Q2 2021 Healthcare Services Group Inc Earnings Call
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The matters discussed on today's conference call include forward looking statements about the business.
<unk> of healthcare.
<unk> Services Group, Inc.
Within the meaning of the private Securities Litigation Reform Act of 1995.
These statements are often preceded by words, such as believes expects anticipates plans will goal may intends assumes or similar expressions forward looking statements reflect management's current expectations as.
The date of this conference call and involve certain risks and uncertainties.
The forward looking statements are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends current conditions expected future developments and other factors that we believe are appropriate under the circumstances.
As with any projection or forecast there are inherently susceptible to uncertainty and changes in circumstances healthcare services Group, Inc. Actual results could differ materially from those anticipated in these forward looking statements as a result of various factors and the forward looking state.
Net are not guarantees.
Performance.
Some of the factors that could cause future results to materially differ from recent results or.
Are those projected in forward looking statements are included in our earnings press release issued prior to this call and in our filings with the Securities and Exchange Commission, including the SEC's ongoing investigation.
There can 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 costs and expenses, including potential sanctions or penalties as well as distraction to management.
The ongoing SEC investigation, and or any related litigation could adversely affect or cause variability in our financial results.
We are 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.
I'd now like to turn the call over to Ted Wahl, President and CEO.
Sir you may begin.
Okay. Thank you Phil and good morning, everyone, Matt Mckee and I. Appreciate you joining us today, we released our second quarter results. This morning and plan on filing our 10-Q by the end of the week.
We remain encouraged by the stabilizing industry landscape in particular, some of the recent and more positive trends per census, and new Covid cases in long term and post acute care facilities.
Having said that we're also cognizant of the significant uncertainty related to Covid that remains.
We will continue to closely monitor the various interrelated factors that will play a crucial role in industry recovery, including immunization rates occupancy trends staffing levels and government funding.
And although we don't know exactly what the pace and pathway of recovery will be we've learned an awful lot over the past 18 months and are confident that we are well positioned for long term growth.
Looking ahead, we're incredibly excited about the return to growth in Q3, and expect over $15 million of annualized revenue growth to be reflected in next quarter's results.
Our H DSG heroes have continued their tireless efforts to protect those most vulnerable and this significant expansion primarily with existing customers not only underscores the strength of our core client partnerships, but also serves as recognition of our team's extraordinary dedication and.
<unk> to going beyond.
While Q2 reported results were impacted by several temporary or nonrecurring items, our underlying operational and financial performance was very strong and in line with recent quarters as we continue to execute on our operational imperative and manage the elements of our business that are within our control.
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During Q2, we agreed to temporarily modified certain pricing and payment terms of our agreement with Genesis as it continues to work through its restructuring plan.
We believe that these temporary adjustments in conjunction with concessions made by other stakeholders are in our best interest as Genesis facilities provide a broad platform for strategic opportunities in the future.
Additionally, we were pleased with the significant progress made during the quarter towards a resolution and the SEC matter.
We also anticipate resolving through mediated settlement, California labor unemployment matters.
Together, the temporary or 1 time adjustments related to Genesis the FCC in California, Lenny matters accounted for the majority of our sequential decreases in reported revenue net income and adjusted cash flow from operations.
So with those introductory comments I'll turn the call over to Matt for a more detailed discussion on the quarter.
Thanks, Ted and good morning, everyone.
Revenue for the quarter was $398.2 million with housekeeping and laundry and dining and nutrition segment revenues of $202.9 million and $195.3 million respectively.
The majority of the sequential decrease in revenue relates to the temporary Genesis adjustments that Ted described in his opening remarks.
Full run rate impact of the temporary adjustments to revenue is reflected in Q2 and expect it to remain in place through December of 2021, the remainder of the sequential decrease in revenue relates to the decrease in supplemental billings for Covid related employee paid premiums, which were initiated by and pass through to customers.
