Q3 2021 Healthcare Services Group Inc Earnings Call
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Ladies and gentlemen, this is the operator today's conference.
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The matters discussed on today's conference call include forward.
Statements about the business prospects of healthcare Services Group, Inc.
Looking statements are often preceded by words, such as believe expect.
Anticipate plans wheels, so may intend that assumes or similar expressions.
Looking statement.
Sweet Black managements current expectations as of 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.
<unk> and other factors that we believe are appropriate under the circumstances.
As with any projection or forecast they are inherently susceptible to uncertainty and changes in circumstances.
Yep Care Services Group, Inc. Actual results could differ materially from those anticipated in these forward looking statements as a result.
Various factors and the forward looking statements are not guarantees of performance.
Some of the factors that could cause future results to materially different from recent results or those project. The import looking statement are included in our earnings press release issued prior to this call and in our filings with the Securities and Exchange Commission.
Dan.
There can be no assurance that the S. P C 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 RP entities as well as distraction to management.
Including SEC investigation.
And or any related litigation could adversely affect our calls 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.
Nice.
I would now like to hand, the conference over to Mr. Ted Wahl, President and CEO you may begin.
Thank you Tamara and good morning, everyone, Matt Mckee and I. Appreciate you joining us today, we released our third quarter results. This morning and plan on filing our 10-Q by.
Other one of the week.
Our third quarter results reflect the impact of supply chain disruption labor availability and significant inflation in the cost of goods that many industries have experienced.
Q3 events like the Delta variant Serge vaccine mandates and a record number of people leaving.
By the enforce had a disproportionately adverse impact on nursing homes and contributed to the rapid and significant inflation, we experienced during the quarter.
Despite these unprecedented challenges we remain steadfast in our commitment to supporting our customers and caring for their patients and residents.
The work during the quarter and in the face of great uncertainty, we made a real time, but very intentional purposeful longer term view decision to do whatever it takes to staff and supply our client facilities to get the job done.
And our entire team rallied to rally together in this effort.
Okay.
If that meant incurring overtime hours, introducing special employee bonuses or increasing wage rates and premium pay that's what we did.
And that certainly had an impact on our financial results, but we hold a high level of conviction that especially in this unprecedented.
For men doing right by the resident is the right thing to do and doing the right thing is always good business.
While we expect these market conditions to persist in the near term ultimately, we expect our clients to right size facility wage rates and we will then pass along billing increases.
Says, reflecting those adjustments.
The right sizing of the facility wage scale should reduce or eliminate the need for further overtime premium pay or special attendance retention or referral bonuses.
As a reminder, while it is certainly a conversation with the client or.
<unk> typically do not allow for pass through billing increases based on cost like those that we have initiated.
This compares to increases that are initiated by the client whether that's wage increases or the recent hero pay bonuses for which we do have contractual pass through.
Again, we ultimately expect our clients to right size facility wage rates and we will then pass along billing increases reflecting those adjustments.
Food is another area, we experienced unprecedented availability and inflationary pressures in during the quarter our.
Our total menu costs were up over 4% during Q3 with high volume items like meat poultry fish and eggs up substantially more.
We are working closely with our supply chain partners to mitigate food supply challenges and are collaborating with our customers to maintain quality and limit their financial.
Exposure through creative menu design and product substitution.
Inflationary increases in food costs are also pass through to our clients, but those are typically automatic adjustments that occur on a quarterly basis. For example, Q3 CPI related adjustments will be reflected in Q1.
One customer billings Q4 adjustments will be reflected in Q2 and so on.
Looking ahead, we will continue to closely monitor industry recovery occupancy trends and further government funding.
While the unprecedented environment is a headwind on revenue growth and profitability.
We remain confident in the longer term growth outlook for the company given our market leadership efficient operating model and attractive demographics.
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 400.
$15 $6 million with housekeeping and laundry and dining and nutrition segment revenues of $203 $4 million and $212 $2 million respectively. The.
The majority of the sequential increase in revenue relates to the addition of new dining and nutrition service agreements with existing housekeeping and laundry customers there.
There was also a modest portion of the revenue uptick related to increases in billings for wage increases that some clients implemented at their facilities throughout the quarter in an effort to address staffing challenges.
Direct cost of services was reported at $364 8 million or <unk> 87, 8% and included $2 $3 million.
New business startup costs incurred during the quarter $7 $7 million of increased labor costs sequentially from Q2, and that was driven by higher premium pay and employee bonuses and $2 $5 million of increased food costs again sequentially from Q2, driven by a four 1% increase in menu.
Item costs.
Housekeeping and laundry and dining <unk> nutrition segment margins were eight 5% and three 4% respectively.
Selling general and administrative was reported at $38 8 million after adjusting for the $200000 decrease in deferred compensation actual SG&A was 30.
<unk> 30 $39 million.
SG&A SG&A was impacted by about $1 million of new business startup costs and $600000 of SEC related legal costs.
Investment and other income for the quarter was reported at $133000 after adjusting for that $216000 change.
