HEALTHCARE SERVICES GROUP INC

Previous 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.

Current wording

Housekeeping services were provided to approximately 2,300 customer facilities at September 30, 2025 and contributed approximately 44.8% or $613.9 million of our consolidated revenues for the nine months ended September 30, 2025. Dietary services were provided at approximately 1,600 customer facilities at September 30, 2025, generating approximately 55.2% or $756.6 million of our total revenues for the nine months ended September 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 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.

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 nine months ended September 30, 2025 and 2024, we updated certain segment information for the three and nine months ended September 30, 2024 in order to conform with our current period segment presentation.

Previous wording

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

Current wording

Housekeeping and Dietary revenues represented approximately 45.6% and 54.4% of consolidated revenues for the three months ended September 30, 2025, respectively.

Previous 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.

Current wording

Consolidated revenues increased 8.5% to $464.3 million during the three months ended September 30, 2025 compared to $428.1 million for the corresponding period in 2024 as a result of the factors discussed below under Reportable Segments.

Previous 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.

Current wording

Housekeeping revenues increased 10.8% and Dietary revenues increased 6.5% during the three months ended September 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 existing customers and increased pass-through costs to customers.

Previous 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.

Current wording

During the three months ended September 30, 2025, we recognized $34.2 million of income, recorded as a reduction to costs of services provided, related to the receipt of ERC refunds for periods from the second quarter of 2020 through the second quarter of 2021. Excluding the impact of the ERC refunds, consolidated costs of services provided increased by 0.9% to $367.9 million for the three months ended September 30, 2025 compared to $364.7 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 79.2% for the three months ended September 30, 2025 compared to 85.2% 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 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.

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 89.2% for the three months ended September 30, 2025 from 90.0% in the corresponding period in 2024. Segment expenses for Dietary, as a percentage of Dietary revenues, increased to 94.9% for the three months ended September 30, 2025 from 92.6% in the corresponding period in 2024, with the increases from the comparable period driven by the bad debt expense noted above.

Previous 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, changes in the services provided to certain customers, 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.

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, changes in the services provided to certain customers, 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, and has also evaluated the impact of recent tariff and trade policy changes, which to date have not had a material impact on our operations or financial results as such costs are generally passed through to customers.

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. Gains on the plan investments during the three months ended June 30, 2025 and 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 in the deferred compensation plan. 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 September 30, 2025 and 2024 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 $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.

Current wording

Excluding the change in the deferred compensation plan described above, consolidated selling, general and administrative expense increased $2.4 million or 5.3% for the three months ended September 30, 2025 compared to the corresponding period in 2024, driven by a $2.1 million increase to selling, general and administrative expense for professional fees incurred related to the ERC refunds.

Previous 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.

Current wording

Investment and other income, net was a gain of $11.8 million for the three months ended September 30, 2025, compared to a gain of $3.8 million in the corresponding 2024 period. Included in investment and other income, net in 2025 was $5.3 million of interest income recognized on ERC refunds received during the three months ended September 30, 2025. Excluding the impact of the ERC refund, investment and other income, net increased due to favorable 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 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.

Current wording

Consolidated interest expense decreased to $0.4 million for the three months ended September 30, 2025 compared to $1.5 million for the same period in 2024 as we incurred lower average borrowings on our line of credit during the three months ended September 30, 2025 compared to 2024.

Previous 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.

Current wording

During the three months ended September 30, 2025, we recognized a provision for income taxes of $14.4 million, or 25.0% effective tax rate, versus a provision for income taxes of $4.8 million, or 25.4% 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 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.

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 the three months ended September 30, 2025 and 2024 for such discrete items was an expense of $10.4 million (driven by the impact of income recognition from the ERC refunds) and $0.3 million, respectively.

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 six months ended June 30, 2025 and 2024.

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 nine months ended September 30, 2025 and 2024.

Previous wording

Housekeeping revenues increased 5.4% during the six months ended June 30, 2025 compared to the 2024 comparable period, while Dietary revenues increased 7.7% over the same period. 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 increased pass-through costs to customers and organic growth in expanding services performed for customers.

Current wording

Housekeeping revenues increased 7.2% during the nine months ended September 30, 2025 compared to the 2024 comparable period, while Dietary revenues increased 7.3% over the same period. 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 increased pass-through costs to customers and organic growth in expanding services performed for customers.

Previous wording

Consolidated costs of services increased by 12.3% to $835.2 million for the six months ended June 30, 2025 compared to $743.7 million for the six months ended June 30, 2024 as a result of bad debt expense and the factors discussed below under Reportable Segments. During the six 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 $48.0 million, or 6.6%, in line with our revenue growth.

Current wording

During the nine months ended September 30, 2025 and 2024, we recognized $63.9 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 $48.5 million, or 4.4%, in line with our revenue growth.