Momentum billings were down $3.1 million quarter to quarter from $3.9 million in Q1 to $800000 in Q2.
Direct cost of services was reported at $336.4 million or <unk> 84, 5%, which is below our historical target of 86%.
Housekeeping and laundry and dining and nutrition segment margins were 11, 2% and 7% respectively.
SG&A was reported at $50.1 million, but after adjusting for the $2.9 million increase in deferred compensation actual SG&A was $47.1 million.
SG&A was also impacted by the nonrecurring legal related charges that Ted mentioned earlier, including $6 million related to the potential settlement of the SEC matter $700000 of SEC related legal and professional fees and $3 million related to the expected mediated settlement of California, labor and employment Matt.
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Investment and other income for the quarter was reported at $3.4 million, but again after adjusting for the $2.9 million change in deferred compensation actual investment income was about a $5 million.
Our Q2 tax rate of 36, 5% was impacted by the non deductibility of the $6 million charge related to the potential settlement of the SEC matter for Q3, and Q4, we expect our effective tax rate to be in the 24% to 26% range.
Net income for the quarter came in at $9.6 million and earnings were <unk> 13 per share.
Together, the temporary or non recurrent items related to Genesis, the SEC and the California, <unk> matters unfavorably impacted reported earnings by <unk> 15 per share.
Cash flow from operations for the quarter was $25.3 million and was impacted by a $27 million increase in accrued payroll.
DSO for the quarter was 62 days and the majority of the sequential decrease in adjusted cash flow from operations, an increase of DSO relates to the temporary genesis adjustments to full run rate impact of the temporary adjustments to payment terms is reflected in Q2 and expected to remain in place through December.
Of 2022.
Also we would point out that the 2021 payroll accruals should have a similar cadence to what we saw last year. So Q3 will have 5 days in Q4 was 13 days and that compares to 4% and 12 days that we had in 2020 during those corresponding periods and the payroll accrual relates only to timing and the impact.
Ultimately washes out through the full year.
Q4 will also be impacted by 1 half or about $24 million of the cares Act deferral deferred payroll tax repayment.
We're pleased with the ongoing strength of our balance sheet and the ability to support the business, while continuing to return capital to HCS G shareholders, We announced that the board of directors approved an increase in the dividend to $28.75 per share payable on September 24th the cash flow and cash balances support it and with the dividend tax.
Right in place for the foreseeable future the cash dividend program continues to be the most tax efficient way to get free cash flow and ultimately maximize return to the shareholders.
This will mark the 73rd consecutive cash dividend payment since the program was instituted in 2003 in the 70 <unk> consecutive quarterly increase.
Now an 18 year period that included 4.3 for 2 stock splits we recognize the dividend is important to our shareholders and we've increased it in line with our performance track record.
Additionally, the company repurchased $1.8 million of its common stock pursuant to its previous authorization during the quarter. The company remains authorized to repurchase 1.6 million shares of our common stock pursuant to the previous board of directors authorization and with those opening remarks, we'd now like to open up the call for questions.
Yeah.
At this time, maybe would like to ask a question. Please press Star then the number 1 on your telephone keypad.
Your first question comes from the line of a J rice with credit Suisse.
Good morning, this is <unk>.
Thanks, AJ Rice, we just had a quick question on the 50 million of annualized revenue that youre expecting from new dining services contracts.
We were just wondering how soon do you expect these new contracts to be profitable.
Yes.
Kipp in line with our typical startup timeline, we really earmarked evs openings in that 30 to 60 day window.
And dining in the $60 to 90, we don't see these dining contracts having any different makeup for composition then.
One's in the past so we would expect certainly within ideally the first 2 months if not by the end of the quarter that they would be within budget.
Thank you.
Yes.
Your next question comes from the line of Sean Dodge with RBC capital markets.
Hey, Good morning. This is sounds hiller on for John Thanks for taking the questions.
