cases are unpredictable and outside of our control. We seek to pass on to customers such increased costs but sometimes we are unable to do so.
Dietary supplies, to a much greater extent than Housekeeping supplies, are impacted by commodity pricing factors, including the impact of tariffs and diseases in livestock, which in many cases are unpredictable and outside of our control. We seek to pass on to customers such increased costs but sometimes we are unable to do so.
Any of these cyber incidents may result in a violation of applicable laws or regulations (including privacy and other laws), damage our reputation, cause a loss of customers and give rise to monetary fines and other penalties, which all could have an adverse effect on our financial condition, results of operations, and liquidity.
Any of these cyber incidents may result in a violation of applicable laws or regulations (including privacy and other laws), damage our reputation, cause a loss of customers and give rise to monetary fines and other penalties, each of which could have an adverse effect on our financial condition, results of operations and liquidity.
Our customers are concentrated in the healthcare industry, which is subject to changes in government regulation. Many of our customers rely on reimbursement from Medicare, Medicaid and other third-party payors. Rates from such payors may be altered or reduced, thus affecting our customers’ results of operations and cash flows.
Our customers are concentrated in the healthcare industry, which is subject to changes in government regulation. Many of our customers rely on reimbursement from Medicare, Medicaid and other third-party payers. Rates from such payers may be altered or reduced, thus affecting our customers’ results of operations and cash flows.
In such cases, our customers may lose their ability to continue conducting operations and as a result terminate their service agreements with us. 8 Table of Contents For the year ended December 31, 2023, one distributor distributed more than 50% of our food and non-food dining supplies, and if our relationship or their business were to be disrupted, we could experience disruptions to our operations and cost structure.
In such cases, our customers may lose their ability to continue conducting operations and as a result terminate their service agreements with us. 8 Table of Contents For the year ended December 31, 2024, one distributor distributed more than 50% of our food and non-food dining supplies, and if our relationship, or its business, were to be disrupted, we could experience disruptions to our operations and cost structure.
Activist campaigns that contest or conflict with our strategic direction or seek changes in the composition of our Board of Directors could have an adverse effect on our operating results and financial condition.
Activist campaigns that contest or conflict with our strategic direction or seek changes in the composition of our Board of Directors or senior management could have an adverse effect on our operating results and financial condition.
The Company’s business may be adversely affected by instability, disruption or destruction in a geographic region in which it operates, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest, and natural or man-made disasters, including famine, flood, fire, earthquake, storm or pandemic events and spread of disease.
The Company’s business may be adversely affected by instability, disruption or destruction in a geographic region in which it operates, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest, and natural or man-made disasters, including famine, flood, fire, earthquake, storm, pandemics or spread of disease.
Additionally, we rely on certain vendors for a substantial portion of housekeeping, laundry and dietary supplies. The prices we pay for the principal items we consume in performing our services are dependent primarily on current market prices. We have consolidated certain supply purchases with national vendors through agreements containing negotiated prospective pricing.
Additionally, we rely on a certain limited number of vendors for a substantial portion of Housekeeping and Dietary supplies. The prices we pay for the principal items we consume in performing our services are dependent primarily on current market prices. We have consolidated certain supply purchases with national vendors through agreements containing negotiated prospective pricing.
Any perceived uncertainties as to our future direction and control, our ability to execute on our strategy, or changes to the composition of our Board of Directors or senior management team arising from a proxy contest could lead to the perception of a change in the direction of our business or instability which may result in the loss of potential business opportunities, make it more difficult to pursue our strategic initiatives, or limit our ability to attract and retain qualified personnel and business partners, any of which could adversely affect our business and operating results.
Any perceived uncertainties as to our future direction and control, our ability to execute on our strategy, or changes to the composition of our Board of Directors or senior management arising from a proxy contest could lead to the perception of a change in the direction of our business or instability which may result in the loss of potential business opportunities, make it more difficult to pursue our strategic initiatives, or limit our ability to attract and retain qualified personnel and business partners, any of which could adversely affect our business, financial condition, and results of operations.
Although we have taken steps intended to mitigate the risks presented by potential cyber incidents, it is not possible to protect against every potential power loss, telecommunications failure, cybersecurity attack or similar event that may arise. Moreover, the safeguards we use are subject to human implementation and maintenance and to other uncertainties.
Although we have taken steps intended to mitigate the risks presented by potential cyber incidents, it is not possible to protect against every potential power loss, telecommunications failure, cybersecurity attack, data breach or similar event that may arise. Moreover, the safeguards we use are subject to human implementation and maintenance, technology evolutions and other uncertainties.
To the extent there is an outbreak of food related illness in any of our customer facilities, it could materially harm our business, consolidated results of operations and financial condition. Additionally, the Company may be subject to liability if the consumption of our food products causes injury, illness or death.
An outbreak of food related illness in any of our customer facilities could materially harm our business, consolidated results of operations and financial condition. Additionally, the Company may be subject to liability if the consumption of our food products causes injury, illness or death.
The impacts may include, but would not be limited to: • Decreased availability and/or increased cost of supplies due to increased demand around essential cleaning supplies including disinfecting agents, personal protective equipment (“PPE”) and food and food-related products due to increased global demand and disruptions along the global supply chains of these manufactures and distributors; • Disruption to operations due to the unavailability of employees due to illness, quarantines, risk of illness, travel restrictions, vaccination mandates, or other factors that limit the availability of our existing or potential workforce; • Limitations to the availability of our key personnel due to travel restrictions and access restrictions to our customers ’ facilities; • Our ability to meet more stringent, medically-required procedures, and infection control requirements at customer facilities; • Elevated employee turnover which may impact our facility level performance and/or increase payroll expense and recruiting-related expenses; • New or additional measures required by national, state or local governments may impact the availability of our employees and/or increase operating costs. • Decreased census in the nursing home and long-term care industry, which could impact the financial health of our customers and thereby increase our associated credit risk with customers and increase pressures to modify our contractual terms; and • Significant disruption of global financial markets, which could negatively impact us or our customers’ ability to access capital in the future. 6 Table of Contents We have been, and may continue to be, adversely affected by inflationary or market fluctuations, including impact of tariffs, in the cost of products consumed in providing our services or our cost of labor.
The impacts may include, but would not be limited to: • Decreased availability and/or increased cost of supplies due to increased demand around essential cleaning supplies including disinfecting agents, personal protective equipment (“PPE”) and food and food-related products due to increased global demand and disruptions along the global supply chains of these manufactures and distributors; • Disruption to operations due to the unavailability of employees due to illness, quarantines, risk of illness, travel restrictions, vaccination mandates, or other factors that limit the availability of our existing or potential workforce; • Limitations to the availability of our key personnel due to travel restrictions and access restrictions to our customers ’ facilities; • Our ability to meet more stringent, medically-required procedures, and infection control requirements at customer facilities; • Elevated employee turnover which may impact our facility level performance and/or increase payroll expense and recruiting-related expenses; 6 Table of Contents • New or additional measures required by national, state or local governments may impact the availability of our employees and/or increase operating costs. • Decreased census in the nursing home and long-term care industry, which could impact the financial health of our customers and thereby increase our associated credit risk with customers and increase pressures to modify our contractual terms; and • Significant disruption of global financial markets, which could negatively impact our ability or our customers’ ability to access capital in the future.
Failure to maintain appropriate and effective internal controls over our financial reporting could result in misstatements in our financial statements and potentially subject us to sanctions or investigations by the SEC or other regulatory authorities and could cause us to delay the filing of required reports with the SEC and our reporting of financial results.
Failure to maintain appropriate and effective internal controls over our financial reporting could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities and could cause us to delay the filing of required reports with the SEC and our reporting of financial results.
Our business strategy focuses on growth and improving profitability through obtaining service agreements with new customers, providing new services to existing customers, obtaining modest price increases on service agreements with customers and maintaining internal cost reduction strategies at our various operational levels.
Our business strategy focuses on growth and improving profitability through obtaining service agreements with new customers, providing new services to existing customers, obtaining modest price increases on service agreements with customers, maintaining internal cost reduction strategies at our various operational levels and executing targeted acquisitions and investments.
Expenses resulting from failed inspections of the departments that we service could result in our customers being fined and seeking recovery from us, which could also adversely impact our financial condition, consolidated results of operations and cash flows. Federal, state and local tax rules can adversely impact our results of operations and financial position.
Expenses resulting from failed inspections of the departments that we service could result in our customers being fined and seeking recovery from us, which could also adversely impact our business, financial condition, results of operations and cash flows. 11 Table of Contents Federal, state and local tax rules can adversely impact our business, results of operations, financial position and cash flows.
Although management believes we have a prudent investment policy, we are exposed to fluctuations in interest rates and in the market value of our investment portfolio which could adversely impact our financial condition and results of operations. Our marketable securities consist of municipal bonds.
Although management believes we have a prudent investment policy, we are exposed to fluctuations in interest rates and in the market value of our investment portfolio which could adversely impact our financial condition and results of operations. Our marketable securities and restricted marketable securities consist of municipal bonds, treasury bonds, corporate bonds and other investments.
In order to provide for such collection issues and the general risk associated with the granting of credit terms, we have recorded bad debt provisions (in an Allowance for Doubtful Accounts) of $35.6 million for the year ended December 31, 2023 as compared to $32.0 million and $10.5 million for the years ended December 31, 2022 and 2021, respectively.
In order to provide for such collection issues and the general risk associated with the granting of credit terms, we have recorded bad debt provisions (in an Allowance for Doubtful Accounts) of $46.8 million for the year ended December 31, 2024 as compared to $35.6 million and $32.0 million for the years ended December 31, 2023 and 2022, respectively.
Changes in interest rates and changes in financial market conditions may result in fluctuating and even negative returns in our investments and could increase the cost of the borrowings under our borrowing agreements.