Previous wording

Costs of services provided for Housekeeping, as a percentage of Housekeeping revenues, was 94.3% and 90.6% for the six months ended June 30, 2025 and 2024. Costs of services provided for Dietary, as a percentage of Dietary revenues, increased to 101.3% for the six months ended June 30, 2025 from 96.5% in the corresponding period in 2024, with the increases from the comparable period driven by the bad debt expense noted above.

Current wording

Costs of services provided for Housekeeping, as a percentage of Housekeeping revenues, was 92.6% and 90.4% for the nine months ended September 30, 2025 and 2024. Costs of services provided for Dietary, as a percentage of Dietary revenues, increased to 99.1% for the nine months ended September 30, 2025 from 95.2% in the corresponding period in 2024, with the increases from the comparable period driven by the bad debt expense noted above.

Previous wording

Included in selling, general and administrative expense are gains and losses associated with changes in the value of investments under the deferred compensation plan. These investments represent the amounts held on behalf of the participating employees and changes in the value of these investments affect the amount of our deferred compensation liability. Gains on the plan investments during the six months ended June 30, 2025 and 2024 increased our total selling, general and administrative expense.

Current wording

Included in selling, general and administrative expense are gains and losses associated with changes in the value of investments under the deferred compensation plan. These investments represent the amounts held on behalf of the participating employees and changes in the value of these investments affect the amount of our deferred compensation liability. Gains on the plan investments during the nine months ended September 30, 2025 and 2024 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 $1.3 million or 3.1% for the three months ended June 30, 2025 compared to the corresponding period in 2024. The change was driven by increases in payroll and payroll-related costs offset by reductions in legal and professional fees.

Current wording

Excluding the change in the deferred compensation plan described above, consolidated selling, general and administrative expense increased $7.3 million or 5.6% for the nine months ended September 30, 2025 compared to the corresponding period in 2024. The change was driven in part by a $2.1 million increase to selling, general and administrative expense for professional fees incurred related to the ERC refunds, along with increases in payroll and payroll-related expenses.

Previous wording

Consolidated interest expense decreased to $0.8 million for the six months ended June 30, 2025 compared to $3.7 million in the same period in 2024 as we incurred lower average borrowings on our line of credit during the six months ended June 30, 2025 compared to 2024.

Current wording

Consolidated interest expense decreased to $1.2 million for the nine months ended September 30, 2025 compared to $5.3 million in the same period in 2024 as we incurred lower average borrowings on our line of credit during the nine months ended September 30, 2025 compared to the same period in 2024.

Previous wording

During the six months ended June 30, 2025 and 2024, we recognized a benefit for income taxes of $2.9 million, or a 15.9% effective tax rate, and $5.8 million, or a 30.0% effective tax rate, respectively. 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 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 the six months ended June 30, 2025 and 2024 for such discrete items was an expense of approximately $1.1 million and $1.2 million, respectively.

Current wording

During the nine months ended September 30, 2025 and 2024, we recognized a provision for income taxes of $11.5 million, or a 29.2% effective tax rate, and $10.6 million, or a 27.8% effective tax rate, respectively. 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 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 the nine months ended September 30, 2025 and 2024 for such discrete items was an expense of approximately $11.6 million (driven by the impact of income recognition from the ERC refunds) and $1.5 million, respectively.

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 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.

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 September 30, 2025, we had cash, cash equivalents and marketable securities of $177.5 million, restricted cash equivalents of less than $0.1 million, restricted marketable securities of $30.0 million and working capital of $385.0 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 3.0 to 1.0 at September 30, 2025, and 2.9 to 1.0 at 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 of our captive insurance company.

Previous wording

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

Current wording

For the nine months ended September 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 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.

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 nine months ended September 30, 2025, cash flow from operations included $27.8 million in net income, non-cash add-backs to net income of $112.4 million, and a $12.7 million increase in cash flows from changes in operating assets and liabilities, all inclusive of $51.8 million 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”). 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.

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 September 30, 2025 and 2024, we repurchased 1.7 million and 0.1 million shares of our common stock for $27.3 million and $1.0 million, respectively, including commissions and taxes. During the nine months ended September 30, 2025 and 2024, we repurchased 2.9 million and 0.4 million shares of our common stock for $42.1 million and $4.0 million, respectively, including commissions and excise taxes. We remain authorized to repurchase up to 3.1 million shares of our common Stock pursuant to the Repurchase Plan.

Previous wording

For the six months ended June 30, 2025 and the year ended December 31, 2024, our quarterly repurchases of common stock, excluding commissions and excise taxes, were as follows:

Current wording

For the nine months ended September 30, 2025 and the year ended December 31, 2024, our quarterly repurchases of common stock were as follows:

Previous wording

At June 30, 2025, 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 to SOFR. At June 30, 2025, we had no borrowings under the line of credit.

Current wording

At September 30, 2025, 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. Our line of credit also provides, at our discretion, the ability to increase the revolving loan commitments to an aggregate amount not to exceed $500 million. At September 30, 2025, we had no borrowings under the line of credit.

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 $3.1 million through June 30, 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 $4.4 million through September 30, 2025.