There's not enough from revenue.
Group of clients you guys have adjusted.
Alright.
Updating the status of those has there been any reopening of re staffing that have taken place there.
Yes, Im sorry, there was a bit of a muscle there.
Connection I'm not sure if could you kindly repeat that question.
Yes sure no problem. So you guys talked about adjusting some of that.
As announced previously just from the people get an update on the status of those but that didn't mean sort of reopen the reset from would've been.
Thanks.
So I think just to clarify I suspect you're referring to sort of the impact debt census declines have had on our staffing levels and the fact that we've worked arm in arm with our customers that in as much as their census has declined as a result of the events that have unfolded over the course of the past.
18 months, we've correspondingly been able to reduce our staffing lever levels and purchasing whether that relates to supplies or to food and food related items.
So in as much as census begins to increase in any particular facility in a way that requires sort of add back if you will to staffing levels and or purchasing that's something that we'll do with any particular clients. So there werent sort of sweeping adjustments too.
Contractual relationships per se, but really more just that flexibility in working with customers as their census declined and have every expectation that as we've begun to see census, albeit modestly, but as we've begun to see census increased.
Increased.
Debt, we would make those corresponding adjustments very much in concert with the customers as well.
Okay, and youre, starting to see that a little bit already.
Very modestly certainly the census has begin begun rather too.
Rebound is.
It's been somewhat consistent modest, but consistent nothing really to the point, where we've seen any significant sort of uptick in our staffing levels relative to sort of the bottom that we talked about in the tail end of Q1.
Okay sounds good thank you.
Anything you can share.
EBIT on the debt.
Yeah.
Good day.
Full year around that is that going to be the entirety of it or anything you can share there.
Well I think we continue to be limited in what we can share and I think out of respect for the process, we're not going to be commenting further, especially why is that while the discussions are ongoing but what I can tell you is that we continue to cooperate as we have throughout the process.
As we indicated earlier, we're pleased with the dialogue and hopeful that we're going to be able to reach a final resolution sooner rather than later.
Okay. Thank you.
Yes.
You guys talked about from the pilots are moving on just.
It's kind of school campuses and stuff like that have been a little bit of a lull.
Longer term opportunity.
Is there any sort of progress or updates you can share with that.
Nothing substantive as you can imagine over the course of the last 18 months or so we've sort of been up to our eyeballs in trying to effectively manage the operations within our core segments that of course being long term and post acute care, which really.
Really since the early stages of the pandemic have been in the eye of the storm. So I would say our primary operational focus and likewise from a business development perspective, the conversations that we're having that have led to the new business that we're talking about onboarding.
To be effectively.
Impacting the top line in Q3, and other opportunities reside more within that coordination market that long term and post acute care end market, having said that obviously the value proposition that we bring by way of our environmental services offering continues to resonate in a buyer and a variety of adjacent end markets.
Not the least of which is the private in independent schools. So we continue to view that and sort of the very early embryonic stages.
Hesitate to even call. It a pilot at this point, but there remains significant opportunity there, we're having conversations were pursuing and exploring the opportunities, but doing so in a very sort of methodical mindful and strategic manner. So nothing noteworthy as yet other than it continues to be of interest to us.
And we will continue to explore and pursue that.
As appropriate, but very much mindful in a way so as not to detract or distract from that core end market that obviously has significant runway of opportunity yet ahead for us.
Alright, I appreciate it thanks for the commentary.
Your next question comes from the line of Andrew Wittmann with Baird.
Great. Good morning, guys. Thanks for taking my question.
Just to.
I'm trying to understand the quarter, a little bit more specifically.
Specifically, the 3 that you called out related to Genesis.
Anytime you make adjustments to contracts or sometimes are 1 time items with accounting or other things that might occur in the quarter that was just wondering is the <unk> hit.
Are there any onetime items that make that <unk>.
With the actual run rate hit something different from <unk> in other words.