Changes in interest rates and financial market conditions have resulted in and may continue to result in fluctuating and even negative returns in our investments and could increase the cost of the borrowings under our borrowing agreements.
Risks Related to Macroeconomic Conditions War, terrorism, other acts of violence or natural or man-made disasters may affect the markets in which the Company operates, the Company’s customers, and could have a material adverse impact on our business, results of operations or financial condition.
War, terrorism, other acts of violence or natural or man-made disasters may affect the markets in which the Company operates, the Company’s customers, and could have a material adverse impact on our business, results of operations, financial condition or cash flows.
Genesis contributed 10.9%, 10.0% and 10.8% of our total consolidated revenues for the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023, the Genesis outstanding accounts receivable and notes receivable were $61.8 million and $20.4 million, respectively. Although we expect to continue the relationship with Genesis, there can be no assurance thereof.
Genesis contributed 8.7%, 10.9% and 10.0% of our total consolidated revenues for the years ended December 31, 2024, 2023 and 2022, respectively. As of December 31, 2024, the Genesis outstanding accounts receivable and notes receivable were $46.1 million and $21.9 million, respectively. Although we expect to continue the relationship with Genesis, there can be no assurance thereof.
Our business, financial condition and results of operations may be materially and adversely affected by any negative impact on the global economy, capital markets or commodity food prices resulting from these conflicts or any other geopolitical tensions. Pandemics, epidemics or outbreaks of a contagious illness may adversely affect our operating results, cash flows and financial condition.
Our business, results of operations, financial condition, and/or cash flows may be materially and adversely affected by any negative impact on the global economy, capital markets or commodity food prices resulting from these conflicts or any other geopolitical tensions.
We would accrue an estimated loss contingency in our financial statements if it were probable that a liability had been incurred and the amount of the loss could be reasonably estimated. Due to the unpredictable nature of litigation, assessing contingencies is highly subjective and requires judgments about future events. The amount of actual losses may differ from our current assessment.
We accrue estimated loss contingencies in our financial statements when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Due to the unpredictable nature of litigation, assessing contingencies is highly subjective and requires judgments about future events. The amount of actual losses may differ from our current assessment.
COVID-19, additional coronavirus outbreaks, or other pandemics, epidemics, or outbreaks of a contagious illness, and similar events, may cause harm to us, our employees, customers, vendors, supply chain partners and financial institutions, which could have a material adverse effect on our results of operations, financial condition and cash flows.
Pandemics, epidemics or outbreaks of a contagious illness, and similar events, have caused and may in the future cause harm to us, our employees, customers, vendors, supply chain partners and financial institutions, which could have a material adverse effect on our business, results of operations, financial condition or cash flows.
We have identified a material weakness in our internal control over financial reporting, and if our remediation of such material weakness is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.
If we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.
Although there can be no assurance, we believe that our investment criteria requirements, which include diversification among issuers of bonds, regarding credit ratings and monitoring of our investments’ duration periods, reduce our exposure to investment losses.
Although there can be no assurance, we believe that our investment criteria requirements, which include investing in a diverse set of bonds, monitoring credit ratings and monitoring of our investments’ duration periods, reduce our exposure to investment losses.
These laws frequently evolve through case law, legislative changes and changes in regulatory interpretation, implementation and enforcement. Our policies and procedures and compliance programs are subject to adjustments in response to these changing regulatory and enforcement environments, which could increase our costs of services provided.
Our policies and procedures and compliance programs are subject to adjustments in response to these changing regulatory and enforcement environments, which could increase our costs of services provided.
We primarily provide our services pursuant to agreements which have a one year service term, cancellable by either party upon 30 to 90 days’ notice after an initial 60 to 120 day service agreement period. We typically do not enter into long-term contractual agreements with our customers for the rendering of our services.
We primarily provide our services pursuant to agreements cancellable by either party upon 30 to 90 days’ notice after an initial 60 to 120 day service agreement period. Our agreements with customers typically provide for a renewable service term, cancellable by either party upon 30 to 90 days’ notice after an initial period of 60 to 120 days.
Furthermore, there is a possibility that material misstatements to the Company’s future annual or interim financial statements will not be prevented or detected in a timely basis as a result of the identified material weakness.
Although that material weakness was subsequently remediated, there is a possibility that there will be material weaknesses in the future and that material misstatements to the Company’s future annual or interim financial statements will not be prevented or detected in a timely basis.
Our delay in, or inability to pass such wage increases through to our customers could have a material adverse effect on our financial condition, results of operations, and cash flows.
Although we have contractual rights to pass through cost increases we incur to our customers due to regulatory changes, our delay in, or inability to pass such costs through to our customers, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
In the course of preparing our consolidated financial statements as of and for the year ended December 31, 2023, we identified a material weakness related to accrued payroll liabilities from employee vested vacation. Our controls over accrued payroll liabilities were not sufficiently designed to consider all accounting and disclosure ramifications of such accrued payroll liabilities.
During 2023, we identified a material weakness related to the design and operation of internal controls over financial reporting related to accrued payroll liabilities from employee vested vacation. Our controls over accrued payroll liabilities were not sufficiently designed to consider all accounting and disclosure ramifications of such accrued payroll liabilities.
In addition, actions such as those described above could cause significant fluctuations in our stock price based upon temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
In addition, actions such as those described above could cause significant fluctuations in our stock price based upon temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business. 10 Table of Contents Risks Related to Governmental and Regulatory Changes Changes to federal healthcare legislation may adversely affect our operating costs and results of operations.
As a result of the costs and expenses of defending ourselves against lawsuits or claims, and risks and consequences of legal actions, regardless of merit, our consolidated results of operations and financial position could be adversely affected or cause variability in our results compared to expectations. 12 Table of Contents Risks Related to Cybersecurity and Data Privacy Cyber-attacks and breaches could cause operational disruptions, fraud or theft of sensitive information.
As a result of the costs and expenses of defending ourselves against lawsuits or claims, and risks and consequences of legal actions, regardless of merit, our business, results of operations, financial position and cash flows could be adversely affected or cause variability in our results compared to expectations.
Investor and market expectations regarding our financial performance rely greatly on execution of our growth strategy and related increases in financial performance. The historical performance of our common stock, $0.01 par value (the “Common Stock”), reflects market expectations for our future operating results.
The historical performance of our common stock, $0.01 par value (the “Common Stock”), reflects market expectations for our future operating results.
States in which our customers are located could experience significant budget deficits and such deficits may result in reduction of reimbursements to nursing homes. States in which our customers are located could have budget deficits as a result of lower than projected revenue collections and increased demand for the funding of entitlements.
States in which our customers are located could have budget deficits as a result of lower than projected revenue collections and increased demand for the funding of entitlements. As a result of these and other adverse economic factors, state Medicaid programs have and may revise reimbursement structures for nursing home services.
Shareholders may, from time to time, engage in proxy solicitations or advance shareholder proposals, or otherwise attempt to effect changes and assert influence on our Board of Directors and management.
Our business could be negatively affected as a result of actions of activist shareholders, and such activism could impact the trading value of our securities. Shareholders may, from time to time, engage in proxy solicitations or advance shareholder proposals or otherwise attempt to effect changes and assert influence on our Board of Directors and senior management.
Any requirements to provide additional benefits to our employees, or the payment of penalties if such benefits are not provided, would increase our expenses. If we are unable to pass-through these charges to our customers to cover these expenses, such increases could adversely impact our operating costs and our consolidated results of operations.
If we are unable to pass-through these charges to our customers to cover these expenses, such increases could adversely impact our operating costs and our consolidated results of operations. In addition, often new regulations result in additional reporting requirements for businesses.
We carry a high deductible general liability and workers’ compensation program and therefore retain a substantial portion of the risk associated with the possible losses under such programs. Under our insurance plans for general liability and workers’ compensation, predetermined loss limits are arranged with our insurance company to limit both our per occurrence cash outlay and annual insurance plan cost.
We carry a high deductible auto, general liability and workers’ compensation program and therefore retain a substantial portion of the risk associated with the possible losses under such programs.
Although we have taken steps to maintain our internal control structure as required, including steps to remediate our material weakness, we cannot guarantee that a control deficiency will not result in a misstatement in the future. 10 Table of Contents Our business could be negatively affected as a result of actions of activist shareholders, and such activism could impact the trading value of our securities.
Any of these events could result in a decline in the market price of our Common Stock. Although we have taken steps to maintain our internal control structure as required, including remediating our material weakness, we cannot guarantee that a control deficiency will not result in a misstatement in the future.
As a result of these and other adverse economic factors, state Medicaid programs have and may revise reimbursement structures for nursing home services. Any disruption or delay in the distribution of Medicaid and related payments to our customers will adversely affect their cash flows and impact their ability to pay us as agreed upon for the services provided.
Any disruption or delay in the distribution of Medicaid and related payments to our customers will adversely affect their cash flows and impact their ability to pay us as agreed upon for the services provided. Governmental regulations related to labor, employment, immigration and health and safety could adversely impact our business, results of operations, financial condition and cash flows.
In addition, often new regulations result in additional reporting requirements for businesses. These and other requirements could result in increased costs, expanded liability exposure and other changes in the way we provide healthcare insurance and other benefits to our employees.
These and other requirements could result in increased costs, expanded liability exposure and other changes in the way we provide healthcare insurance and other benefits to our employees. States in which our customers are located could experience significant budget deficits and such deficits may result in reduction of reimbursements to nursing homes.
Governmental regulations related to labor, employment, immigration and health and safety could adversely impact our results of operations and financial condition. Our business is subject to various federal, state, and local laws and regulations in areas such as labor, employment, immigration, and health and safety.
