HEALTHCARE SERVICES GROUP INC

Previous wording

Housekeeping services were provided to approximately 2,400 customer facilities at March 31, 2025 and contributed approximately 43.9% or $196.3 million of our consolidated revenues for the three months ended March 31, 2025. Dietary services were provided at approximately 1,700 customer facilities at March 31, 2025, generating approximately 56.1% or $251.3 million of our total revenues for the three months ended March 31, 2025.

Current wording

Housekeeping services were provided to approximately 2,400 customer facilities at June 30, 2025 and contributed approximately 44.4% or $402.1 million of our consolidated revenues for the six months ended June 30, 2025. Dietary services were provided at approximately 1,600 customer facilities at June 30, 2025, generating approximately 55.6% or $504.1 million of our total revenues for the six months ended June 30, 2025.

Previous wording

In 2024, we adopted ASU 2023-07, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. As part of our adoption of ASU 2023-07 and the Chief Operating Decision Maker’s evaluation of segment performance for the three months ended March 31, 2025 and 2024, we updated certain segment information for the three months ended March 31, 2024 in order to conform with our current period segment presentation.

Current wording

In 2024, we adopted ASU 2023-07, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. As part of our adoption of ASU 2023-07 and the Chief Operating Decision Maker’s evaluation of segment performance for the six months ended June 30, 2025 and 2024, we updated certain segment information for the six months ended June 30, 2024 in order to conform with our current period segment presentation.

Previous wording

Housekeeping and Dietary revenues represented approximately 43.9% and 56.1% of consolidated revenues for the three months ended March 31, 2025, respectively.

Current wording

Housekeeping and Dietary revenues represented approximately 44.9% and 55.1% of consolidated revenues for the three months ended June 30, 2025, respectively.

Previous wording

Consolidated revenues increased 5.7% to $447.7 million during the three months ended March 31, 2025 compared to $423.4 million for the corresponding period in 2024 as a result of the factors discussed below under Reportable Segments.

Current wording

Consolidated revenues increased 7.6% to $458.5 million during the three months ended June 30, 2025 compared to $426.3 million for the corresponding period in 2024 as a result of the factors discussed below under Reportable Segments.

Previous wording

Housekeeping revenues increased 3.0% and Dietary revenues increased 7.9% during the three months ended March 31, 2025 compared to the corresponding period in 2024. The increase in Housekeeping revenues was driven by contractual price increases. The increase in Dietary revenues was driven by new business additions and increases in contractual pass-through costs to customers.

Current wording

Housekeeping revenues increased 7.7% and Dietary revenues increased 7.4% during the three months ended June 30, 2025 compared to the corresponding period in 2024. The increase in Housekeeping revenues was driven by an increase in facility count and contractual price increases. The increase in Dietary revenues was driven by organic growth in expanding services performed for customers and increased pass-through costs to customers.

Previous wording

Consolidated costs of services provided increased by 5.8% to $379.7 million for the three months ended March 31, 2025 compared to $358.9 million for the corresponding period in 2024 as a result of the factors discussed below under Reportable Segments. Costs of services provided, as a percentage of revenues, was 84.8% for each of the three months ended March 31, 2025 and 2024. The Company’s goal is to manage consolidated costs of services provided as a percentage of revenues in the 86% range for the full year, although there can be no assurance thereof.

Current wording

Consolidated costs of services provided increased by 18.4% to $455.5 million for the three months ended June 30, 2025 compared to $384.7 million for the corresponding period in 2024 as a result of bad debt expense recognized in the three months ended June 30, 2025 and the factors discussed below under Reportable Segments. During the three months ended June 30, 2025 and 2024, we recognized $61.2 million and $17.6 million, respectively, of bad debt expense related to large customer bankruptcies, which were recorded within costs of services provided. Excluding the impact of these bankruptcies, costs of services provided increased $27.2 million, or 7.4%, in line with our revenue growth. Costs of services provided, as a percentage of revenues, was 99.4% for the three months ended June 30, 2025 compared to 90.3% for the same period in 2024. Our goal is to manage consolidated costs of services provided as a percentage of revenues in the 86% range for the full year, although there can be no assurance thereof.