Is it appropriate to think of it or maybe the other way to ask the question is is it appropriate to think of <unk> and <unk> also containing <unk> hits or something less than that.
That youre thinking about it and described it the right way.
Okay and then just in terms of your commentary said on December 31, 2021 is kind of I guess, what you've agreed to in terms of the modification.
Do you have an agreement in place for January 1.
Tells you that it's something other than that or are you just basically giving them. This temporary relief fund.
Planning to get back at the table sometime in late 'twenty wanted to talk about the 'twenty 2 rate is I just wanted to try to understand what's kind of been agreed to.
Between you and Genesis and a little bit more do you think.
We've reached an agreement in principle and we called out December of 2021 for the pricing related modifications and then December 22 for the 2022 for the payment modifications because thats consistent with the agreement in principle reached.
Okay.
Great and then just kind of a bigger question bigger picture question that I thought would be helpful to understand.
Is that basically just looking at the competitive landscape and your customer landscape Theres, obviously been a lot of facilities that are changing hands some of them.
Genesis there are other franchises regional local everybody there's been so many facilities changing hands here in 'twenty 2020 in 2021.
I was just wondering if you could give us a sense of how many facilities of yours.
Our operators are owners that are changing hands.
And what's your experience has been to date.
On retaining those customers and whats your outlook.
For any ongoing discussions that youre, having with any of your new customers or new incumbent customers are.
Regarding those transitioned.
Yes as to the quantification Andy within our customer base I don't have those data readily available other than speaking anecdotally that what you call out that dynamic of transactions occurring within the space. We're absolutely seeing so I suspect much like many components of industry.
Wide factors.
The transaction that Youre seeing within the transaction activity that youre seeing within our customer base is largely reflective of what's happening within the industry at large so we are seeing those transactions occur our sort of guidepost when those transactions are occurring within our customer bases that we have every expectation to retain.
The 90% of the new what we would consider new business opportunity in our facility that changes and either among ownership or operator control. So that's the guidepost, but we do treat those very much as a new business opportunity, sometimes that offers us a chance to.
Reassess pricing our service levels, depending upon what it is the new customer would like.
But it does offer us that opportunity to sort of reassess and almost re pitch. The services. The benefit of course that we bring to the table is having absolute operational familiarity with the facility inclusive of the employees not only in our department, but in the other departments to have that comfort level, the working relationship and the familiarity with the other department heads in.
And that facility, most of whom typically retain their rolls through a transition of either ownership or operator.
That definitely serves us well because if you think about a new owner or operator coming into a facility generally speaking they have their top 5 list of priorities, they otherwise won't be operations to run smoothly and seamlessly.
Don't typically have as their top couple of priorities to come in and disrupt environmental services or to completely recalibrate the service offering and dining services, so sort of a long way of saying we have every expectation to at least have a seat at the table, we know that our value proposition resonates with any customer whether there are complete.
Prospect with whom we've never worked or somebody who has known us for decades and has worked with us previously.
So we basically re pitch those services, but feel that we have a significant advantage for knowing the facility and having a presence already established so that 90% continues to be our expectation, but there's no reason why we can outperform that as we look ahead to the transactions that are on the come and I would only emphasize too when we when we.
We use the word customer first.
First and foremost that our customers the resident in terms of decision, making the administrator in most cases, and that's really not only our greatest source of growth future growth in terms of references and networking, but often times as these transitions take place.
We're able to not only retain that greater than 90% right that Matt cited but also use whatever the new owner operator platform may be as an opportunity for future growth as well. So look extreme customer turnover is not great right. Because you're you are administratively spending too much time.
I'm on contractual negotiations and other resets, but the.
The levels that we're seeing right now are healthy from our perspective and again, we look at through more of a positive prism than a negative 1.