Our business is subject to various federal, state and local laws and regulations in areas such as labor, employment, immigration and health and safety. These laws frequently evolve through case law, legislative changes and changes in regulatory interpretation, implementation and enforcement.
Our agreements with customers typically provide for a renewable one year service term, cancellable by either party upon 30 to 90 days’ notice after an initial period of 60 to 120 days. Consequently, our customers can often unilaterally decrease the amount of services we provide or terminate all services pursuant to the terms of our service agreements.
Consequently, our customers can often unilaterally decrease the amount of services we provide or terminate all services pursuant to the terms of our service agreements.
Also, our customers’ facilities are subject to periodic inspection by federal, state and local authorities for compliance with state and local departments of health requirements.
In addition, if we fail to comply with applicable laws, we may be subject to lawsuits, investigations, criminal sanctions or civil remedies, including fines, penalties, damages, reimbursements or injunctions. Also, our customers’ facilities are subject to periodic inspection by federal, state and local authorities for compliance with state and local department of health requirements.
We regularly evaluate our claims pay-out experience and other factors related to the nature of specific claims in arriving at the basis for our accrued insurance claims estimate. Our evaluation is based primarily on current information derived from reviewing our claims experience and industry trends.
Our evaluation is based primarily on current information derived from reviewing our claims experience and industry trends.
Risks Related to Governmental and Regulatory Changes Changes to federal healthcare legislation may adversely affect our operating costs and results of operations. Continued changes to the health insurance industry and its obligations on employers could impact our operating costs.
Continued changes to the health insurance industry and its obligations on employers could impact our operating costs. Any requirements to provide additional benefits to our employees, or the payment of penalties if such benefits are not provided, would increase our expenses.
Although we have contractual rights to pass through cost increases we incur to our customers due to regulatory changes, our delay in, or inability to pass such costs through to our customers, could have a material adverse effect on our financial condition, consolidated results of operations and cash flows. 11 Table of Contents In addition, if we fail to comply with applicable laws, we may be subject to lawsuits, investigations, criminal sanctions or civil remedies, including fines, penalties, damages, reimbursements or injunctions.
Our delay in passing or inability to pass such wage increases through to our customers could have a material adverse effect on our financial condition, results of operations and cash flows. Pandemics, epidemics or outbreaks of a contagious illness have in the past and may in the future adversely affect our business, results of operations, financial condition, or cash flows.
Removed
During 2023, the Company identified a material weakness related to the design and operation of internal controls over financial reporting.
Added
Risks Related to Macroeconomic Conditions We have been, and may continue to be, adversely affected by inflationary and market fluctuations, including the impact of potential future tariffs, impacting the cost of products consumed in providing our services and our cost of labor.
Removed
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Added
Under our insurance plans for general liability and workers’ compensation, predetermined loss limits are arranged with our insurance company to limit both our per occurrence cash outlay and annual insurance plan cost. We regularly evaluate our claims payout experience and other factors related to the nature of specific claims in arriving at the basis for our accrued insurance claims estimate.
Removed
This material weakness resulted in immaterial misstatements in our 2022 and 2021 financial statements related to the accounting for accrued vacation, which was corrected prior to issuance of the Company’s 2023 financial statements.
Added
To address our material weakness, we have made changes to our controls as previously described in our periodic reports with the SEC.
Removed
To address our material weakness, we have made changes to our controls as set forth in Part II, Item 9A “Controls and Procedures.” Unless otherwise described in Part II, Item 9A “Controls and Procedures”, we will not be able to fully remediate the material weakness until these steps have been completed and have been operating effectively for a sufficient period of time.
Added
The change in administration following the 2024 U.S. presidential election has led and will lead to leadership changes at U.S. federal regulatory agencies with oversight responsibility over the Company and our customers, including, but not limited to, the Centers for Medicare and Medicaid Services and the Health and Human Services Department.
Removed
Any of these events could result in a decline in the market price of our Common Stock.
Added
Stakeholder expectations for and compliance with federal and state environmental, social and governance (“ESG”) requirements can adversely impact our business, results of operations, financial position and cash flows. We are subject to certain federal and state rules covering ESG initiatives including mandated annual reporting and compliance with commonly accepted ESG frameworks.
Added
Laws and regulations in these areas continue to emerge and evolve, which may require us to undertake costly initiatives or operational changes in order to achieve compliance.
Added
Non-compliance with these emerging rules or standards or a failure to address regulator expectations may result in potential cost increases, litigation, fines, penalties, or otherwise adversely impact our business, results of operations, financial position and cash flows. 12 Table of Contents Risks Related to Technology, Cybersecurity and Data Privacy We have experienced a cyber-attack and breach, and may in the future experience cyber-attacks, breaches or other events which could cause operational disruptions, fraud or theft of sensitive information.
Added
Further, like other companies, we have been subject to, and will continue to be subject to, cyber attacks and breaches and other vulnerabilities to data security incidents. On October 9, 2024, we identified a cybersecurity incident, which involved unauthorized activity within some of our systems.
Added
The incident has not caused, and is not expected to cause, disruption of our business operations, although there can be no assurance thereof.
Added
While we maintain insurance coverage that may, subject to policy terms and conditions including deductibles, cover specific aspects of cyber risks, such insurance coverage may be insufficient to cover all losses. Third parties to whom we outsource certain of our functions are also subject to the risks outlined above.
Added
We review and assess the cybersecurity controls of our third-party service providers and vendors, as appropriate, and make changes to our business processes to manage these risks. Data breaches of such third parties could have an adverse effect on our financial condition, results of operations and liquidity.
Added
We are evaluating use cases to implement generative artificial intelligence (“Gen AI”) technologies into our business processes, which may present additional risks to our business. We are currently evaluating the potential use of Gen AI technology across departments within our business.
Added
Failure to properly manage Gen AI technology could impact services provided, which could adversely impact our business, financial condition, results of operations and cash flows. Implementing Gen AI solutions could also lead to unauthorized access to sensitive information and could adversely impact our business.
Added
At the same time, if we fail to keep pace with the rapid evolution of Gen AI technologies, such delays could adversely impact our business. In addition, the evolving regulatory landscape for Gen AI technologies requires continuous monitoring and adaptation to ensure compliance and to mitigate potential legal risks.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

7 edited+3 added−0 removed5 unchanged
As needed, the IRT will consult with third party legal counsel and IT advisory firms to appropriately respond to existing cyber threats. In the event a material incident is identified, the Company will report such incidents in compliance with applicable law. Material cyber events, if any, are reported to the Board of Directors as they occur.
As needed, the IRT will consult with third party legal counsel and IT advisory firms to appropriately respond to existing cyber threats. In the event a material incident is identified, the Company will report such incidents in compliance with applicable law. Material cyber events, if any, are reported to the Board of Directors as they occur. Additionally, Mr.
HCSG regularly monitors and measures the performance of its IT System and Assets and its Information Security Policy. HCSG has procedures to ensure that any of its vendors and suppliers that create, utilize, or process HCSG’s data take a similar, risk-based approach to information security.
The Company regularly monitors and measures the performance of the IT Systems and Assets and the Information Security Policy. HCSG has procedures to ensure that any of its vendors and suppliers that create, utilize or process our data take a similar, risk-based approach to information security.
Additionally, the Chief Compliance Officer provides quarterly updates to the Audit Committee on all cybersecurity matters during the quarter. Board of Directors' Oversight of Cybersecurity Risks Our Board is responsible for overseeing the Company’s risk management process.
Bundick provides quarterly updates to the Audit Committee on all cybersecurity matters during the quarter. Board of Directors’ Oversight of Cybersecurity Risks Our Board is responsible for overseeing the Company’s risk management process.
Item 1C. Cybersecurity. Cybersecurity Risk Management and Strategy The Company adopted an Information Security Policy which governs the Company’s management of information technology (“IT”) systems, network, information, data and assets. HCSG’s Information Security Policy is periodically reviewed based on the NIST Cybersecurity Framework.
Item 1C. Cybersecurity. Cybersecurity Risk Management and Strategy The Company adopted an Information Security Policy which governs the Company’s management of information technology ( “ IT”) systems, network, information, data and assets. HCSG’s Information Security Policy is periodically reviewed based on the National Institute of Standards and Technology Cybersecurity Framework.
Please refer to the risk factor titled “Cyber-attacks and breaches could cause operational disruptions, fraud or theft of sensitive information” in “Risk Factors” in Part I, Item 1A of this Form 10-K for more information on risks posed by cybersecurity threats to the Company.
Please refer to the risk factor titled “We have experienced cyber attacks and breaches, and may in the future experience cyber attacks and breaches which could cause operational disruptions, fraud or theft of sensitive information.” in “Risk Factors” in Part I, Item 1A of this Form 10-K for more information on risks posed by cybersecurity threats to the Company.
Management's Role in Assessing and Managing Materials Risks from Cybersecurity Threats The Company’s day-to-day risk management is under the direction of Jason J. Bundick, the Company’s Executive Vice President, Chief Compliance Officer, General Counsel and Secretary. Jason Osbeck, the Company's Senior Vice President of Information and Technology, is responsible for day-to-day cybersecurity risk management under the direction of Mr. Bundick.
Bundick, the Company’s Executive Vice President, Chief Compliance Officer, General Counsel and Secretary. Jason Osbeck, the Company’s Senior Vice President of Information and Technology, is responsible for day-to-day cybersecurity risk management under the direction of Mr. Bundick. Mr. Osbeck has served in this role at the Company since 2012.
Mr. Osbeck has served in this role at the Company since 2012. The Company has a Cyber Incident Response Plan (“IRP”) which details the Company’s policies and procedures in the event of a cyber incident. The Company’s IT department, led by Mr.
The Company has an IRP which details the Company’s policies and procedures in the event of a cyber incident. The Company’s IT department, led by Mr.
