HEALTHCARE SERVICES GROUP INC

Previous wording

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. We believe we are the largest provider of housekeeping and laundry management services to the long-term care industry in the United States.

Current wording

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. We believe we are the largest provider of housekeeping, laundry and dietary management services to the long-term care industry in the United States.

Previous wording

We provide services primarily pursuant to full service agreements with our customers. Under such agreements, we are responsible for the day-to-day management of the employees located at our customers’ facilities as well as for the provision of certain supplies. We also provide services on the basis of management-only agreements for a limited number of customers. Under a management-only agreement, we provide management and supervisory services while the customer facility retains payroll responsibility for the non-supervisory staff. In certain management-only agreements, the Company maintains responsibility for purchasing supplies. 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.

Current wording

We provide services primarily pursuant to full-service agreements with our customers. Under such agreements, we are responsible for the day-to-day management of the employees located at our customers’ facilities, as well as for the provision of certain supplies. We also provide services on the basis of management-only agreements for a limited number of customers. Under a management-only agreement, we provide management and supervisory services while the customer facility retains payroll responsibility for the non-supervisory staff. In certain management-only agreements, the Company maintains responsibility for purchasing supplies. 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.

Previous wording

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. Upon beginning service with a customer facility, we typically hire and train the employees previously employed by such facility and assign an on-site manager to supervise the front-line personnel and coordinate housekeeping services with other facility support functions in accordance with customer requests. 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.

Current wording

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. Upon beginning service with a customer facility, we typically hire and train the employees previously employed by such facility and assign an on-site manager to supervise the front-line personnel and coordinate housekeeping services with other facility support functions in accordance with customer requests. 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.

Previous wording

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. 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. Upon beginning service with a customer facility, we typically hire and train the employees previously employed by such facility and assign an on-site manager to supervise the front-line personnel and coordinate dietitian services with other facility support functions in accordance with customer requests. Such management personnel also oversee the execution of various cost and quality control procedures including continuous training and employee evaluation.

Current wording

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. 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. Upon beginning service with a customer facility, we typically hire and train the employees previously employed by such facility and assign an on-site manager to supervise the front-line personnel and coordinate dietitian services with other facility support functions in accordance with customer requests. Such management personnel also oversee the execution of various cost and quality control procedures including continuous training and employee evaluation.

Previous wording

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. 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.

Current wording

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. 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.

Previous wording

Our ability to acquire new customers, retain existing customers and increase revenues are affected by many factors. Competitive factors consist primarily of competing with potential customers’ use of in-house support staff, as well as a number of firms which compete with us in the regional and national markets in which we conduct business. We believe the primary revenue drivers of our business are our ability to obtain new customers and to provide additional services to existing customers. In addition, although there can be no assurance, we seek to pass through, by means of service billing increases, increases in our cost of providing the services, while also aiming to obtain modest annual revenue increases from our existing customers to attain desired profit margins at the facility level. 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. 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. 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. We believe the factors discussed above are equally applicable to each of our segments with respect to acquiring new customers and increasing revenues.

Current wording

Our ability to acquire new customers, retain existing customers and increase revenues are affected by many factors. Competitive factors consist primarily of competing with potential customers’ use of in-house support staff, as well as a number of firms which compete with us in the regional and national markets in which we conduct business. We believe the primary revenue drivers of our business are our ability to obtain new customers and to provide additional services to existing customers. In addition, although there can be no assurance, we seek to pass through, by means of service billing increases, increases in our cost of providing the services, while also aiming to obtain modest annual revenue increases from our existing customers to attain desired profit margins at the facility level. 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. 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. We believe the factors discussed above are equally applicable to each of our segments with respect to acquiring new customers and increasing revenues.

Previous wording

Our costs of services can vary and may impact our operating performance. 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. 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. 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. 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. 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.

Current wording

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. 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. 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. Housekeeping and Dietary supplies are principally commodity products and are affected by market conditions specific to the respective products.