That's helpful. I just wanted to ask 1 last question regarding the labor market today, I think it's a lot different it seems to me for everything that I'm seeing that it's a lot different today than even a few years ago pre COVID-19, where there were some labor tightness as well and I was just wondering if you could talk about.
Sure.
If your customers are signing up for paying.
<unk>, a competitive or market rate to get.
The right amount of flavor in the door, recognizing obviously that the way you set up your contract is really but your customer does that labor rates are you able to find the right number of people to do the work that you have to do.
And manage the labor force in the way you always have based on the labor rates that your customers are willing to pay in the labor market today.
Yeah look and I know, we've had these conversations before and acknowledging the labor market today is different and are more in that it's more challenging than it's been.
Really at any point in time since we've Matt and I have been in.
And leading the company, but as with most aspects of our business. There's not a lot of top side answers. There is variability market to market what were the headlines and what we read about doesn't necessarily reflect what we're seeing in individual markets on a day to day basis.
The contract structures, you said, Andy does place the onus for developing the conditions of employment at the facility to attract and retain employees on the contract that has not changed we certainly let them know that we're facing challenges in any given labor market and make recommendations. So ultimately with many of our clients we are so.
<unk>, receiving those paths pass throughs in some cases.
It's an ongoing process to continue to find the right balance between managing the.
Our services at the facility maintaining the proper wage rates and then ultimately delivering the service, but I think as a tailwind for us may be different than what our clients are experiencing on the labor market and even the broader labor market. The types of employees. We attract generally are are different.
Jobs have never been overly attractive when you compare it from any people to what an Amazon or a Walmart may.
<unk> may offer it really is more of a calling than a career.
For many of our employees they are there because they feel deep ties to the resident and we've really been able to tap that tap into that over the past few years going all in on employee incentives and recognition programs to motivate and reward our employees as well as pay them. So I think from a from an <unk>.
We do an incrementally better job than I think there would be competition, whether thats the in house model, where our client client may.
Where our competitor would be competitor may but again, it's an ongoing issue, we're evaluating it and monitoring it closely but it is a market to market solution that we see not a top side 1.
Thanks for the perspective, Ted I appreciate that and have a great day guys.
You too Andy.
Your next question comes from the line of Ryan Daniels with William Blair.
Hey, guys mixed begun in for Ryan. Thanks for taking my question just a quick clarification.
That's $50 million in incremental revenue and I guess.
And a half per quarter.
Whats the base that you guys are considering for for that growth.
The current quarter's base.
Okay Gotcha.
Q2 <unk>.
And from <unk> to 'twenty 1.
Thats exactly right, Okay, great Alright, I appreciate that thank you guys.
Your next question comes from the line of Brian <unk> with Jefferies.
Hey, good morning, it's Jack Levine on for Bryan.
Just wanted to ask a question on the margin cadence going forward I think we saw a little bit more normalization, particularly on the gross margin numbers relative to what we had been expecting can you just provide any commentary on how we should be thinking about.
Margin normalization going forward net occupancy trends normalize in your with your client base.
Yes, we've talked a lot about managing the services, we provide in our costs as efficiently as possible, especially in light of that census pressure that you just mentioned.
And that our clients continue to face so.
What we can certainly call out is that we'll continue to manage the staffing the purchasing and the production based on census, and that includes our census increases having that mindful eye on making sure that we continue to manage to use sort of the kras phrase that I've used previously according to bodies in debt and maintain that focus as census recoveries.
<unk>.
The topline growth that we've talked to specifically upcoming in Q3 and beyond though will bring some inefficiencies as districts and regions ramp up their management recruiting and training efforts to support that upcoming growth and also as we onboard new facilities and inherit their inefficiencies. It does take us some time to implement our systems and <unk>.
New account on budget.
I mentioned earlier and that does create a little bit of margin pressure. So for the moment, 86% remains our target, but we are very much committed to ongoing management of our labor and supply cost and we believe that we may be in a position to talk about a new target for cost of services at some point in the near future growth in the near future going forward.