Previous 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, increased to 89.2% for the three months ended March 31, 2025 from 88.9% in the corresponding period in 2024. Segment expenses for Dietary, as a percentage of Dietary revenues, decreased to 92.4% for the three months ended March 31, 2025 from 93.0% in the corresponding period in 2024.

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, increased to 99.2% for the three months ended June 30, 2025 from 92.3% in the corresponding period in 2024. Segment expenses for Dietary, as a percentage of Dietary revenues, increased to 110.1% for the three months ended June 30, 2025 from 99.9% in the corresponding period in 2024, with the increases from the comparable period driven by the bad debt expense noted above.

Previous 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 the 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. Losses on the plan investments during the three months ended March 31, 2025 decreased our total selling, general and administrative expense, while gains on the plan investments during the three months ended March 31, 2024 increased 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 the 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 three months ended June 30, 2025 and 2024 increased our total selling, general and administrative expense.

Previous wording

Investment and other income, net was a gain of $1.3 million for the three months ended March 31, 2025, compared to a gain of $5.7 million in the corresponding 2024 period, due to market fluctuations in the value of our trading security investments representing the funding for our deferred compensation plan. Excluding the impact of such market fluctuations, interest and other income increased $1.1 million due to increased interest income from notes receivable and increases in cash and marketable securities on-hand.

Current wording

Investment and other income, net was a gain of $4.7 million for the three months ended June 30, 2025, compared to a gain of $2.6 million in the corresponding 2024 period, due to market fluctuations in the value of our trading security investments representing the funding for our deferred compensation plan.

Previous wording

Consolidated interest expense decreased to $0.4 million for the three months ended March 31, 2025 compared to $2.0 million for the same period in 2024 as we incurred lower average borrowings on our line of credit during the three months ended March 31, 2025 compared to 2024.

Current wording

Consolidated interest expense decreased to $0.4 million for the three months ended June 30, 2025 compared to $1.7 million for the same period in 2024 as we incurred lower average borrowings on our line of credit during the three months ended June 30, 2025 compared to 2024.

Previous wording

During the three months ended March 31, 2025, we recognized a provision for income taxes of $6.7 million, or 27.9% effective tax rate, versus a provision for income taxes of $6.0 million, or 28.2% effective tax rate, for the same period in 2024. The effective tax rate change is based on the impact of discrete items in each quarter combined with the impact of our full year income estimate on the tax provision.

Current wording

During the three months ended June 30, 2025, we recognized a benefit for income taxes of $9.5 million, or 22.7% effective tax rate, versus a benefit for income taxes of $0.2 million, or 10.0% effective tax rate, for the same period in 2024. The effective tax rate change is based on the impact of discrete items in each quarter combined with the impact of our full year income estimate on the tax provision.

Previous wording

The actual annual effective tax rate will be impacted by the tax effects of option exercises or vested awards, which are treated as discrete items in the reporting period in which they occur and may vary based upon the our common stock price at exercise and the volume of such exercises; therefore, these cannot be considered in the calculation of the estimated annual effective tax rate. The impact on our income tax provision for each of the three months ended March 31, 2025 and 2024 for such discrete items was an expense of $0.8 million and $1.0 million, respectively.

Current wording

The actual annual effective tax rate will be impacted by the tax effects of option exercises or vested awards, which are treated as discrete items in the reporting period in which they occur and may vary based on our common stock price at exercise and the volume of such exercises; therefore, these cannot be considered in the calculation of the estimated annual effective tax rate. The impact on our income tax provision for each of the three months ended June 30, 2025 and 2024 for such discrete items was an expense of $0.3 million and $0.2 million, respectively.

Previous wording

Excluding the change in the deferred compensation plan described above, consolidated selling, general and administrative expense increased $3.6 million or 8.5% for the three months ended March 31, 2025 compared to the corresponding period in 2024. The change was driven by increases in payroll and payroll-related costs including fleet vehicle expenses, impacted by ongoing inflation.

