Q2 2020 Healthcare Services Group Inc Earnings Call
Ladies and gentlemen, as the operator today's conference is scheduled to begin momentarily until that time your lines will again be placed w. as a cold. Thank you for your patience.
[music].
Group Inc. within the meaning of the private Securities Litigation Reform Act of 1995 forward looking statements are often preceded by words, such as believes expects anticipates plans will call me intend estimate or similar expressions.
Forward looking statements reflect management's current expectations as of the data. This conference call that involve certain risks and uncertainties forward looking statements are based on assumptions that we have made in light of our industry experience in our perceptions of historical trend current conditions expected future developments and other factors that we believe are appropriate circumstances.
With any projection or <unk> forecast, they are inherently susceptible to uncertainty and changes in circumstances health care services group Inc. actual results could differ materially from those anticipated any sports looking statements as result of various factors in forward looking statements are not guarantees a performance some of the factors that could cause future adults to materially differ from recent results are there.
Projected in forward looking statements are included in our earnings press release issued prior to this call. It in our filings with the Securities and Exchange Commission, including the Fccs ongoing investigation.
There could be no assurance that the FCC or another regulatory body will not make further regulatory inquiries or pursue further action that could result in significant cost and expenses, including potential sanctions or penalties as well as destruction to management young going I see see investigation and or any related litigation could adversely affect or cause variability in our funding.
Results, we're under no obligation and expressly disclaim any obligation to update or alter the forward looking statements whether as a result of such changes new information subsequent events or otherwise.
Ladies and gentlemen, thank you for standing by.
And welcome to the.
Yeah Health care services group Inc., 2022nd quarter results Conference call.
At this time all participants are in listen only mode. After the speakers presentation. There will be question answer session to ask a question. During the session. You know what do you need to press star one on your telephone if your car any further assistance. Please press star Zero, Oh life now like to turn the call over to your host Mr., Ted Wahl President and CEO. Please go ahead.
Thank you Sharon and good morning, everyone, Matt Mckee and I appreciate all of you joining us for today's conference call.
Yesterday, we released our second quarter results and plain old filing our 10-Q by the end of the week.
First and foremost and on behalf of all of US at Health care services group I want to extend our deepest sympathies to those whose health and wellbeing hasn't been affected by Kobin pain.
In the face of these unprecedented challenges it's been beyond inspiring to witness our H.C.S.G. heroes as a day alongside our clients employees positively and profoundly impact the lives of it.
Mark is most vulnerable each and every day.
As we continue our intensive focus on mitigating the operational impacts of the virus, we remain steadfast in our commitment to support our customers into care of their patients in residence, while simultaneously, ensuring the health and safety of our most valued resource our employees.
We're pleased with our strong operating results in service execution during the quarter today, our value proposition is more compelling than ever before by prioritizing systems implementation in adherence increasing customer payment frequency.
And management recruitment and development over the past couple of years, along with investments we've made in technology and programmatic enhancements to our workers comp NGL program, we are well positioned to drive.
In the current environment and in the new norm to come.
As we continue to navigate this crisis, we will continue to assess the impact of cobot 19 on our business and our industry, including the trends, we're seeing with regard to lower census, and increased cost.
It's important to recall that prior to the onset of the pandemic.
Sector fundamentals were improving on the heels of positive trends around occupancy reimbursement and lease cost.
And well Cobot 19 has presented the industry with its share of near term challenges. We've been very encouraged by the Swift and decisive federal and state agency actions to financially support providers in combating Thats crisis, and we continue to see that support be put to good use on the front line.
We believe that due to its needs based nature and multi decade demographic tailwinds the industry's pre pandemic state of more favorable operating trends will return post pandemic.
Looking ahead, we will continue innovating in managing our business.
Coordinating with nursing departments to do our part in the infection prevention and control continuum and remaining flexible in responding to our client partners evolving service level staffing and supply chain needs.