Added
As previously disclosed in a Form 8-K filed on October 16, 2024, on October 9, 2024 we identified a cybersecurity incident, which involved unauthorized activity within some of our systems. We immediately activated the Company’s Cyber Incident Response Plan (“IRP”) to investigate such activity with the assistance of leading third-party cybersecurity experts. We also notified law enforcement authorities.
Added
We continue to monitor the situation and take appropriate actions consistent with our response protocols. As of the date of this filing, the incident has not caused, and is not expected to cause, disruption of the Company’s business operations.
Added
And although there can be no assurance, we do not believe the identified cybersecurity incident will have a material effect on our business, financial condition, results of operations or cash flows. Management’s Role in Assessing and Managing Material Risks from Cybersecurity Threats The Company’s day-to-day risk management is under the direction of Jason J.

Item 2. Properties

Properties — owned and leased real estate

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Item 2. Properties. We lease our corporate offices, located at 3220 Tillman Drive, Suite 300, Bensalem, Pennsylvania 19020. We also lease office space at other locations in Colorado, Connecticut, Florida, New Jersey, Texas and Virginia.
Item 2. Properties. We lease our corporate offices, located at 3220 Tillman Drive, Suite 300, Bensalem, Pennsylvania 19020. We also lease office space at other locations in Connecticut, Florida, New Jersey, Texas and Virginia.
The New Jersey office is the headquarters of HCSG Insurance Corp, our captive insurance company, as well as HCSG East, LLC, HCSG West, LLC, HCSG Central, LLC, HCSG Staff Leasing Solutions, LLC, HCSG Labor Supply, LLC, HCSG East Labor Supply, LLC, and HCSG Clinical Services, LLC.
The New Jersey office is the headquarters of HCSG Insurance Corp (“HCSG Insurance”), our captive insurance company, as well as HCSG East, LLC, HCSG West, LLC, HCSG Central, LLC, HCSG Staff Leasing Solutions, LLC, HCSG Labor Supply, LLC, HCSG East Labor Supply, LLC, and HCSG Clinical Services, LLC. The Virginia office is the headquarters of Meriwether-Godsey, Inc.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Treasury shares may be issued under the 1999 Plan and the Deferred Compensation Plan. 16 Table of Contents Performance Graph The following graph matches the Company’s cumulative five-year total shareholder return on Common Stock with the cumulative total returns of the NASDAQ Composite index, the S&P Midcap 400 Index, and the Russell 2000 index.
Treasury shares may be issued under the 1999 Plan and the Deferred Compensation Plan. 16 Table of Contents Performance Graph The following graph matches the Company’s cumulative five-year total shareholder return on Common Stock with the cumulative total returns of the Nasdaq Composite Index, S&P Midcap 400 Index and the Russell 2000 Index.
Repurchases of Equity Securities On February 14, 2023, our Board of Directors authorized the repurchase of up to 7.5 million outstanding shares of common stock (the “Repurchase Plan”). We remain authorized to purchase 6.5 million shares of common stock under the Repurchase Plan.
Repurchases of Equity Securities On February 14, 2023, our Board of Directors authorized the repurchase of up to 7.5 million outstanding shares of common stock (the “Repurchase Plan”). We remain authorized to purchase 6.0 million shares of common stock under the Repurchase Plan.
Represents shares of Common Stock issuable upon exercise of outstanding stock awards granted under the 2020 Amended Omnibus Incentive Plan (the “Amended 2020 Plan”) and carryover shares from pre-existing equity plans. 2.
Represents shares of Common Stock issuable upon exercise of outstanding stock awards granted under the 2020 Omnibus Incentive Plan (as amended, the “Amended 2020 Plan”) and carryover shares from pre-existing equity plans. 2.
Securities Authorized for Issuance Under Equity Compensation Plans The following table sets forth the Company’s equity compensation plans, on an aggregated basis, the number of shares of our Common Stock subject to outstanding stock awards, the weighted-average exercise price of stock awards, and the number of shares remaining available for future award grants as of December 31, 2023.
Securities Authorized for Issuance Under Equity Compensation Plans The following table sets forth the Company’s equity compensation plans, on an aggregated basis, the number of shares of our Common Stock subject to outstanding stock awards, the weighted-average exercise price of stock awards, and the number of shares remaining available for future award grants as of December 31, 2024.
Comparison of 5 Year Cumulative Total Return* Among Healthcare Services Group, Inc., the Russell 2000 Index, the NASDAQ Composite Index, and the S&P Midcap 400 Index. *$100 invested on December 31, 2018 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. Copyright© 2024 Standard & Poor's, a division of S&P Global. All rights reserved.
Comparison of 5 Year Cumulative Total Return* Among Healthcare Services Group, Inc., the Russell 2000 Index, the S&P Midcap 400 Index and the Nasdaq Composite Index. *$100 invested on December 31, 2019 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. Copyright© 2025 Standard & Poor's, a division of S&P Global. All rights reserved.
The graph tracks the performance of a $100 investment in our Common Stock and in each index (with the reinvestment of all dividends) from December 31, 2018 to December 31, 2023. The stock price performance included in this graph is not necessarily indicative of future stock price performance.
The graph tracks the performance of a $100 investment in our Common Stock and in each index (with the reinvestment of all dividends) from December 31, 2019 to December 31, 2024. The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information The Company’s Common Stock is traded under the symbol “HCSG” on the Nasdaq Global Select Market. As of February 14, 2024, there were approximately 73.6 million shares of our Common Stock outstanding.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information The Company’s Common Stock is traded under the symbol “HCSG” on the Nasdaq Global Select Market. As of February 12, 2025, there were approximately 73.5 million shares of our Common Stock outstanding.
Holders As of February 14, 2024, we had approximately 400 holders of record of our Common Stock. This does not include persons who hold our Common Stock in nominee or “street name” accounts through brokers or banks.
Holders As of February 12, 2025, we had approximately 400 holders of record of our Common Stock. This does not include persons who hold our Common Stock in nominee or “street name” accounts through brokers or banks.
Includes stock awards to purchase 3.2 million shares available for future grant under the Amended 2020 Plan, 1.8 million shares available for issuance under the Company’s 1999 Employee Stock Purchase Plan as amended (the “1999 Plan”) and 0.2 million shares available for issuance under the Company’s Amended and Restated Deferred Compensation Plan (the “Deferred Compensation Plan”).
Includes 2.4 million shares available for future grant under the Amended 2020 Plan, 1.7 million shares available for issuance under the Company’s 1999 Employee Stock Purchase Plan as amended (the “1999 Plan”) and 0.2 million shares available for issuance under the Company’s Amended and Restated Deferred Compensation Plan (the “Deferred Compensation Plan”).
Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Issued and not Exercised) (in thousands, except per share amounts) Equity compensation plans approved by security holders 3,715 1 $ 30.43 5,204 2 Total 3,715 $ 30.43 5,204 1.
Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights 1 Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Issued and not Exercised) 2 (in thousands, except per share amounts) Equity compensation plans approved by security holders 4,302 $ 28.23 4,268 Total 4,302 $ 28.23 4,268 1.
Copyright© 2024 Russell Investment Group. All rights reserved.
Copyright© 2025 Russell Investment Group. All rights reserved.
Shares repurchased pursuant to the Repurchase Plan during the three months ended December 31, 2023, were as follows: Quarter Ended December 31, 2023 Total number of shares of Common Stock repurchased Average price paid per share of Common Stock Aggregate purchase price of Common Stock repurchases 1 Number of remaining shares authorized for repurchase (in thousands) October 1, 2023 - October 31, 2023 102,200 $ 9.75 $ 996 6,883 November 1, 2023 - November 30, 2023 406,200 $ 9.81 $ 3,983 6,477 December 1, 2023 - December 31, 2023 — $ — $ — 6,477 Fourth quarter 508,400 $ 9.80 $ 4,979 6,477 1.
Shares repurchased pursuant to the Repurchase Plan during the three months ended December 31, 2024, were as follows: Quarter Ended December 31, 2024 Total number of shares of Common Stock repurchased Average price paid per share of Common Stock Aggregate purchase price of Common Stock repurchases 1 Number of remaining shares authorized for repurchase (in thousands) October 1, 2024 - October 31, 2024 90,100 $ 11.10 $ 997 6,030 November 1, 2024 - November 30, 2024 — $ — $ — 6,030 December 1, 2024 - December 31, 2024 — $ — $ — 6,030 Fourth quarter 90,100 $ 11.10 $ 997 6,030 1.
December 31, Company / Index 2018 2019 2020 2021 2022 2023 Healthcare Services Group, Inc. $ 100.00 $ 62.26 $ 74.42 $ 48.72 $ 34.75 $ 30.03 Russell 2000 $ 100.00 $ 125.52 $ 150.58 $ 172.90 $ 137.56 $ 160.85 NASDAQ Composite $ 100.00 $ 136.69 $ 198.10 $ 242.03 $ 163.28 $ 236.17 S&P Midcap 400 $ 100.00 $ 126.20 $ 143.44 $ 178.95 $ 155.58 $ 181.15 17 Table of Contents Unregistered Sales of Equity Securities and Use of Proceeds None.
December 31, Company / Index 2019 2020 2021 2022 2023 2024 Healthcare Services Group, Inc. $ 100.00 $ 119.55 $ 78.25 $ 55.82 $ 48.24 $ 54.03 Russell 2000 $ 100.00 $ 119.96 $ 137.74 $ 109.59 $ 128.14 $ 142.93 Nasdaq Composite $ 100.00 $ 144.92 $ 177.06 $ 119.45 $ 172.77 $ 223.87 S&P Midcap 400 $ 100.00 $ 113.66 $ 141.80 $ 123.28 $ 143.54 $ 163.54 17 Table of Contents Unregistered Sales of Equity Securities and Use of Proceeds None.