Forward, but we're just not there yet so for us getting back into growth mode and sustaining.
That gross margin or I'm, sorry, the cost of services at or below 86% remains the target.
Got it that's helpful and then Inc.
Good segue, there and getting back into growth mode. As you think about ongoing conversations with new prospective clients.
I think that the co.
<unk> environment is waning a little bit right. We're seeing some concerns around the delta very implant case facility ratios are down significantly based on the data we have from a broad right now.
What are those conversations like and.
And can you just give us an update on what the progress is in terms of.
Getting to the table and having discussions around bringing on new facilities and bringing on new clients.
Yes, I would say that there remains a focus from a clinical perspective, among our customer base right. I mean, they are ensuring that they have measures in place to.
Withstand perhaps pending pressure that continues to come from the Delta there.
They are focused on staffing right I mean arm in arm with sensus is staffing the facilities need to be able to appropriately staff the building to be able to bring new residence Inn and build back occupancy to the levels from pre pandemic and beyond so.
There's definitely an interplay there and theres a focus among our customer base.
Not only in driving census recovery, but likewise, ensuring that they have the caregiving staff in the facilities able to support debt census build back. So that's an important area of focus for them all the while very much continued and kind of renewed focus on infection prevention and infection control.
So there will be I think at least forever in the near term.
An ongoing focus on infection prevention and infection control practices not only within the 4 walls of the facility, but in all likelihood from a reporting perspective and from a reputation and a marketing perspective. So there's a lot that these operators are focusing on.
Certainly the healthcare services group value proposition resonates in.
Continues to to.
Grow in importance as those other factors become more of a focus the last thing that any operator wants to do is have to focus on some of these secondary services non generating services.
So in as much as healthcare services group is able to deliver better outcomes and that sort of a broad category of improved outcomes related not only financially but of course from a regulatory perspective, and a compliance perspective operationally.
It's definitely an enticing proposition for it would be customers. So from our perspective, the easiest conversations from an access perspective continue to be advancing the conversation with existing customers, specifically environmental services customers about onboarding dining and nutrition services, but as access to facilities.
<unk> to expand we are able to have.
Advanced conversations more thoroughly as to true greenfield opportunities, perhaps utilizing environmental services as that initial service offering with prospective customers. So we don't have exact clarity and visibility as yet beyond let's say the third quarter Directionally, we think things are moving.
Where we'd like for them to move as far as industry recovery and the impact that that has on our ability to continue to add new facilities and grow the top line, but.
Cautious attitude I would say remains so opening access.
Opportunities await certainly in the mid to longer term, but as to the nearest of near term, we will continue to take that cautious view.
Got it. Thanks, that's helpful. And then last 1 from me just a quick 1 on any callout for the quarter on workers comp accrual or any kind of 1 timers shifting numbers, we should be thinking about.
No other than what we've identified.
Awesome, Thanks, nothing related nothing related to workers' comp the only onetime type items were the ones that we've identified.
Got it thank you.
Your next question comes from the line of Mitra <unk> with Sidoti.
Yes, hi, good morning, Thanks for taking the question.
Just wanted to follow up a little on the labor side, especially as we talk about growth mode and bringing in new business from 1 thing we've been hearing from some sectors.
Economy in terms of demand being de emphasis.
Our supply.
Unable to cope with that I'm just curious in terms of how you feel that you will be able to have the staff necessary to meet the additional demand, but it would be.
Appreciate it.
I was keeping zone.
Yes, I think.
Just piggybacking off.
My answer to Andy Wittmann question regarding this.
It's always been a challenge to some degree and Metro Youre right to call out it's more challenging today than it's been.
Certainly in recent history, but you could go back years and it would be hard you'd be hard pressed to find a more difficult labor environment than the 1 we're facing today, having said that and just to again reiterate what I, what I said to Andy we continue to have <unk>.