This time, we will continue with our cautious view on growth as we make our way into a new norm and above all remain deeply committed to making decisions that best position us to deliver shareholder value over the long term.
So with those introductory comments I'll turn the call over to Matt for a more detailed discussion on the quarter.
Thanks, Ted good morning, everyone.
Revenue for the quarter was $452 million with housekeeping and laundry and dining and nutrition segment revenues of 227.6 million in $224.4 million respectively.
And you included $17.2 million of Cobot 19 related supplemental billings, primarily related to employee pay premiums, which were initiated by and passed through to customers.
This was offset by temporary decreases in recurring billings, resulting from census, driven cost reductions in staffing and purchasing most of which were initiated in the latter part of the quarter looking ahead to the relative impact we entered the third quarter with the recurring billing run rate of approximately $430 million and would expect these temporary read.
The auctions in cost and recurring billings to remain in place until census, recovers and our staffing and purchasing levels increase accordingly, which is very much appreciated by our customers.
Net income for the quarter came in at $24.3 million and earnings per share was 31 cents per share.
Direct cost of services was 387 million $387.5 million or 85.7% as the majority of account managers, who had transitioned out of a facility. We're no longer servicing our now assigned to new facilities at which they are budgeted overall, our near term goal remains to managed directly.
Cost at or below 86%.
[noise] housekeeping and laundry and dining and nutrition segment margins were 11.1% and 8.3% respectively.
Yes, you name it was reported at $41.5 billion were 9.2% after adjusting for the 6.5 million dollar increase in deferred compensation. Actual asked you name. It was $35 million were 7.7% and we expect asked you need to remain in the 7.5% to 8% range in the near term as those costs are largely fixed.
But continue to ultimately target as gene I have 7.5%, excluding any cobot 19, or FCC related costs with the primary pathway to leverage that existing in topline growth.
Investment and other income for the quarter was reported at $7.4 million after adjusting for the six and a half million dollar change in deferred compensation actual investment income was around $900000.
We reported an effective tax rate of 24% for the quarter and expect our tax rate for 2020 to be in the 24% to 26% range, including Watsi.
To the balance sheet at the ended the second quarter, we had cash and marketable securities of over $170 million any current ratio better than three to one.
Cash flow from operations was $79.7 million inclusive of the 20.7 million dollar increase in accrued payroll 15.4 million of which was related to the deferral of payroll taxes under the cares Act.
And because we have previously called out the quarter to quarter impact of 2020 payroll accruals, but the rest of year, we're expecting payroll accruals a four days in the third quarter and 12 days in the fourth quarter ultimately the payroll accrual only relates to timing and the impact washes out through the full year.
Additionally, we expect an incremental $15 million or so in payroll accrual in both Q3 and Q4, resulting from that payroll tax deferral under the cares act to be paid at the end up 2021 and 2022.
Yeah. So for the quarter was 60 days down two days from the previous quarter.
We're pleased with the ongoing strength of our balance sheet and the ability to support the business, while continuing to return capital to each CSG shareholders.
Announced yesterday that the board of directors approved an increase in the dividends at 20.375 cents per share payable on September 25th 2020, the cash flows and cash balances supported and with the dividend tax rate in place for the foreseeable future attacks dividend program continues to be the most tax efficient way to get free cash flow and ultimately Maxim.
Minds return to the shareholders.
This will mark the 69 consecutive cash dividend payments since the program was instituted in 2003 and the 60 eightth consecutive quarterly increase that's now a 17 year period. That's included four three for two stock splits we recognize the dividend is important to our shareholders and we've increased the inline with our performance track record.
So with those opening remarks, we'd like to now open up the call for questions.
[noise], if you'd like to ask a question at this time. Please press Star then the number one on your telephone keypad, if you'd like to withdraw your question. Please specify alky what thoughts for just a moment tick up how the Q any roster.
The first question comes from Sean Dodge with RBC capital markets.
Thanks, Good morning.
Maybe on the starting on the sales Frank Ted you mentioned, a cautious view on growth in.