Added
The Company plans to discontinue the use of the Nasdaq Composite Index in the Performance Graph going forward as the Company is not required to include such index pursuant to Regulation S-K Item 201(e)(1)(ii).

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Such management personnel also oversee the execution of various cost and quality control procedures including continuous training and employee evaluation. On-site management is responsible for all daily housekeeping department activities, with regular support provided by a District Manager specializing in such services.
Such management personnel also oversee the execution of various cost and quality control procedures including continuous training and employee evaluation. On-site management is responsible for all daily customer housekeeping department activities with regular support provided by a District Manager specializing in such services.
We believe we are the largest provider of housekeeping and laundry management services to the long-term care industry in the United States. 18 Table of Contents We provide services primarily pursuant to full service agreements with our customers.
We believe we are the largest provider of housekeeping, laundry and dietary management services to the long-term care industry in the United States. 18 Table of Contents We provide services primarily pursuant to full-service agreements with our customers.
Our agreements with customers typically provide for a renewable one year service term, cancellable by either party upon 30 to 90 days’ notice after an initial period of 60 to 120 days. We are organized into two reportable segments: housekeeping, laundry, linen and other services (“Housekeeping”), and dietary department services (“Dietary”).
Our agreements with customers typically provide for a renewable service term cancellable by either party upon 30 to 90 days’ notice after an initial period of 60 to 120 days. We are organized into two reportable segments: housekeeping, laundry, linen and other services (“Housekeeping”), and dietary department services (“Dietary”).
Dietary consists of managing our customers’ dietary departments, which are principally responsible for food purchasing, meal preparation and professional dietitian services, which include the development of menus that meet the dietary needs of residents. On-site management is responsible for all daily dietary department activities, with regular support provided by a District Manager specializing in dietary services.
Dietary services consist of managing our customers’ dietary departments, which are principally responsible for food purchasing, meal preparation and professional dietitian services, which include the development of menus that meet the dietary needs of residents. On-site management is responsible for all daily dietary department activities with regular support provided by a District Manager specializing in dietary services.
The table below summarizes those metrics for 2023, 2022 and 2021: Relation to Consolidated Revenues Year Ended December 31, 2023 2022 2021 Revenues 100.0 % 100.0 % 100.0 % Operating costs and expenses: Costs of services provided 87.2 % 88.6 % 86.2 % Selling, general and administrative expense excluding change in deferred compensation liability 9.6 % 8.8 % 10.1 % Gain (loss) on deferred compensation plan 0.4 % (0.5) % 0.4 % Selling, general and administrative expense 10.0 % 8.3 % 10.5 % Other income (expense): Investment and other income (loss), net 0.8 % (0.3) % 0.6 % Interest expense (0.5) % (0.2) % (0.1) % Income before income taxes 3.1 % 2.6 % 3.8 % Income tax 0.9 % 0.6 % 1.0 % Net income 2.2 % 2.0 % 2.8 % Our costs of services can vary and may impact our operating performance.
The table below summarizes those metrics for 2024, 2023 and 2022: Relation to Consolidated Revenues Year Ended December 31, 2024 2023 2022 Revenues 100.0 % 100.0 % 100.0 % Operating costs and expenses: Costs of services provided 86.7 % 87.2 % 88.6 % Selling, general and administrative expense excluding change in deferred compensation liability 10.2 % 9.6 % 8.8 % Gain on deferred compensation plan 0.5 % 0.4 % (0.5) % Selling, general and administrative expense 10.7 % 10.0 % 8.3 % Other income (expense): Investment and other income (loss), net 0.8 % 0.8 % (0.3) % Interest expense (0.3) % (0.5) % (0.2) % Income before income taxes 3.1 % 3.1 % 2.6 % Income tax 0.8 % 0.9 % 0.6 % Net income 2.3 % 2.2 % 2.0 % Our expenses can vary and may impact our operating performance.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Years Ended December 31, 2023 and 2022 The following table summarizes the income statement key components that we use to evaluate our financial performance on a consolidated and reportable segment basis, for the years ended December 31, 2023 and 2022.
Years Ended December 31, 2024 and 2023 The following table summarizes the income statement key components that we use to evaluate our financial performance on a consolidated and reportable segment basis for the years ended December 31, 2024 and 2023.
As noted above, we were in compliance with our financial covenants at December 31, 2023 and we expect to remain in compliance. The line of credit expires on November 22, 2027.
As noted above, we were in compliance with our financial covenants at December 31, 2024 and we expect to remain in compliance. The line of credit expires on November 22, 2027.
This discussion should be read in conjunction with our consolidated financial statements as of December 31, 2023 and for the year then ended and the notes accompanying those financial statements.
This discussion should be read in conjunction with our consolidated financial statements as of December 31, 2024 and for the year then ended and the notes accompanying those financial statements.
Housekeeping consists of managing our customers’ housekeeping departments, which are principally responsible for the cleaning, disinfecting and sanitizing of resident rooms and common areas of the customers’ facilities, as well as the laundering and processing of the bed linens, uniforms, resident personal clothing and other assorted linen items utilized at the customers’ facilities.
Housekeeping services consist of managing our customers’ housekeeping departments, which are principally responsible for the cleaning, disinfecting and sanitizing of resident rooms and common areas of the customers’ facilities, as well as the laundering and processing of the bed linens, uniforms, resident personal clothing and other assorted linen items utilized at the customers’ facilities.
We believe the factors discussed above are equally applicable to each of our segments with respect to acquiring new customers and increasing revenues. When evaluating financial performance, we consider the ratio of certain financial items to consolidated revenues.
We believe the factors discussed above are equally applicable to each of our segments with respect to acquiring new customers and increasing revenues. 19 Table of Contents When evaluating financial performance, we consider the ratio of certain financial items to consolidated revenues.
Overview We provide management, administrative and operating expertise and services to the housekeeping, laundry, linen, facility maintenance and dietary service departments of healthcare facilities, including nursing homes, retirement complexes, rehabilitation centers and hospitals located throughout the United States. We provide such services to approximately 2,700 facilities throughout the continental United States as of December 31, 2023.
Overview We provide management, administrative and operating expertise and services to the housekeeping, laundry, linen, facility maintenance and dietary service departments of healthcare facilities, including nursing homes, retirement complexes, rehabilitation centers and hospitals located throughout the United States. We provide such services to approximately 2,600 facilities throughout the continental United States as of December 31, 2024.
Changes in wage rates as a result of legislative or collective bargaining actions, market factors, adjustments to staffing levels, and other variations in our use of labor or managing labor costs can result in variability of these costs. Housekeeping supplies, including linen products, accounted for approximately 7.0% of Housekeeping revenues in 2023.
Changes in wage rates as a result of legislative or collective bargaining actions, market factors, adjustments to staffing levels and other variations in our use of labor or managing labor costs can result in variability of these costs. Housekeeping supplies, including linen products, accounted for approximately 7.4% of Housekeeping revenues in 2024.
We also offer clinical consulting services to our dietary customers, which may be provided as a stand-alone service or be bundled with other dietary department services.
We also offer clinical consulting services to our dietary customers which may be provided as a standalone service or be bundled with other dietary department services.
In order to provide for collections issues and the general risk associated with the granting of credit terms, we recorded a bad debt provision (in an Allowance for Doubtful Accounts) of $35.6 million, $32.0 million and $10.5 million in the years ended December 31, 2023, 2022 and 2021, respectively.
In order to provide for collections issues and the general risk associated with the granting of credit terms, we recorded a bad debt provision (in an Allowance for Doubtful Accounts) of $46.8 million, $35.6 million and $32.0 million in the years ended December 31, 2024, 2023 and 2022, respectively.
As a percentage of total revenues, these provisions represented approximately 2.1%, 1.9% and 0.6% for the years ended December 31, 2023, 2022 and 2021, respectively. Insurance Programs We self-insure or carry high deductible insurance plans and therefore retain a substantial portion of the risk associated with the expected losses under our general liability and workers compensation programs.
As a percentage of total revenues, these provisions represented approximately 2.7%, 2.1% and 1.9% for the years ended December 31, 2024, 2023 and 2022, respectively. Insurance Programs We self-insure or carry high deductible insurance plans and therefore retain a substantial portion of the risk associated with the expected losses under our general liability, workers’ compensation and auto insurance programs.
Material Off-Balance Sheet Arrangements We have no material off-balance sheet arrangements other than our irrevocable standby letter of credit previously discussed. 27 Table of Contents
Material Off-Balance Sheet Arrangements We have no material off-balance sheet arrangements other than our irrevocable standby letters of credit previously discussed. 28 Table of Contents
Such activity, along with the timing of cash payments, are the primary drivers of the period-over-period changes in net cash provided by operating activities. Investing Activities Our principal uses of cash for investing activities are capital expenditures such as housekeeping and food service equipment, computer software and equipment and furniture and fixtures (see “Capital Expenditures” below for additional information).
Such activities are the primary drivers of the period-over-period changes in net cash provided by operating activities. Investing Activities Our principal uses of cash for investing activities are capital expenditures such as housekeeping and food service equipment, computer software and equipment, furniture and fixtures (see “Capital Expenditures” below for additional information), and purchases of marketable securities and restricted marketable securities.
The covenants and their respective status at December 31, 2023 were as follows: Covenant Descriptions and Requirements As of December 31, 2023 Funded debt 1 to EBITDA 2 ratio: less than 3.50 to 1.00 0.97 EBITDA 2 to Interest Expense ratio: not less than 3.00 to 1.00 9.92 1.
The covenants and their respective status at December 31, 2024 were as follows: Covenant Descriptions and Requirements As of December 31, 2024 Funded debt 1 to EBITDA 2 ratio: less than 3.50 to 1.00 0.21 EBITDA 2 to Interest Expense ratio: not less than 3.00 to 1.00 11.71 1.