Previous wording

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 payors’ reimbursement funding rates. Legislation can significantly alter overall government reimbursement for nursing home services and such changes, as well as other trends in the long-term care industry, have affected and could adversely affect our customers’ cash flows, resulting in their inability to make payments to us in accordance with agreed-upon payment terms. The climate of legislative uncertainty has posed, and will continue to pose, both risks and opportunities for us: the risks are related to our customers’ cash flows and solvency, while the opportunities are related to our ability to offer our customers cost stability and efficiencies.

Current wording

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. Legislation can significantly alter overall government reimbursement for nursing home services and such changes, as well as other trends in the long-term care industry, have affected and could adversely affect our customers’ cash flows, resulting in their inability to make payments to us in accordance with agreed-upon payment terms. The climate of legislative uncertainty has posed, and will continue to pose, both risks and opportunities for us: the risks are related to our customers’ cash flows and solvency, while the opportunities are related to our ability to offer our customers cost stability and efficiencies. 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. However, our customer’s obligation to pay the Company in accordance with the contract is not contingent upon the customer’s cash flow. 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.

Previous wording

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. 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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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. 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.

Previous wording

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. 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.

Current wording

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. 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.

Previous wording

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:

Current wording

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:

Previous wording

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. 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. 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.

Current wording

Variations within these key indicators relate to the provision of services at new facilities, changes in the mix of customers for whom we provide supplies or do not provide supplies and changes in bad debt expense. 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.

Previous wording

Included in selling, general and administrative expense are gains and losses associated with changes in the value of investments under 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 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.

Current wording

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. 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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

Our effective tax rate was 27.7% for the year ended December 31, 2023 compared to 23.1% in 2022. 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.

Current wording

Our effective tax rate was 25.4% for the year ended December 31, 2024 compared to 27.7% in 2023. 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.

Previous wording

The preparation of financial statements in accordance with accounting standards generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Current wording

The preparation of consolidated financial statements in accordance with United States generally accepted accounting standards (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Previous wording

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. Under our insurance plans predetermined loss limits are arranged with our insurance company to limit both our per occurrence cash outlay and annual insurance plan cost. Our accounting for this plan utilizes current valuations from a third-party actuary, which include assumptions based on data such as historical claims and payout experience, demographic factors, industry trends, severity factors and other actuarial calculations. In the event that our claims experience and/or industry trends result in an unfavorable change in our assumptions or outcomes, it would have an adverse effect on our results of operations and financial condition. Recently, our claims experiences have been favorable as a result of our ongoing initiative to promote safety and accident prevention in the workplace and proactive management of workers’ compensation claims.

Current wording

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. Under our insurance plans predetermined loss limits are arranged with our insurance company to limit both our per occurrence cash outlay and annual insurance plan cost. Our accounting for this plan utilizes current valuations from a third-party actuary, which include assumptions based on data such as historical claims and payout experience, demographic factors, industry trends, severity factors and other actuarial calculations. In the event that our claims experience and/or industry trends result in an unfavorable change in our assumptions or outcomes, it would have an adverse effect on our results of operations and financial condition. Recently, our claims experiences have been favorable as a result of our ongoing initiative to promote safety and accident prevention in the workplace and proactive management of workers’ compensation claims.

Previous wording

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. 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.

Current wording

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. At December 31, 2024, we had cash, cash equivalents, restricted cash equivalents, marketable securities and restricted marketable securities of $135.8 million and working capital of $364.1 million, compared to December 31, 2023 cash, cash equivalents and marketable securities of $147.5 million and working capital of $354.8 million. 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. Such securities are held by HCSG Insurance to satisfy capital requirements of the state regulator related to captive insurance companies.

Previous wording

Our primary sources of cash from operating activities are the revenues generated from our Housekeeping and Dietary services. Our primary uses of cash from operating activities are the funding of our payroll and other personnel-related costs as well as the costs of supplies used in providing our services. 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. 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.

Current wording

Our primary sources of cash from operating activities are the revenues generated from our Housekeeping and Dietary services. Our primary uses of cash from operating activities are the funding of our payroll and other personnel-related costs as well as the costs of supplies used in providing our services. 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. Such activities are the primary drivers of the period-over-period changes in net cash provided by operating activities.

Previous wording

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). 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.

Current wording

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. Such uses of cash are offset by proceeds from sales of marketable securities.

Previous wording

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. 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.

Current wording

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. 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.