Can you talk a little bit about demand you're seeing for new outsourcing new facility had deployed effectively all despair managers into existing facility. So it looks like at least for the time being there isn't anything significant you expect but any color on on how long you think this could last when you might start adding new facilities.
Yeah. It's it's a great question, Sean it's good to talk to yeah. Yeah. We had hoped to with had greater clarity by mid year, you know with especially coming ended the year with the transition from PDP and that would have been completed and you know even in the cobot environment, we would've had four months or so of operating in it.
Oh, good world a were better inform today as to how cold it impacted the industry and our client facilities, but I think to your point the determination as to Onboarding new facilities, especially in the current environment remains cautious it's difficult to put an exact timeframe on it Sean but you know are the reality is our value proposition is enhanced.
The demand you know you asked about the demand is stronger than it's ever been so I think it is more of a timing consideration at this point really looking more towards 2021 as a timeframe for what I would describe as consistent top line growth like we've seen in years past, that's not to say that we're not going to look selectively to add new business.
You know over the third and fourth quarters and conditioned on the ground could change where we have a higher degree of confidence to do that but you know sitting here today really looking more towards 2021 thinking of the back half of the year more selectively grow growing.
Okay, Great and then it.
Your cash collections in the quarter were really strong even after adjusting for the tax deferral in the in the payroll.
Can you just walk us through you saw there and then as we look added to the back after the year, maybe the cadence.
Cash wise, you expected <unk> going forward.
Yeah, I think from a cash flow perspective look that's that's up and I high priority for us.
Over the past couple of years and you know if we were sitting here.
A couple of years ago, and we were having a conversation about how many of our customers were paying us had a frequency of greater than monthly we would have talked about it being about a handful here we are today and over 60% of our customer base is paying us at a frequency greater the monthly with the vast majority paying us weekly so that.
More than anything has been transformational too that the consistency and predictability of our cash flow and I think that's what I would point to is being the driver of that strong underlying cash flow in terms of the rest of the gear.
No. It's we have a couple of moving parts between the the payroll accrual that Matt described.
In his opening remarks, as well as the deferral of payroll taxes, but the way we're thinking about Q2 three in Q4 would be Q3, because there is a negative impact or an adverse impact from the the traditional H.C.S.G. payroll cruel I'm, so thinking into $15 million to $20 million range. That's include.
So both payroll tax accrual as well as deferral payroll taxes and for the fourth quarter somewhere in the $45 million to $50 million range. So back half of the you're really looking at 60 to 70 million and that is again inclusive of the impact of the payroll tax deferral as well as the payroll accrual.
Okay very helpful. Thanks again.
Thank you Sean.
Next question comes from Andrew Wittmann with Baird.
Great. Thanks, guys I just wanted to make sure that the revenue trends in the quarter were really clear. So I've got a couple parts on this one that I just wanted to go through here. So.
Basically said $17 million a supplemental billing.
Those are basically I'm not sure I call it kind of extra payment some employees from for coal good there's basically.
No margin in that basically.
Your clients your customer said.
We want to pay a pretty a little bit more you said, great. That's revenue for us, but that all goes to the employees. That's the right way to think about how that mechanism works there Matt.
That's right that's exactly right Andy that Dick the customer initiate hero pay.
We'd premiums attendants bonuses, however, they prefer to classify it.
That then gets accordingly passed along to our employees and then the billing gets passed along to our customer with no no margin associated with it.
Okay got it but then there's this offsetting factor here, where it looks like basically low aucs lower occupancy or census has driven need for <unk> less labor to clean due to the laundry serve the food as well as I guess, what probably lower pass through costs on food costs, I guess and so.
Those all have no negative implications on your revenues and you gave us kind of the run rate, which is helpful. But I guess my question is.
Underneath sad to your profit dollars per site change or is this really more of a topline phenomenon rather than a profit phenomenon.