Although we have no specific material commitments for capital expenditures through the end of calendar year 2024, we estimate that for 2024 we will have capital expenditures of approximately $4.0 million to $6.0 million.
Although we have no specific material commitments for capital expenditures through the end of calendar year 2025, we estimate that for 2025 we will have capital expenditures of approximately $5.0 million to $7.0 million.
Any such adjustments or revisions to estimates could result in material differences from previously reported amounts. 23 Table of Contents The policies discussed below are not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S.
Any such adjustments or revisions to estimates could result in material differences from previously reported amounts. The policies discussed below are not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP, with no need for our judgment in their application.
For the year ended December 31, 2023 cash flow from operations included a $38.4 million in net income, an increase of $4.1 million compared to 2022, non-cash add-backs to net income of $49.3 million, and a $44.2 million decrease in cash flows from changes in operating assets and liabilities, driven primarily by increased outstanding accounts and notes receivable.
For the year ended December 31, 2024 cash flow from operations included $39.5 million in net income, an increase of $1.1 million compared to 2023, non-cash add-backs to net income of $61.5 million, and a $70.2 million decrease in cash flows from changes in operating assets and liabilities, driven primarily by increased outstanding accounts and notes receivable.
For general liability and workers’ compensation, we record a reserve for the estimated future cost of claims and related expenses that have been reported but not settled, including an estimate of claims incurred but not reported that are developed as a result of a review of our historical data and open claims, which is based on estimates provided by a third-party actuary.
For general liability, workers’ compensation and auto, we record a reserve for the estimated future cost of claims and related expenses that have been reported but not settled, including an estimate of claims incurred but not reported that are developed as a result of a review of our historical data and open claims, which is based on estimates provided by a third-party actuary. 27 Table of Contents Capital Expenditures The level of capital expenditures is generally dependent on the number of new customers obtained.
For the years ended December 31, 2023, 2022 and 2021 our cash flows were as follows: Year Ended December 31, 2023 2022 2021 (in thousands) Net cash provided by (used in) operating activities $ 43,498 $ (8,167) $ 37,108 Net cash (used in) provided by investing activities $ (3,293) $ 2,580 $ (22,990) Net cash used in financing activities $ (12,154) $ (38,928) $ (82,654) Operating Activities Our primary sources of cash from operating activities are the revenues generated from our Housekeeping and Dietary services.
For the years ended December 31, 2024, 2023 and 2022 our cash flows were as follows: Year Ended December 31, 2024 2023 2022 (in thousands) Net cash provided by (used in) operating activities $ 30,802 $ 43,498 $ (8,167) Net cash provided by (used in) investing activities $ 6,047 $ (3,293) $ 2,580 Net cash used in financing activities $ (31,048) $ (12,154) $ (38,928) 25 Table of Contents Operating Activities Our primary sources of cash from operating activities are the revenues generated from our Housekeeping and Dietary services.
Such management personnel also oversee the execution of various cost and quality control procedures including continuous training and employee evaluation. At December 31, 2023, Housekeeping services were provided to approximately 2,300 customer facilities, generating approximately 45.9% or $766.7 million of our consolidated revenues for the year ended December 31, 2023.
Such management personnel also oversee the execution of various cost and quality control procedures including continuous training and employee evaluation. Housekeeping services were provided to approximately 2,200 customer facilities at December 31, 2024 and contributed approximately 44.6% or $765.4 million of our consolidated revenues for the year ended December 31, 2024.
We are on a calendar year end, and except where otherwise indicated, “2023” refers to the year ended December 31, 2023, and “2022” refers to the year ended December 31, 2022.
We are on a calendar year end, and except where otherwise indicated, “2024” refers to the year ended December 31, 2024, and “2023 ” refers to the year ended December 31, 2023.
The increase to our 2023 tax rate compared to the corresponding 2022 period was primarily impacted by a decrease in federal and state tax adjustments relative to the increase in income before income taxes. Critical Accounting Policies and Estimates The preparation of financial statements in accordance with accounting standards generally accepted in the United States (“U.S.
The decrease to our 2024 tax rate compared to the corresponding 2023 period was primarily impacted by a year-over-year reduction in state and local income tax expense. Critical Accounting Policies and Estimates The preparation of consolidated financial statements in accordance with United States generally accepted accounting standards (“U.S.
See our audited consolidated financial statements and notes thereto which are included in this Annual Report on Form 10-K, which contain a discussion of our accounting policies and other disclosures required by U.S. GAAP.
There are also areas in which our judgment in selecting another available alternative would not produce a materially different result. See our audited consolidated financial statements and notes thereto which are included in this Annual Report on Form 10-K, which contain a discussion of our accounting policies and other disclosures required by U.S. GAAP.
Excluding the change in the deferred compensation plan described above, consolidated selling, general and administrative expense increased $10.6 million or 7.1% for the year ended December 31, 2023 compared to the corresponding period in 2022. The increase was driven by increases in professional fees and travel-related expenses, impacted by inflationary measures.
Excluding the change in the deferred compensation plan described above, consolidated selling, general and administrative expense increased $14.7 million or 9.2% for the year ended December 31, 2024 compared to the corresponding period in 2023. The increase was driven by increases in payroll, legal, travel and fleet-related expenses, all of which were impacted by inflationary measures.
The table below summarizes the changes in these components of selling, general and administrative expense: Year Ended December 31, 2023 2022 $ Change % Change (dollar amounts in thousands) Selling, general and administrative expense excluding change in deferred compensation liability $ 160,088 $ 149,522 $ 10,566 7.1 % Gain (loss) on deferred compensation plan investments 6,684 (9,178) 15,862 (172.8) % Selling, general and administrative expense $ 166,772 $ 140,344 $ 26,428 18.8 % Consolidated Investment and Interest Income, net Investment and other income was a gain of $12.9 million for the year ended December 31, 2023 compared to a loss of $5.4 million for the corresponding 2022 period, primarily due to market fluctuations in the value of our trading security investments representing the funding for our deferred compensation plan and increased interest income on notes receivable.
The table below summarizes the changes in these components of selling, general and administrative expense: Year Ended December 31, 2024 2023 $ Change % Change (dollar amounts in thousands) Selling, general and administrative expense excluding change in deferred compensation liability $ 174,819 $ 160,088 $ 14,731 9.2 % Gain on deferred compensation plan investments 8,241 6,684 1,557 23.3 % Selling, general and administrative expense $ 183,060 $ 166,772 $ 16,288 9.8 % Consolidated Investment and Interest Income, net Investment and other income was a gain of $14.3 million for the year ended December 31, 2024 compared to a gain of $12.9 million for the corresponding 2023 period, primarily due to market fluctuations in the value of our trading security investments representing the funding for our deferred compensation plan and increased interest income on notes receivable.
During 2022, we paid regular quarterly cash dividends to shareholders of $63.4 million. We repurchased 1.0 million shares of our common stock for $11.1 million during the year ended December 31, 2023. We remain authorized to repurchase 6.5 million shares of our Common Stock pursuant to the Repurchase Plan.
We repurchased 0.4 million shares of our common stock for $5.0 million during the year ended December 31, 2024. We remain authorized to repurchase 6.0 million shares of our Common Stock pursuant to the Repurchase Plan.
On December 29, 2023, January 2, 2024 and January 3, 2024, the letters of credit were renewed, and they all expire during the first quarter of 2025. 26 Table of Contents Accounts and Notes Receivable Decisions to grant or to extend credit to customers are made on a case-by-case basis and based on a number of qualitative and quantitative factors related to the particular customer as well as the general risks associated with operating within the healthcare industry.
Accounts and Notes Receivable Decisions to grant or to extend credit to customers are made on a case-by-case basis and based on a number of qualitative and quantitative factors related to the particular customer as well as the general risks associated with operating within the healthcare industry.
In contrast, supplies consumed in performing our Dietary services accounted for approximately 34.2% of Dietary revenues. Generally, fluctuations in these expenses are influenced by factors outside of our control and are unpredictable. Housekeeping and Dietary supplies are principally commodity products and are affected by market conditions specific to the respective products.
In contrast, supplies consumed in performing our Dietary services accounted for approximately 32.5% of Dietary revenues. Generally, fluctuations in these expenses are influenced by factors outside of our control and are unpredictable.
Costs of services provided for Dietary, as a percentage of Dietary revenues, decreased to 95.2% for the year ended December 31, 2023 from 96.8% in the corresponding period in 2022.
Segment expenses for Dietary, as a percentage of Dietary revenues, increased to 95.2% for the year ended December 31, 2024 from 95.1% in the corresponding period in 2023.
Our investments in marketable securities are primarily comprised of tax-exempt municipal bonds and are intended to achieve our goal of preserving principal, maintaining adequate liquidity and maximizing returns subject to our investment guidelines.
Such uses of cash are offset by proceeds from sales of marketable securities. Our investments in marketable securities and restricted marketable securities are primarily comprised of municipal bonds, treasury notes, corporate bonds, and other government bonds and are intended to achieve our goal of preserving principal, maintaining adequate liquidity and maximizing returns subject to our investment guidelines.
We review two primary indicators (costs of labor and costs of supplies as percentages of segment revenues) to monitor and manage such costs. The variability of these costs may impact each segment differently, as Housekeeping's percentage of revenue is more significantly impacted by costs of labor than that of Dietary.
The variability of these costs may impact each segment differently, as Housekeeping’s percentage of revenue is more significantly impacted by costs of labor than that of Dietary, while Dietary’s percentage of revenue is is more significantly impacted by costs of supplies than Housekeeping.
Our current ratio was 2.6 to 1 at both December 31, 2023 and 2022. Marketable securities represent fixed income investments that are highly liquid and can be readily purchased or sold through established markets. Such securities are held by HCSG Insurance to satisfy capital requirements of the state regulator related to captive insurance companies.