Success, and incrementally speaking relative to what would be competitor or in house, operator would find because of our certainly our subject matter experts and our focus we here we have at the home office utilizing everything from meta data too.
Recruiting and development programs all the way through.
The network the heart the incredible network of grass roots.
Efforts that we have.
With our with.
With our concentrated.
Facility base and the number of employees. We have we are still having success in <unk>.
Certainly the capability to open up new business, so staffing and the challenges around staffing while they will.
We'll be a heightened awareness from our perspective on making sure we're well prepared and we can execute on new business opportunities thats not going to preclude us from taking on a new business opportunity in fact, if anything it's actually increase the demand.
For the potential customer or the prospective customer because they view us as being an asset and a great partner to help staff. These departments that are so critical to their success.
Thanks, and then just 1.
A little on day.
New business, but just curious if you could give us a little more color in terms of maybe is it something youre working on for a while or maybe the endemic maybe.
Things up a little and from the needs of that cost per day.
Okay.
With the new business going forward.
Yes, we've been having I mean like a lot of our new business opportunities. They are typically some take some some happen sooner or quicker than others, but these are.
Primarily made up of existing.
Clients that we've worked with for years.
This combination a nice mix of regional players that have non overlapping geographies and <unk>.
Addition to the fair number of independent facilities that also had a nice geographic distribution. So it was a cross section of different types of clients, but.
In terms of how COVID-19 impacted the courtship with these new business opportunities. It certainly has.
For us it was a longer process than what it typically would have been but the fact that we're expanding with existing clients.
Obviously, we have a different level of comfort with the ones, we've chosen to expand with and again I think that bodes well for the future but.
For us we're going to continue as Matt said.
To be.
Taking advantage of opportunities as they present themselves I think cautious is an attitude that we have as we move forward through the rest of the year and while there are a lot of positive signs out there regarding sensus recovery at least at the early stages as well as some of the new case rates within facilities. There is also new.
<unk> that emerge whether it's the variance better that are certainly on everyone's radar as well as some of the staffing concerns on the provider side that Matt alluded to in some of his remarks. So again, we continue to feel comfortable and confident that we are returning to growth mode, but we're going to continue to be selective about it.
Okay. Thanks for taking the questions.
Thank you Mitra.
Your next question comes from the line of <unk> with Stifel.
Thank you and good morning.
Just in Spain earlier question regarding the Delta there.
The long term care from Sydney to set I think have generally done a good job immunizing residents and patients. So they are pretty much well protected there and plus staff destination right Scott.
Given the rising cases, just wondering if you are keeping track of your staff and utilization rates across your client base I imagine you can work with a client mandates per year lines up.
What percentage of your customer base are requiring that the debt the vaccine any trends you can call debt.
Yes, youre exactly right talent and the sentiment expressed in that we very much follow the lead of our customers on a facility by facility basis as to any and all of their Covid related protocol right, whether that's 10 screenings entering through a certain enter into the facility exiting through another and like.
Wise for mandated vaccination of employees, we've rhetorically heard some customers expressed an intention to do that we're really not seeing that bear out yet in the facilities.
And it will be a challenge as I said, we worked very much arm in arm with our customers to motivate and encourage and educate our employees about vaccination, but you have to keep in mind that.
A large degree, especially some of these lower level associate type.
<unk> are drawing from demographics that are typically resistant to vaccination. So it's a challenge. It's 1 that we will very much work arm in arm with our customers.
And various departments of health to address but.
We are supportive we will.
Definitely promote educate and support their endeavors and as much as we're in a position to but we have not implemented nor instituted any company specific mandates that would in any way interfere perhaps run counter to what it is our customers are implementing at their specific facilities.
And 1 of the reasons how would you think when you think of the industry, specifically long term and post acute care.
And the success they've had even with the spiking of the variance outside of the facility the long term care world.