It's more the former than the latter Andy in that this is this is cost driven first and foremost in that you know as there are facilities that have been especially hard hit in census, we've talked about this dynamic previously where if theres a facility, that's down 3% or even 5% from a census perspective.
Not a whole lot that we can do to adjust our costs downward obviously, you'd think about something like serving meals and you're only going to serve meals to the folks that are in that facility. So theres an adjustment that's made their very specifically for even modest census movements in either direction, but it takes a larger different census, and we're seeing those sadly.
In some geographies, we're seeing dips and census in the 15% to 20% range when that happens you're working in concert with the customer to typically make an adjustment whether they're closing off a unit or.
Sealing off a a second floor and moving residents and into one specific part of the facility, which allows us to then not have to clean the full facility, we can sort of quarantine and close off a portion of the facility and and as much as were able to more significantly alter our staffing and supply costs in.
And we've been pleased to pass that corresponding billing benefit along to the customer. So the intention is of course to retain.
The what we would call that the profit where the management fee dollars at that facility and simply pass along the cost benefit by way of reduced billings to the customer associated with either that staffing reduction where the supply food or purchasing reductions.
Okay, Great. That's really helpful. And then I guess kind of just a third part of this kind of revenue question here is.
Okay. So you kind of mentioned that those factors are given us a run rate here, but you didnt mention that it's hazard payer the supplemental payment for hero pay has has continued to cure into Threeq you wonder.
Our expectations for that in is that given in that run rate that you're looking at that you previously said in your prepared remarks that included in there.
It continues Andy it does continue, albeit at a reduced level, obviously, that's a tricky decision for any customer to make right. What is the appropriate timing to begin to step down some of those premiums were bonuses. So our customers are working through that that'll be again a decision.
That they make and we.
Our party too as it relates to our employees and then that corresponding pass through in billing to the customer. So it's in the hands of the customer. So we will likely see some ongoing continuation of that pay premium in the hero pay but likely at a at a level that's fairly well reduced as compared to Q2. So it's a really it's a bit.
Tricky to project, but you know our best estimate may be that we'd be looking into Q3 impact somewhere around a third of what we saw in the second quarter, but again, that's in a wholly in the hands up the customer. So we'll continue to monitor that and we'll report on that after the Q3 results.
Super Helpful. My last question I promise is it's for Ted Ted You mentioned your prepared remarks.
Numerous federal as well as Medicaid enhancements that have supported your customers through this I was just wondering if you could discuss in a little bit more detailed the significance of those and if any of those programs that have been maybe a more helpful.
Come to an end soon and require incremental funding in the near term.
To keep things operating like we're seeing today, which is it seems like you know obviously, it's a difficult environment, but it seems like you customers are managing through it.
But I was just wondering like what's the horizon that that you have on on some of this governmental support is there enough to get you through the short term before we can get to the other side of this and just your thoughts on that.
Yeah, well I think the general sentiment would be more more is going to need to be done I do believe.
Based on all of our all of our contacts connections and directly and indirectly.
With industry lobbying groups and customers alike that the government's fully committed to saying this through.
So there is a recovery, but in terms of what what is here to stay in what what's going away. Obviously there was the initial 30 billion grant that was part of the cares Act and then the subsequent 5 billion that came through that was more of a per facility allocation I think the only two temporaries.
That that really had or having a meaningful impact would be the Medicare accelerated payment program and the ability to withhold payroll taxes that I referenced earlier for us but.
The reality is not as many providers took advantage of the former and I think even with the payroll taxes, you have a pretty long pay time period to repay them and then what's been done so far that's really been impactful would PPP has been significantly impactful and.
Many of our customers, we're able to derive benefit from that program, obviously, the sequestration holiday, which which does expire and run through the end of the year.
And I think probably the most under reported but may be beneficial of the of the let's say regulatory relief.
Aside from the elimination of the three day bed hold would be the.
Three three day wait period would be the new payment.
Keeping PDP and in place as is essentially for a year now.