Our current ratio was 2.9 to 1 at December 31, 2024 and 2.6 to 1 at December 31, 2023. Marketable securities and restricted marketable securities represent fixed income investments that are highly liquid and can be readily purchased or sold through established markets.
At December 31, 2023, we also had outstanding $85.9 million in irrevocable standby letters of credit, which relate to payment obligations under our insurance programs. In connection with the issuance of the letters of credit, the amount available under the line of credit was reduced by $85.9 million to $189.1 million at December 31, 2023.
At December 31, 2024 and 2023, we also had outstanding $50.8 million and $85.9 million, respectively, in irrevocable standby letters of credit, which relate to payment obligations under our insurance programs.
Costs of services provided Consolidated Consolidated costs of services provided decreased 2.7% to $1.5 billion for the year ended December 31, 2023 compared to the corresponding period in 2022.
Costs of services provided Consolidated Consolidated costs of services provided increased 2.1% to $1.5 billion for the year ended December 31, 2024 compared to the corresponding period in 2023 as a result of the factors discussed below under Reportable Segments.
Capital Expenditures The level of capital expenditures is generally dependent on the number of new customers obtained. Such capital expenditures primarily consist of housekeeping and food service equipment purchases, laundry and linen equipment installations, computer hardware and software and furniture and fixtures. Our capital expenditures totaled $5.4 million in 2023.
Such capital expenditures primarily consist of housekeeping and food service equipment purchases, laundry and linen equipment installations, computer hardware and software and furniture and fixtures. Our capital expenditures totaled $6.3 million in 2024.
If our customers experience a negative impact in their cash flows, it could have a material adverse effect on our consolidated results of operations and financial condition. Accrued Insurance Claims We have a Paid Loss Retrospective Insurance Plan for general liability, workers’ compensation insurance and other self-insurance programs, which comprise approximately 25.3% of our liabilities at December 31, 2023.
If our customers experience a negative impact in their cash flows, it could have a material adverse effect on our consolidated results of operations and financial condition. 24 Table of Contents Accrued Insurance Claims We self-insure or carry high deductible insurance policies and therefore retain a substantial portion of the risk associated with expected losses under our general liability, workers’ compensation and auto insurance programs, which comprise approximately 25.4% of our liabilities at December 31, 2024.
The primary operational factor is our ability to demonstrate to potential customers the benefits of being relieved of the administrative and operational challenges related to the day-to-day management of their housekeeping and dietary operations. In addition, we must be able to assure new customers that we can improve the quality of service that they are providing to their residents.
The primary economic factor in acquiring new customers is our ability to demonstrate the cost-effectiveness of our services. The primary operational factor is our ability to demonstrate to potential customers the benefits of being relieved of the administrative and operational challenges related to the day-to-day management of their housekeeping and dietary operations.
At December 31, 2023, we borrowed $25.0 million under the line of credit. The line of credit requires us to satisfy two financial covenants.
At December 31, 2024, we had no borrowings under the line of credit. 26 Table of Contents The line of credit requires us to satisfy two financial covenants.
These investments represent the amounts held on behalf of the participating employees as changes in the value of these investments affect the amount of our deferred compensation liability.
These investments represent the amounts held on behalf of the participating employees as changes in the value of these investments affect the amount of our deferred compensation liability. Gains on the plan investments during the years ended December 31, 2024 and 2023 increased our total selling, general and administrative expense.
Our investment policy limits investment to certain types of instruments issued by institutions primarily with investment-grade ratings and places restrictions on concentration by type and issuer. 25 Table of Contents Financing Activities The primary use of cash for financing activities is repurchases of common stock.
Our investment policy limits investment to certain types of instruments issued by institutions primarily with investment-grade ratings and places restrictions on concentration by type and issuer. Financing Activities The primary source of cash from financing activities is the net borrowings under our bank line of credit. We borrow for general corporate purposes as needed throughout the year.
Specifically, Housekeeping labor costs accounted for approximately 82.2% of Housekeeping revenues in 2023 while Dietary labor costs accounted for approximately 59.3% of Dietary revenues in 2023.
Housekeeping labor costs accounted for approximately 78.4% of Housekeeping revenues in 2024 while Dietary labor costs accounted for approximately 56.6% of Dietary revenues in 2024.
General liability and workers’ compensation reserves for claims incurred but not reported are developed by a third-party actuary through review of our historical data and open claims. 24 Table of Contents A summary of the changes in our total self-insurance liability is as follows: 2023 2022 2021 (in thousands) Accrued insurance claims - January 1, $ 88,707 $ 89,394 $ 82,428 Claim payments (24,488) (25,175) (29,061) Reserve accruals: Current year accruals 32,693 34,293 35,830 Changes to the provision for prior year claims (12,534) (9,805) 197 Change in accrued insurance claims (4,329) (687) 6,966 Accrued insurance claims - December 31, $ 84,378 $ 88,707 $ 89,394 Liquidity and Capital Resources At December 31, 2023, we had cash, cash equivalents and marketable securities of $147.5 million and working capital of $354.8 million, compared to December 31, 2022 cash, cash equivalents and marketable securities of $121.5 million and working capital of $319.6 million.
A summary of the changes in our total self-insurance liability is as follows: 2024 2023 2022 (in thousands) Accrued insurance claims - January 1, $ 84,378 $ 88,707 $ 89,394 Claim payments (24,751) (24,488) (25,175) Reserve accruals: Current year accruals 29,015 32,693 34,293 Changes to the provision for prior year claims (11,625) (12,534) (9,805) Change in accrued insurance claims (7,361) (4,329) (687) Accrued insurance claims - December 31, $ 77,017 $ 84,378 $ 88,707 Liquidity and Capital Resources Our primary sources of liquidity are available cash and cash equivalents, available lines of credit under our revolving credit facility and cash flows from operating activities.
Management focuses on building efficiencies and managing labor and other costs at the facility level, as well as managing supply chain costs, for new and existing facilities.
Management focuses on building efficiencies and managing labor and other costs at the facility level, as well as managing supply chain costs, for new and existing facilities. In 2024, LaVie Care Centers, LLC and certain affiliated entities (“LaVie”), several of which are customers of the Company, filed for Chapter 11 bankruptcy protection in the U.S.
As of December 31, 2023, the Company had no other material minimum purchase or capital expenditure commitments pertaining to our daily operations or existing financing arrangements. Line of Credit At December 31, 2023, we had a $300 million bank line of credit on which to draw for general corporate purposes.
Line of Credit At December 31, 2024, we had a $300 million bank line of credit on which to draw for general corporate purposes.
The following table provides a comparison of the key indicators we consider when managing costs of services provided at the segment level, as a percentage of the respective segment’s revenues: Year Ended December 31, Costs of Services Provided - Key Indicators as a % of Segment Revenue 2023 2022 Change Housekeeping labor and other labor-related costs 82.2% 81.4% 0.8% Housekeeping supplies 7.0% 6.8% 0.2% Dietary labor and other labor-related costs 59.3% 61.5% (2.2)% Dietary supplies 34.2% 32.0% 2.2% Variations within these key indicators relate to the provision of services at new facilities and changes in the mix of customers for whom we provide supplies or do not provide supplies.
The following tables provide a comparison of the key indicators we consider when managing segment expenses as a percentage of the respective segment’s revenues: Year Ended December 31, Key Indicators as a % of Segment Revenue - Housekeeping 2024 2023 Change Labor and other labor-related costs 1 78.4% 78.2% 0.2% Supplies 7.4% 7.6% (0.2)% Bad debt expense 1.9% 2.3% (0.4)% Depreciation and amortization 0.5% 0.5% —% Other costs 1 1.9% 2.0% (0.1)% Total segment expenses 90.1% 90.6% (0.5)% 1.
Consolidated Interest Expense Consolidated interest expense increased to $7.9 million for the year ended December 31, 2023 compared to $3.0 million for the corresponding 2022 period due to increased short-term borrowings during 2023 and increased market interest rates. Consolidated Income Taxes Our effective tax rate was 27.7% for the year ended December 31, 2023 compared to 23.1% in 2022.
Year Ended December 31, 2024 2023 $ Change % Change (dollar amounts in thousands) Investment and other income, net excluding change in deferred compensation plan assets $ 6,056 $ 6,293 $ (237) (3.8) % Increase in deferred compensation plan assets 8,293 6,645 1,648 24.8 % Investment and other income, net $ 14,349 $ 12,938 $ 1,411 10.9 % Consolidated Interest Expense Consolidated interest expense decreased to $6.4 million for the year ended December 31, 2024 compared to $7.9 million for the corresponding 2023 period due to decreased short-term borrowings on our line of credit during 2024 compared to 2023. 23 Table of Contents Consolidated Income Taxes Our effective tax rate was 25.4% for the year ended December 31, 2024 compared to 27.7% in 2023.
Inclusive of the impact of such changes, Housekeeping revenues decreased 3.6% while Dietary revenues increased 1.1% during the year ended December 31, 2023 compared to the corresponding period in 2022. Housekeeping revenues declined due to fewer facilities serviced year-over-year.
Reportable Segments Housekeeping revenues decreased 0.2% while Dietary revenues increased 5.0% during the year ended December 31, 2024 compared to the corresponding period in 2023. Housekeeping revenues decreased due to a decline in facilities serviced, offset by increases to costs which were passed on to customers.
Dietary services were provided to approximately 1,700 customer facilities at December 31, 2023 and contributed approximately 54.1% or $904.7 million of our consolidated revenues for the year ended December 31, 2023. Our workers’ compensation, general liability and certain employee health and welfare insurance programs are provided by HCSG Insurance Corp. (“HCSG Insurance” or the “Captive”), our wholly-owned captive insurance subsidiary.
