Release Date: April 23, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- First quarter revenue and cash flows were the best in five years, indicating strong financial performance.
- Revenue increased by 5.7% over the prior year, reaching $447.7 million.
- Net income and diluted EPS were reported at $17.2 million and $0.23, respectively.
- The company successfully reduced Days Sales Outstanding (DSO) from 88 days to 78 days, improving cash collection efficiency.
- Healthcare Services Group Inc (HCSG, Financial) made a strategic acquisition, contributing to revenue growth and marking its first acquisition since late 2021.
Negative Points
- Cost of services was high at 84.8%, with a goal to manage it in the 86% range, indicating ongoing cost management challenges.
- SG&A expenses were reported at $45 million, with a longer-term goal to reduce these costs to the 8.5% to 9.5% range.
- Food inflation continues to be a concern, with food at home inflation increasing sequentially.
- The company faces challenges in certain markets with ongoing labor shortages, despite overall improvements in workforce availability.
- Revenue guidance for Q2 suggests only a small increase, indicating potential challenges in achieving significant sequential growth.
Q & A Highlights
Q: Can you expand on the regulatory environment and any changes that might affect your position in the industry?
A: The fundamentals of the industry are strong, supported by demographic trends. The key concern for our customers is the link between staffing availability and census, as labor availability is crucial for occupancy growth. Recent occupancy data is positive, and CMS proposed a 2.8% increase for Medicare rates, which is well-received. The Texas court ruling that struck down key provisions of the minimum staffing rule provides clarity and removes an overhang for the industry.
Q: What impact could the new administration's budget bill have on Medicaid reinforcement and federal support?
A: There is confidence within the skilled nursing facility community that the Trump administration was supportive during its first term, and any changes are unlikely to impact funds flowing to skilled nursing facilities. The rhetoric from DC suggests no significant changes are expected.
Q: Does the court ruling on minimum staffing rules remove an overhang, or was it impacting behavior in staffing facilities?
A: It primarily removes an overhang rather than impacting behavior. While some administrative requirements were being complied with, the actual impact was years away and would have been phased in over time.
Q: Your gross margin and EBITDA margins were above targets in Q1. Is this sustainable, and what about SG&A ratio guidance?
A: Service execution is the main driver of margin improvements, and we expect this to continue. The increased SG&A spend is due to investments in our business, which drive employee engagement and customer experience, correlating with improved margins. We expect SG&A to track in the 9.5% to 10.5% range.
Q: What are your thoughts on inflation, particularly in food and hourly wages?
A: CPI for all items was 60 basis points in Q1, with some deflation in March. Food inflation increased, but we have contractual provisions to manage costs. The healthcare sector added jobs at a higher pace than other industries, and we expect to reach pre-pandemic employment levels in less than six months. Wage growth remains stable, and applications are increasing.
Q: Can you clarify the revenue guidance for Q2 and the impact of the recent acquisition?
A: The $445 million to $455 million guidance range considers the timing of new business ads and the acquisition, which contributes about 1% to revenue. The mid-single-digit annual growth guidance is the best indicator of our growth cadence.
Q: How much of the raised operating cash flow guidance is driven by the CARES Act benefit, and what's your confidence in cash collection momentum?
A: The raised guidance is due to both the $12 million CARES Act benefit and strong Q1 collections. We are confident in sustaining positive collection momentum, supported by industry dynamics.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