Theres not a hell of a lot of group and concurrent therapy happening in cobot impacted facilities at the moment.
But you know once you know things begin to at least enter the new norm and group and concurrent therapy can can re emerge that would be that will be beneficial you know in terms of what's on the horizon I'd say, there's a couple there's probably.
Three very significant.
Opportunities I think that would really add to the sustainability of kind of the positive you know certainly trends that we're starting to that we're seeing in terms of the industry's responsive as one would be clarity around testing and that's been a recent development over the past couple of weeks with point of care test.
Thing coming out so that will be significant both from an operational as well as a financial perspective, the other at the federal level would be some form of co bid related immunity.
More than half the states have moved in that direction. Some through effect executive order others through legislation, but that I know is being contemplated in stimulus to and then the most significant one will be stimulus to and what type of relief is provided within that which is still yet to be determined.
The other thing I would add to that Andy is I do believe there's a significant need for more targeted stimulus or reimbursement regulatory relief for those for those providers that had been most impacted so rather than the machete approach, which I think it's been positive for the industry.
To really better, but but maybe has left some of those most impacted providers behind to really target. Those that are dealing with you know that are at the tip of the spear read in epicenter and I do note. There's there's a desire to get something along those lines, Don and I think thats important for that to happen as well.
Thanks, a lot of have a great take us.
Great you too thanks, Andy.
Next question comes from Ryan Dang Daniels with William Blair.
Hi, guys. Thanks for taking the question Ted one for you in regards to the somewhat cautious growth outlook.
Is that more due to difficulty kind of starting new facilities up in this environment or due to the census pressures that at a place on the existing book of business as we look in the back half of the year.
Yes, its its number one it's probably self driven a there theres theres a few different components to it there is a self driven component and eight CSG.
Decision to taking make more cautious view just with the uncertainty that we have over the next three to six months in particular in a in a pre vaccine world knowing that.
Until or unless there is a vaccine where we're going to be operating.
As a world as a country and certainly as an industry with a higher degree of uncertainty.
But otherwise you know the the two trends you pointed out are the two considerations you pointed out are absolutely part of the equation as well is what what you have like two extremes. You have you had you could have to providers that.
Our in demand of health care services group, one of which you know couldn't get us and fast enough. The other one who just wants to wait until the pandemic as over because they'd be reluctant to make a change in the midst of the current situation you know the other one wants to make a change because of the situation. So.
I think they would be the two biggest driver assist or why the overall outlook is cautious.
Okay, Great and do you worry about any longer term behavior changes in regards to referrals. You know my colleagues who covers sniffs in home health has done some survey work and it seems like there's not a preference more for home health care versus sniffs that could have a kind of longer term effect on occupancy so just want.
To get your thoughts on that thank you.
Yeah, I'd be reluctant to forecast you know I mentioned in my opening remarks that the realities of the industry long term and post acute care.
Is that it is largely a needs based type industry and when you look at that coupled with the powerful demographic tailwinds, Brian again, I'd be I'd be hard pressed to say that theres not going to be an increasing demand maybe with some peaks and valleys and obviously the political football that wants to lever.
The entire health care continuum, which I believe we'll need the one thing I would say about home health care is.
The majority of patients and residents, especially the non you have the the acute the post acute care resident but in the long term care segment in particular, the majority of those residents require 24, seven care and home health environment is not conducive to that so that's a difference that.
<unk> I don't know me I don't I don't believe that makes the headlines.
But but certainly should be should be considered win win one is having those types of conversations so.
Right I would I would only add to that and I think this is a tricky because without having seen the exact survey.
This is I think a perception that is a bit misplaced.
Because if you think about asking someone jeez. If you could have your loved one mom and dad age at home gracefully under the care of a nurse of course, who wouldn't want that right, but the reality is just had alluded to from a financial perspective, and certainly from a nursing capacity perspective, it's not realistic to think that.