Dietary services were provided to approximately 1,600 customer facilities at December 31, 2024 and contributed approximately 55.4% or $950.3 million of our consolidated revenues for the year ended December 31, 2024. Our ability to acquire new customers, retain existing customers and increase revenues are affected by many factors.
The increase in dietary supplies spend as a percentage of dietary revenues was driven by increases to our menu costs, which are dependent on commodity pricing factors, during 2023. 22 Table of Contents Consolidated Selling, General and Administrative Expense Included in selling, general and administrative expense are gains and losses associated with changes in the value of investments under our deferred compensation liability.
Selling, General and Administrative Expense Selling, general and administrative expense incurred at a segment-level is discussed in the Reportable Segments section above. Also included in consolidated selling, general and administrative expense are corporate expenses and gains and losses associated with changes in the value of investments under our deferred compensation liability.
The primary source of cash from financing activities is the net borrowings under our bank line of credit. We borrow for general corporate purposes as needed throughout the year. Contractual Obligations Our future contractual obligations and commitments at December 31, 2023 primarily consist of minimum lease payments on our operating lease agreements as discussed within Note 8 — Leases.
Contractual Obligations Our future contractual obligations and commitments at December 31, 2024 primarily consist of minimum lease payments on our operating lease agreements as discussed within Note 7 — Leases. As of December 31, 2024, the Company had no other material minimum purchase or capital expenditure commitments pertaining to our daily operations or existing financing arrangements.
The following table provides a comparison of key indicators we consider when managing the consolidated costs of services provided: Year Ended December 31, Costs of Services Provided - Key Indicators as a % of Consolidated Revenue 2023 2022 Change Bad debt provision 2.1% 1.9% 0.2% Self-insurance costs 1.8% 1.9% (0.1)% Reportable Segments Costs of services provided for Housekeeping, as a percentage of Housekeeping revenues, increased to 92.0% for the year ended December 31, 2023 from 90.8% in the corresponding period in 2022.
Reportable Segments We include certain expenses classified as selling, general and administrative expenses within segment expenses. Segment expenses for Housekeeping, as a percentage of Housekeeping revenues, decreased to 90.1% for the year ended December 31, 2024 from 90.6% in the corresponding period in 2023.
Our consolidated costs of services provided decreased 2.7% for the year ended December 31, 2023 as compared to 2022 due to a decrease in the number of facilities serviced. 20 Table of Contents Our customers are concentrated in the healthcare industry and are primarily providers of long-term care.
Costs of services provided, as a percentage of revenues, improved to 86.7% for the year ended December 31, 2024 compared to 87.2% in the corresponding period in 2023. The Company’s goal is to manage consolidated costs of services provided as a percentage of revenues in the 86% range.
Removed
HCSG Insurance provides the Company with greater flexibility and cost efficiency in meeting our insurance needs.
Added
In addition, we must be able to assure new customers that we can improve the quality of service that they are providing to their residents.
Removed
HCSG Insurance provides workers’ compensation, general liability and other insurance coverages to such entities with respect to such transitioned workforce, such entities provide housekeeping, laundry and dietary services as a subcontracted provider to the Company, and the Company provides strategic customer-service management and administrative support services to such entities. 19 Table of Contents Our ability to acquire new customers, retain existing customers and increase revenues are affected by many factors.
Added
We review costs of labor, costs of supplies, bad debt expense and depreciation and amortization expense, along with other segment expenses, to evaluate our operating performance.
Removed
The primary economic factor in acquiring new customers is our ability to demonstrate the cost-effectiveness of our services because many of our customers’ revenues are generally highly reliant on Medicare and Medicaid reimbursements.
Added
Bad debt expense impacts costs of services provided for each segment periodically depending on specific customer matters for each segment. In 2024, we adopted Accounting Standards Update 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses.
Removed
Therefore, our customers’ economic decision-making is driven significantly by their reimbursement funding rate structure and the financial impact on their reimbursement as a result of engaging us for the respective services.
Added
As part of our adoption of ASU 2023-07 and the Chief Operating Decision Maker’s evaluation of segment performance for the year ended December 31, 2024, we updated certain segment information in 2024 and recast certain prior period segment information from 2022 and 2023 in order to conform with our current period segment presentation.
Removed
Many of our customers’ revenues are highly reliant on Medicare, Medicaid and third-party payors’ reimbursement funding rates.
Added
Housekeeping and Dietary supplies are principally commodity products and are affected by market conditions specific to the respective products. 20 Table of Contents Our customers are concentrated in the healthcare industry and are primarily providers of long-term care. Many of our customers’ revenues are highly reliant on Medicare, Medicaid and third-party payers’ reimbursement funding.
Removed
The differences between the reportable segments’ operating results and other disclosed data and our consolidated financial results relate primarily to corporate level transactions and adjustments related to transactions recorded at the reportable segment level which use methods other than generally accepted accounting principles.
Added
A large portion of our revenues are derived from nursing home operators whose portfolio of facilities managed are in multiple states, and as such, the ultimate impact, including in terms of timing and scale, as a result of legislative changes can be difficult to predict.
Removed
Year Ended December 31, 2023 2022 % Change (in thousands) Revenues Housekeeping $ 766,651 $ 795,687 (3.6) % Dietary 904,738 894,489 1.1 % Consolidated $ 1,671,389 $ 1,690,176 (1.1) % Costs of services provided Housekeeping $ 705,340 $ 722,591 (2.4) % Dietary 861,191 865,424 (0.5) % Corporate and eliminations (109,888) (91,150) 20.6 % Consolidated $ 1,456,643 $ 1,496,865 (2.7) % Selling, general and administrative expense Corporate and eliminations $ 166,772 $ 140,344 18.8 % Investment and other income, net Corporate $ 12,938 $ (5,427) (338.4) % Interest expense Corporate $ (7,856) $ (2,987) 163.0 % Income (loss) before income taxes Housekeeping $ 61,311 $ 73,096 (16.1) % Dietary 43,547 29,065 49.8 % Corporate and eliminations (51,802) (57,608) (10.1) % Consolidated $ 53,056 $ 44,553 19.1 % Income taxes Corporate $ 14,670 $ 10,310 42.3 % 21 Table of Contents Revenues Consolidated Consolidated revenues decreased 1.1% to $1.7 billion for the year ended December 31, 2023 compared to the corresponding period in 2022 as a result of the factors discussed below under Reportable Segments.
Added
However, our customer’s obligation to pay the Company in accordance with the contract is not contingent upon the customer’s cash flow.
Removed
Reportable Segments During the years ended December 31, 2023 and 2022, the Company recognized changes in variable consideration as reductions to revenue of $13.8 million, including $4.1 million in Housekeeping revenues and $9.7 million in Dietary revenues, and $10.0 million, including $2.3 million of Housekeeping revenues and $7.7 million of Dietary revenues, respectively.
Added
Notwithstanding the Company’s efforts to minimize its credit risk exposure, the aforementioned factors, as well as other factors that impact customer cash flows or their ability to make timely payments, could have material adverse effect on the Company’s results of operations and financial condition.
Removed
While the number of Dietary facilities serviced declined year-over-year, revenue increased resulting from contractual pass-through of labor and food costs to customer buildings, which was a focus of our 2022 service agreement modification initiative.
Added
Year Ended December 31, 2024 2023 1 % Change (in thousands) Revenues Housekeeping $ 765,368 $ 766,651 (0.2) % Dietary 950,314 904,738 5.0 % Consolidated $ 1,715,682 $ 1,671,389 2.7 % Costs of services provided Housekeeping $ 642,873 $ 648,710 (0.9) % Dietary 844,719 807,933 4.6 % Consolidated $ 1,487,592 $ 1,456,643 2.1 % Selling, general & administrative expense Housekeeping $ 47,085 $ 45,752 2.9 % Dietary 59,574 52,254 14.0 % Corporate 2 68,160 62,082 9.8 % Gain on deferred compensation plan investments 8,241 6,684 23.3 % Consolidated $ 183,060 $ 166,772 9.8 % Other income (expense) 3 Investment and other income, net $ 14,349 $ 12,938 10.9 % Interest expense (6,438) (7,856) (18.0) % Income before taxes $ 52,941 $ 53,056 (0.2) % Income tax provision 3 13,470 14,670 (8.2) % Net income $ 39,471 $ 38,386 2.8 % 1.
Removed
Gains on the plan investments during the year ended December 31, 2023 increased our total selling, general and administrative expense for the period whereas losses on plan investments during the year ended 2022 decreased our total selling, general and administrative expense.
Added
Represents a recast of prior period numbers to conform with current period presentation. 2. Represents selling, general and administrative expense less amounts allocated to segments for labor and labor-related and other segment items. 3.
Removed
GAAP, with no need for our judgment in their application. There are also areas in which our judgment in selecting another available alternative would not produce a materially different result.
Added
These line items represent corporate costs not allocated to segments. 21 Table of Contents Revenues Consolidated Consolidated revenues increased 2.7% to $1.7 billion for the year ended December 31, 2024 compared to the corresponding period in 2023 as a result of the factors discussed below under Reportable Segments.
Removed
While no purchases of marketable securities were made during the year ended December 31, 2023, we also use cash for such purchases when deemed appropriate in line with capital funding requirements for HCSG Insurance. Such uses of cash are offset by proceeds from sales of marketable securities.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+0 added−0 removed3 unchanged
Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or if there is a decline in the fair value of our investments. 28 Table of Contents
Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or if there is a decline in the fair value of our investments. 29 Table of Contents
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. At December 31, 2023, we had $147.5 million in cash, cash equivalents and marketable securities.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. At December 31, 2024, we had $135.8 million in cash, cash equivalents, restricted cash equivalents, marketable securities and restricted marketable securities.

Other HCSG 10-K year-over-year comparisons