It's not just about vaccinations, it's also about timely testing as well as PPE right. So these are environments that are Matt talked about infection prevention and control great learnings on that front over the past 18 months. So I think the industry today is much better prepared.
Then it was win win 18.
18 months ago, when the pandemic first broke.
Yes, that's fair.
We've seen on the senior all day side from the larger multi state operators have really jumped from the bandwagon.
Mandating their workers to get the vaccine sales.
You haven't really seen debt portfolio just yet.
Yes.
And as Matt said, it's something that's been talked about as being considered or trial that some cases, but it's not something that we've seen.
On a broad basis and 1 of the challenges again I know, we've talked about staffing throughout the balance right, depending on where you are located or what the local labor environment as you're balancing having adequate staff can you mitigate the risk of infection with PPE and adequate testing if you mandate it what does that do.
In a challenging labor environment that in all likelihood will begin to normalize in September October and some of the federal program subside, but that remains to be seen.
Yes that makes sense.
My second question is also on Genesis.
I think Matt you mentioned in your prepared remarks that DSO ticked up this quarter.
Beauty book that 2 chances just wondering if you have modified the payment terms of frequency with tenants seeking the agreement also are there any changes to their notes payable team.
There was no effect on the notes.
But as to the sort of general bucket of <unk>.
Payment terms slash credit there were adjustments to the.
The contractual relationship in that regard and those.
Changes will remain in place through December of 2022.
So should we expect DSO to continue to tick up next quarter to reflect that or is this already in this quarter's number.
No Thats correct a ladder.
Okay.
Yes also like on the new contract I think the $50 million you guys mentioned, adding the <unk> very encouraging but I didn't hear any remarks regarding how many new contracts.
Did you add this quarter.
Meaning Q2.
Q2 was there any meaningful revenue bumps.
Bumps from new contract this quarter.
No very modest in the dining and nutrition and that only relates to.
Contracts that I am sorry.
Facility starts that were undertaken at the tail end of this quarter.
But those numbers would be reflected in that run rate that we called out affected Q3. So there were some operational starts at the tail end of this quarter, but the new business starts that we're referring to in that $50 million of annualized new business will largely be seen as essentially third quarter starts in that run rate effect reflected in Q3.
Right.
Okay.
Got you and 1 last question on the 10 I think you had said in the past that penetration of customer with your contracts.
3%, where do you think you can go to 1 debt penetration where longer term is there any internal timeline you could share with us some day ramping it up.
Yes, there is.
No internal timeline, but theres nothing that we would see is suggesting it could be it could be the entirety of our existing housekeeping and laundry client base debt when you think about cut.
Customer of ours on the EPS side, our housekeeping and laundry side, they've already philosophically accepted outsourcing and it's an option and us as a viable partner in.
And that so the dining cross sell has proven to be a different type of sale, it's truly a relationship based sale.
Performance based type transition and we feel very optimistic that we're going to continue to execute on that strategy not only green using evs as the greenfield opportunity to continue to expand our footprint, but then followed by the dining and nutrition cross sale and ultimately and we've mentioned this before.
There is no reason why dining couldnt be a lead service for at least a co lead service offering which it is in many cases already today.
That's all thank you for taking my questions.
Great. Thank you.
And at this time there are no further questions I would like to turn the call back over to Ted Wahl private.
And CEO.
Okay. Thank you we know the second half of the year, we will have its share of pandemic related challenges, but with the success of the vaccine positive census trends and our learnings and innovations from over the past 18 months, we are well positioned to succeed and grow whatever may come.
As the industry continues its gradual shift from crisis mode to a state of recovery, our commitment to opportunistic growth internal investment and returning capital to shareholders underscores our positive longer term outlook and creates value for all stakeholders. So on behalf of Matt and all of us at <unk>.
Share services group I wanted to thank Phil for hosting the call today and thank you all again for joining us.
That does conclude today's conference call. We thank you for participating you may now disconnect.
Okay.
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