The provision of home care is going to be possible given the demographics alone right. So it gets a bit tricky I think when you think about consumer preferences and a survey like that where you know you're really sort of touching on emotional heartstrings, but when you contrast that with the availability of nursing that 24 hour nursing care and of course.
Bonnie costs, it's generally a very different conversation.
Yeah. That's helpful. Thank you guys.
Alright. Thanks, Ryan next question comes from AJ Rice with credit Suisse.
Hi, everybody so.
First of all so just to put a oh point on that comment about the relief at all I mean, if you would assume based on what you're going for the customers I don't see any filings for bankruptcy. It doesn't sound like there was a lot or restructure your contracts still ongoing.
Do you think we're sort of clear through the end of the year on that at least and then it's sort of we'll see how things shake out in terms of incremental relief and.
Rebound in the sense is next year is at a fair way to characterize the situation from your perspective.
What I would say days, we've seen no indications that would suggest you know there's there's there's troubled waters ahead over the next three to six months' with respect to specifically to payment by I again, I am always reluctant to point to the industry.
As as a favorable or unfavorable tailwind with payment now that's on US that's a contract integrity issue. We are in and we are in an essential service.
That really largely as payroll related and if we're not number one on the list right right shoulder to shoulder with the customers employees than that that's a health care services group matter that we have to deal with not a not an industry related matters. So irrespective of the environment I'm not saying, we're rooting for one.
Type of environment or the other obviously, we want the most stable environment as possible because that's that's good for society. That's good for those that are being cared for thats good for our customers, but again to the heart of your question.
That's ultimately you know that's ultimately healthcare services group and us, making sure Theres mutual mutual a commitment to the contract integrity around payment.
Okay.
In other words to drill down a little further Romans, which said so you say, you're you're sort of reluctant or being very cautious about adding new business as you progress the back half year is that.
Yes.
You got your hands full with your existing business. There's lot of Ah you want to make sure you got that right or are you you feel like the customers themselves.
Or not.
Yet ready to take on a shift dining or housekeeping or whatever.
And can you say anything about pipeline relative.
Whether you open now or whether you open.
[music] account in the first half of next year is the pipeline as you perceive it still about the site.
Yeah, I would just clarify the initial way you frame. The question AJ, it's not a reluctance to onboard new business, but just a cautious approach right and were not dismissive of new business opportunities and we're not suggesting that there's not a possibility to perhaps fully that an onboard some new facilities in the upcoming quarter.
There's the reality is that we would likely have.
Well established comfort level with any facilities that we would onboard so that would be an expansion to add additional facilities with existing customers of ours.
Sure to initiate a new relationships with operators with whom we've worked previously there does need to be that comfort because we do and even the best most stable environment enacted at very comprehensive assessment of any new business partner to determine the appropriateness and viability.
The contractual relationship with them so that carries through and that does continue you raised the point about sort of minding the shop, and we are absolutely committed to and focused on delivering operational outcomes within the existing customer base. So we certainly do not want to distract our operators from delivering on that task, but.
There is opportunity our operators are expert in sort of not only managing the base business, but on boarding business as well so that less of a concern assuming that we have the managerial wherewithal and capacity to onboard that new business. So that's really kind of the way that we're thinking about it all of which feeds into the final component of your question.
Which is the pipeline and as you can imagine Ted very emphatically noted in his opening comments that our value prop resonates far better today in this environment than it has in decades, if not ever show. We are fielding inbound calls and we are continuing to cultivate that pipeline. This gives us the.
Opportunity to sort of re order and prioritize the order of.
Those prospects that are out there and why the timing may be a little bit of a moving target that pipeline is as robust if not more robust than it's ever been so the point at which we determine makes sense to kind of re ramp into growth mode more excess aggressively we are very well situated with.
Second pipeline of opportunities from which to choose.
Okay.
Not to put words in your mouth, but I just want to make sure.
I'm understanding what you're saying so you're.
So it sounds like it's more the.
Industries and sort of a state of blogs with a volatile senses, we've got some cares that money how people out.