Previous wording

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.

Current wording

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. The primary uses of cash for financing activities are repayments of outstanding line of credit balances and repurchases of common stock. 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 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.

Previous wording

At December 31, 2023, we had a $300 million bank line of credit on which to draw for general corporate purposes. Amounts drawn under the line of credit are payable upon demand and generally bear interest at a floating rate, based on our leverage ratio, and starting at the Term Secured Overnight Financing Rate (“SOFR”) rate plus 165 basis points. The Company’s line of credit was amended on November 22, 2022 to, among other things, provide for a five-year unsecured revolving loan facility in the aggregate amount of $300 million with, at the Company’s option, the ability to increase the revolving loan commitments to an aggregate amount not to exceed $500 million and to change the benchmark rate from the London Interbank Offered Rate (“LIBOR”) to SOFR. At December 31, 2023, we borrowed $25.0 million under the line of credit.

Current wording

At December 31, 2024, we had a $300 million bank line of credit on which to draw for general corporate purposes. Amounts drawn under the line of credit are payable upon demand and generally bear interest at a floating rate, based on our leverage ratio, and starting at the Term Secured Overnight Financing Rate (“SOFR”) rate plus 165 basis points. The Company’s line of credit was amended on November 22, 2022 to, among other things, provide for a five-year unsecured revolving loan facility in the aggregate amount of $300 million with, at the Company’s option, the ability to increase the revolving loan commitments to an aggregate amount not to exceed $500 million and to change the benchmark rate from the London Interbank Offered Rate (“LIBOR”) to SOFR. At December 31, 2024, we had no borrowings under the line of credit.

Previous wording

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. 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.

Current wording

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. In connection with the issuance of the letters of credit, the amounts available under the line of credit was reduced by $50.8 million to $249.2 million at December 31, 2024 and by $85.9 million to $189.1 million at December 31, 2023. On December 24, 2024, January 16, 2025 and January 22, 2025, the letters of credit were renewed, and they all expire during the first quarter of 2026.

Previous wording

Fluctuations in net accounts and notes receivable are attributable to a variety of factors including, but not limited to, the timing of cash receipts from customers, the Company’s assessment of collectability and corresponding provision for bad debt expense and the inception, transition, modification or termination of customer relationships.

Current wording

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. Fluctuations in net accounts and notes receivable are attributable to a variety of factors including, but not limited to, the timing of cash receipts from customers, the Company’s assessment of collectability and corresponding provision for bad debt expense and the inception, transition, modification or termination of customer relationships.

Previous wording

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. 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.

Current wording

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 2.7%, 2.1% and 1.9% for the years ended December 31, 2024, 2023 and 2022, respectively.

Previous wording

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. 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. Our accounting for this plan is affected by various uncertainties, such as historical claims, pay-out experience, demographic factors, industry trends, severity factors and other actuarial assumptions calculated by a third-party actuary. Evaluations of our accrued insurance claims estimate as of the balance sheet date are based primarily on current information derived from our actuarial valuation which assists in quantifying and valuing these trends. In the event that our claims experience and/or industry trends result in an unfavorable change resulting from, among other factors, the severity levels of reported claims and medical cost inflation, as compared to historical claim trends, it would have an adverse effect on our results of operations and financial condition.

Current wording

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. 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. Our accounting for this plan is affected by various uncertainties, such as historical claims, pay-out experience, demographic factors, industry trends, severity factors and other actuarial assumptions calculated by a third-party actuary. Evaluations of our accrued insurance claims estimate as of the balance sheet date are based primarily on current information derived from our actuarial valuation which assists in quantifying and valuing these trends. In the event that our claims experience and/or industry trends result in an unfavorable change resulting from, among other factors, the severity levels of reported claims and medical cost inflation, as compared to historical claim trends, it would have an adverse effect on our results of operations and financial condition.

Previous wording

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.

Current wording

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.

Previous wording

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. 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.

Current wording

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 $6.3 million in 2024. 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.

Previous wording

We have no material off-balance sheet arrangements other than our irrevocable standby letter of credit previously discussed.

Current wording

We have no material off-balance sheet arrangements other than our irrevocable standby letters of credit previously discussed.