Current wording

Excluding the change in the deferred compensation plan described above, consolidated selling, general and administrative expense increased $4.9 million or 5.8% for the six months ended June 30, 2025 compared to the corresponding period in 2024. The change was driven primarily by increases in payroll and payroll-related expenses, including fleet lease expenses.

Previous 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 March 31, 2025, we had cash, cash equivalents and marketable securities of $114.8 million, restricted cash equivalents of $0.1 million, restricted marketable securities of $29.1 million and working capital of $376.2 million, compared to cash, cash equivalents and marketable securities of $107.3 million, restricted cash equivalents of $3.4 million, restricted marketable securities of $25.1 million and working capital of $364.1 million at December 31, 2024. Our current ratio was 2.9 to 1.0 at both March 31, 2025 and December 31, 2024. 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.

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 June 30, 2025, we had cash, cash equivalents and marketable securities of $134.5 million, restricted cash equivalents of $0.3 million, restricted marketable securities of $29.3 million and working capital of $318.4 million, compared to cash, cash equivalents and marketable securities of $107.3 million, restricted cash equivalents of $3.4 million, restricted marketable securities of $25.1 million and working capital of $364.1 million at December 31, 2024. Our current ratio was 2.5 to 1.0 at both June 30, 2025 and December 31, 2024. 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 the Company’s captive insurance company to satisfy capital requirements of the state regulator related to our captive insurance company.

Previous wording

For the three months ended March 31, 2025 and 2024, our cash flows were as follows:

Current wording

For the six months ended June 30, 2025 and 2024, our cash flows were as follows:

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 three months ended March 31, 2025, cash flow from operations included $17.2 million in net income, non-cash add-backs to net income of $8.9 million, and a $1.4 million increase in cash flows from changes in operating assets and liabilities, including the impact of ERC refunds received. Such activities 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 six months ended June 30, 2025, cash flow from operations included $15.1 million in net loss, non-cash add-backs to net income of $67.8 million, and a $3.6 million increase in cash flows from changes in operating assets and liabilities, including the impact of ERC refunds received. Such activities are the primary drivers of the period-over-period changes in net cash provided by operating activities.

Previous wording

The primary uses of cash for financing activities are repurchases of common stock. On February 14, 2023, our Board of Directors authorized the repurchase of up to 7.5 million outstanding shares (the “Repurchase Plan”). We repurchased 0.7 million shares of our common stock for $7.0 million, including commissions, during the three months ended March 31, 2025. We did not repurchase shares of our common stock during the three months ended March 31, 2024. We remain authorized to repurchase up to 5.4 million shares of our Common Stock pursuant to the Repurchase Plan.

Current wording

The primary uses of cash for financing activities are repurchases of common stock. On February 14, 2023, our Board of Directors authorized the repurchase of up to 7.5 million outstanding shares (the “Repurchase Plan”). During the three months ended June 30, 2025 and 2024, we repurchased 0.5 million and 0.3 million shares of our common stock for $7.6 million and $3.0 million, respectively, including commissions. During the six months ended June 30, 2025 and 2024, we repurchased 1.2 million and 0.3 million shares of our common stock for $14.6 million and $3.0 million, respectively, including commissions and excise taxes. We remain authorized to repurchase up to 4.9 million shares of our Common Stock pursuant to the Repurchase Plan.

Previous wording

Net income plus interest expense, income tax expense, depreciation, amortization, share-based compensation expense, costs incurred to maintain the line of credit facility and certain third-party charges associated with the line of credit agreement or permitted acquisition-related activity, subject to limitations.

Current wording

EBITDA is defined as net income plus interest expense, income tax expense, depreciation, amortization, share-based compensation expense, costs incurred to maintain the line of credit facility and certain third-party charges associated with the line of credit agreement or permitted acquisition-related activity, subject to limitations outlined in the credit agreement, incurred over a trailing twelve-month period.

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, furniture and fixtures. 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, of which we have made $1.7 million through March 31, 2025.

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, furniture and fixtures. 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, of which we have made $3.1 million through June 30, 2025.