Make sure that anybody you onboard is there for the long term and.
Have a good sense of what there.
Financial profile looks like.
Yes, you compare it looks coming out of that is that sort of.
The gating factor that you're highlighting there I think thats, a very reasonable and fairway to frame it AJ.
Okay. Just last thing I was going to ask about was.
I just great people are getting this he wrote pay and premium pay I'm sure that's helping in recruiting hourly workers bucket last call. We talked about this concept that.
You know some people might just saying hey, nursing home environment is a tough environment to work and with these cobot cases look through the facility and and I just don't want to sign on for that.
Is that an issue at all are you finding people willing to work <unk>.
Rates that are being paid it or is there just sort of this reluctance to as a worker to go into a nursing homes. These days, what's happening with your turnover in your recruitment of hourly workers.
It's a conversation at a minimum right Ajay you couldn't no have an interview with someone who is applying for a position and not speak very frankly, but the reality of the nursing home environment, both historically and in the present midst of a pandemic. So it is a very open and honest conversation the.
Really encouraging.
Dynamic that we're seeing as we continue to get applications and applications continue to flow for both our associate level lines that positions and into our management training program. So while there is this sort of.
Yes.
Media coverage and negative headlines yeah. There are a number of people who are really approaching the work that we do much more as sort of a calling for a career much more so than simply a job right and that's not to dismiss the fact that.
Looking around at the labor environment people are looking for opportunities that are hiring and our industry and we specifically our hiring and have continued to higher throughout the pandemic. There's certainly an appeal associated with that but much more so AJ I think.
The the spotlight thats been shown on this industry has really opened up some additional opportunities for folks who certainly looking for gainful employment, but you don't want to feel that they can contribute and want to feel that they can make an impact in a difference in this population. The most vulnerable portion of the U.S. population. So we very much see that in.
Our employees to connections that they develop with the residents within the facilities the camaraderie that exist between our employees in our departments and the other departments within the facility and the role that these folks take very seriously and the responsibility that they feel to deliver the appropriate level of care in the performance that we can provide.
To deliver that added comfort to the residents in the midst of what as you can imagine for somebody at that age population that are very confusing and challenging emotionally trying times.
Okay, great. Thanks, a lot.
Next question comes from Brian to kill it with Jefferies.
Morning, guys I.
I guess the first question on the.
Census, driven adjustment to revenue is their contractual contractual structure. That's in place there or how does that I know you gave some exploration on what drives that but how should we think about your visibility into that over the next few quarters.
So across the industry remains low.
The majority of it was outside the contract. So it was collabra in collaboration with the customer there are some.
Contract designs, where we have.
Fixed portion of labor in dining with a version of a variable portion in and dining COO for food purchasing and procurement as Matt highlighted there is a much more direct correlation between meals served and eight CSG spend so majority of it was outside the contract and collaborate.
In collaboration with.
Got it and then.
Going back a question earlier, so as you think about you know the onetime in nature. So these care sat dollars right. It clearly that help the the payment ability of your client base and they may be your dsos as well so as a big build it funds the industry again.
Are you worried that this was a onetime benefit on cash flow.
Yeah, we don't design the company or any of our strategies around one time windfalls, where we're in this for the for the long term for the annuity. So there's ebbs and flows quarter to quarter year to year. Obviously, we're in the midst of a pandemic. So theres maybe increased variability, but if you look over the past 18.
Months pre pandemic, we've collected what we've built and we were plus 10. This past quarter. So again I think look at look out over the past 18 months and I think you'd see that I.
I don't think there's a onetime dynamic to that so now I'm not concerned.
Yeah, and then my last question as we think about the resurgence in coated in Florida, and Texas that we've seen in the last few weeks you know I know you gave your run rate exiting Q3, but have you seen any.
Pick up in census, driven adjustments on the revenue side in those markets.
