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 2,800 facilities throughout the continental United States as of September 30, 2025. We believe we are the largest provider of housekeeping, laundry and dietary 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 more than 2,500 facilities throughout the continental United States as of March 31, 2026. 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 are organized into two reportable segments: housekeeping, laundry, linen and other services (“Housekeeping”) and dietary department services (“Dietary”).

Current wording

We are organized into two reportable segments: housekeeping, laundry, linen and other services (“Environmental Services” or “EVS”) and dietary department services (“Dietary”).

Previous 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.

Current wording

Environmental 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

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.

Current wording

EVS services were provided to approximately 2,300 customer facilities at March 31, 2026 and contributed approximately 45.0% or $208.3 million of our consolidated revenues for the three months ended March 31, 2026. Dietary services were provided at approximately 1,600 customer facilities at March 31, 2026, generating approximately 55.0% or $254.5 million of our total revenues for the three months ended March 31, 2026.

Previous wording

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

Current wording

EVS and Dietary revenues represented approximately 45.0% and 55.0% of consolidated revenues for the three months ended March 31, 2026, respectively.

Previous 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.

Current wording

Consolidated revenues increased 3.4% to $462.8 million during the three months ended March 31, 2026 compared to $447.7 million for the corresponding period in 2025 as a result of the factors discussed below under Reportable Segments.

Previous 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.

Current wording

EVS revenues increased 6.1% and Dietary revenues increased 1.3% during the three months ended March 31, 2026 compared to the corresponding period in 2025. The increase in revenues was driven by client wins and retention, driven by consistent service execution across our customer facilities, contractual price increases, and increased pass-through costs to customers.

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, 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.

Current wording

We include certain expenses classified as selling, general and administrative expenses within segment expenses. Segment expenses for EVS, as a percentage of EVS revenues, decreased to 87.8% for the three months ended March 31, 2026 from 89.2% in the corresponding period in 2025. Segment expenses for Dietary, as a percentage of Dietary revenues, decreased to 91.0% for the three months ended March 31, 2026 from 92.4% in the corresponding period in 2025.

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, 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.

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. The decrease in labor and labor-related costs across both segments is driven primarily by reductions in workers’ compensation expense.

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 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.

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. Losses on the plan investments during the three months ended March 31, 2026 and 2025 decreased our total selling, general and administrative expense for each period.

Previous 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.

Current wording

Excluding the change in the deferred compensation plan described above, consolidated selling, general and administrative expense decreased $2.9 million or 6.2% for the three months ended March 31, 2026 compared to the corresponding period in 2025. Decreases were driven by discipline in execution and leveraging our topline growth to gain efficiencies.

Previous 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.

Current wording

During the three months ended March 31, 2026, we recognized a provision for income taxes of $8.5 million, or 24.6% effective tax rate, versus a provision for income taxes of $6.7 million, or 27.9% effective tax rate, for the same period in 2025. 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 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.

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 are not considered in the calculation of the estimated annual effective tax rate. The impact on our income tax provision for the three months ended March 31, 2026 and 2025 for such discrete items was a gain of $0.4 million and an expense of $0.8 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 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.

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. The following table includes the balances of our primary sources of liquidity at March 31, 2026 and December 31, 2025:

Previous wording

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

Current wording

For the three months ended March 31, 2026 and 2025, 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 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.

Current wording

Our primary sources of cash from operating activities are the revenues generated from our Environmental 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, 2026, cash flow from operations included $26.1 million in net income, non-cash add-backs to net income of $12.7 million, and a $5.0 million increase in cash flows from changes in operating assets and liabilities.

Previous wording

Our principal uses of cash for investing activities are acquisitions and other strategic investments, 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.

Current wording

Our principal uses of cash for investing activities are acquisitions and other strategic investments, capital expenditures such as EVS 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

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.

Current wording

The primary uses of cash for financing activities are repurchases of common stock. On February 10, 2026, our Board of Directors authorized the repurchase of up to 10.0 million outstanding shares (the “2026 Repurchase Plan”). This replaced a previous authorization from our Board of Directors on February 14, 2023, which had authorized the repurchase of up to 7.5 million outstanding shares (the “2023 Repurchase Plan”, together with the 2026 Repurchase Plan, the “Repurchase Plans”) and of which 5.9 million had been repurchased.

Previous 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:

Current wording

For the three months ended March 31, 2026 and the year ended December 31, 2025, our quarterly repurchases of common stock were as follows:

Previous 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.

Current wording

At March 31, 2026, we had a $300 million bank line of credit (the “Credit Agreement”) 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 March 31, 2026, we had no borrowings under the line of credit.

Previous wording

All indebtedness for borrowed money including, but not limited to, capitalized lease obligations, reimbursement obligations in respect of letters of credit and guarantees of any such indebtedness.

Current wording

All indebtedness for borrowed money including, but not limited to, capitalized lease obligations, reimbursement obligations in respect of letters of credit and guarantees of any such indebtedness. As of March 31, 2026, we do not have any funded debt, as defined in the Credit Agreement.

Previous wording

As noted above, we were in compliance with our financial covenants at September 30, 2025 and we expect to remain in compliance. The line of credit expires on November 22, 2027. We believe that our existing capacity under the line of credit and our history of favorable operating cash flows provides adequate liquidity to fund our operations for the next twelve months following the date of this report.

Current wording

We were in compliance with our financial covenants as of March 31, 2026 and expect to remain in compliance. We believe that our existing capacity under the line of credit and our history of favorable operating cash flows provides adequate liquidity to fund our operations for the next twelve months following the date of this report. At March 31, 2026, we had outstanding $32.0 million in irrevocable standby letters of credit, which relate to payment obligations under our insurance programs.

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 $4.4 million through September 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 EVS 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 2026, we estimate that for 2026 we will have capital expenditures of approximately $5.0 million to $7.0 million, of which we have made $1.4 million through March 31, 2026.