We've not Brian and the reality is that as closely as we're monitoring the occurrence and increased incidence of cases in the states you mentioned, it's largely within a much younger portion of the population right I mean, the nursing homes have fairly well adapted their operations and restricted guests into the funds.
Realty is the employees within the walls of a nursing home.
Our very protective and understand the operational protocol that are in place to prevent further spreads. So it's not fortunately to this point, it's those resurgence is or the second wave that we're seeing and some of those markets that you referenced have not made their way into the nursing home space and we don't anticipate that they will.
Got it thank you guys.
And I would just had one one additional point related to the census, driven temporary reductions in revenues were really agnostic to them in many respects leaning towards favorably inclined to the extent, we can make them because it's to the benefit of our customer and it's the right thing to do so we don't think.
All of it as a positive or a negative per se other than the fact that were highly motivated to support and be great partnership with our customers. So from that perspective, you know moving forward, we don't think Theres theres a lot more on the comp. We do think were if not troughed close to troughing.
But you know I think from incentive driven adjustment perspective since they are temporary over the coming months over the coming quarters without having a specific timeline in place as census recovers, we would expect that revenue.
To recover as well that's related to those existing facilities.
Next question comes from Bill Sutherland with benchmark company.
Hey, thanks, everybody.
Just two for me at this point could dining margin in particular.
Was up dramatically.
Versus prior period is that it's not just the leverage.
Not just the labor, but who cost.
No. It's the majority of that dining the margin improvement and dining and I'd say just overall was related to.
So having the success we did this past quarter of assigning the majority of the excess management capacity to new opportunity. So the majority of those managers, we called out the past few quarters inclusive of last quarter have now been fully assigned and our operating within a facility budget. The other I think factor that is a more of us.
Our longer term strategic initiative that we've been focused on over the past couple of years has been systems implementation at it and adherence what we're calling our operational imperative, but it's a laser like focus on systems customer satisfaction compliance and budget to actual performance.
So I think those two combined again be too.
No not just a quick.
Benefit over a short period of time, it's a longer term play that ultimately increase the service levels and outcomes for the services were providing.
And then lastly, yes, there was some benefit.
Would you called out which was as a result of decreasing.
Where we had the temporary decreases the revenue and then.
Decreasing on a dollar for dollar basis, the corresponding cost in the event that we were making a sense just driven adjustment.
Right.
On that score to just I just want to make sure I understand the math. So your recurring billings going into this quarter's around 430 million.
And if the it's a supplemental premium buildings are less let's just say or roughly a third just.
Yes, Matt suggested.
You'd be doing.
Something between for 35 import 40, but as far as gross margin is concerned.
You know because we're talking pass through you could really just show the same gross margin dollars that you've had in Q2, even if you're.
Revenue was down towards 430 terms recurring billings as that is that accurate.
Yeah, I mean that sounds that sounds fairly accurate yes.
Okay.
That's the only got thanks, guys. Just I just wanted to make sure I guess, maybe maybe that play back I wanted to make sure I fully understood. What you were you were saying I mean that.
That the if we were looking into the fourth quarter right looking into Q3 had a $430 million run rate what what our goal is what our target is managed direct cost at or below 86% and SGN, a the target would be 7.5%, but in the near term.
Term, especially with the lower revenue, we would expect it to be in absolute dollars.
In line with right was this past quarter, plus or minus and then.
8% or so of of revenue and obviously any.
Co vid covert 19 related hero pay or pay premiums would be in addition to that for 30 as with any new business at.
Right.
Okay.
Thanks, Chris.
Thank you Bill.
At this time I will turn the call over to Mr. wall.
Okay, great. Thank you.
In the coming months, we will continue our efforts to mitigate the effects of cobot 19, while delivering the best possible outcomes for all of our stakeholders. Thank you everyone again for joining the call and on behalf of Matt and all of US at Healthcare services group, we wanted to wish everyone. A great next three months. Thank you.
Sharon for hosting and everyone take care.
This concludes today's conference call you may now disconnect.
[music].