In deferred compensation actual investment income was about $339000 for the quarter.
Our Q3 tax rate was 21, 3% net.
Net income for the quarter came in at $9 5 million and EPS was <unk> 13 per share.
Cash outflow from operations for the quarter.
It was $23 1 million and was impacted by a $16 million increase in accrued payroll a $12 million increase in accounts receivable related to the recent addition of new dining and nutrition service agreements and $6 million SEC settlement.
So for the quarter was 64 days also we would point.
Note that the Q4 payroll accrual will be 13 days that compares to the five days that we had in the third quarter and 12 days that we had in 2020 during the corresponding period, but the payroll accrual only relates to timing and the impact ultimately washes out through the full year.
Q4 will also be impacted by one half or.
We're about $24 million of cares act deferred payroll tax repayments.
We're pleased with the ongoing strength of the balance sheet and the ability to support the business, while continuing to return capital to <unk> shareholders, We announced that the board of directors approved an increase in the dividend to <unk> 21 per share payable on December.
<unk> 2020.
The cash balances support it and with the dividend tax rate 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 shareholders.
This will mark the 74th consecutive cash dividend payment since the program was instituted in 2003.
$20 73rd consecutive quarterly increase that's now an 18 year period. That's included four three for two 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 $3 $6 million of its common stock pursuant to its previous authorization during the quarter.
The company remains authorized to repurchase one 4 million shares of our common stock pursuant to the board of directors authorization. So.
So with those opening remarks, we'd now like to open up the call for questions.
Thank you at this time, if you would like to ask a question. Please press star one on your telephone to withdraw your question press the power.
And please standby, while we compile the Q&A roster.
Your first question comes from the line of Tayo.
Your line is open.
Hey, good morning, guys.
Just a quick quick question on the.
Our dining site. So when you guys are bidding and talking to new clients have you adjusted your contract rate higher coli accordingly, given the cost inflation, you're seeing and also does it make sense. If you can't really increase the contract rate right now does it make sense to maybe pause.
Dining and nutrition contract additions.
Yes, so I would say most of that new business that we started started at the tail end of Q2 and as we've discussed there's been significant increases in labor related cost since that time. The good news is that we've been able to implement our systems and staffing models at those facilities, which means we've made a very favorable operational impression on those clients.
And the foundation of the go forward structures in place, but those field facilities are not immune to the cost pressures that we've talked about seeing throughout our portfolio no matter how long the facility has been a partner of ours, whether thats two months or two decades, we're committed to upholding our operational responsibility and.
From a positive perspective.
<unk> are nearly all existing housekeeping clients with whom we've had strong preexisting relationships. So that certainly AIDS in the ease and effectiveness of cost and billing related conversations. So ultimately we've established a strong operational and systems based foundation at these facilities and we remain highly engaged with the clients at the facility level to monitor the labor.
These are food costs to ensure that we are aligned and right sizing our wage scales going forward not unlike the other facilities in our portfolio as to the go forward perspective, absolutely.
The.
The sort.
Sort of.
This location of the labor.
And right now relative to sort of what had been a more stable environment is yet another assessment, we need to make in.
Analyzing our go forward prospect with whom we might partner so that relates to the occupancy and the facility the payer mix that they have and certainly the stability of the labor environment within.
Market or walls of that facility do we believe that they have the appropriate starting wages do we believe that they are.
Compensating the existing employees appropriately such that we'll be able to get employees in the front door and keep them from exiting out the back door. That's yet another component of the financial assessment of a would be partnership.
In the prospective client so 100% accurate talent your instinct that we would absolutely want to make sure that we're as closely assessing the conditions of the facility before we would think about engaging in establishing our go forward partnership via contract.
Yeah, Thanks that makes sense and I also wanted to kind.
With the package of debate out there.
The challenges we saw this quarter.
Obviously the latest surge in Covid has somewhat peaked in August so things are getting better and also the provider relief fund.
Like the.
The nursing home operators are going to get some additional government help.
Possibly in the fourth quarter. So there are certainly some positive news coming down the pie, but just to understand kind of the labor challenges hologic conversation with your.
Thank you operator partners going right now is it more often labor availability issue right now.
The salt life.
Both I'm just wanting to understand how long do you think this pressure will last and how fast you think you can pass through some of these costs to your clients.
Yes.
It is both it's both a labor availability as well as a cost issue you can imagine the conversations we're having with.
Right now about right sizing wage scales in a typical environment.
These are conversations that are had with ease REIT, we present to them our findings on the labor side Theyre typically experienced experiencing the same types of cost pressures, we are wage related or otherwise and.
Our clients are ultimately the ones that adjust the wage scale and in turn we pass through a corresponding billing increase in this environment. There first question that they wonder is it temporary or is it the new norm and if it is in fact, the new norm how much do the wage scales need to be adjusted by and even if you increase.
Dave that rate to your point about labor availability is there a candidate to fill that job.
Oh by the way how am I going to be reimbursed for whatever the incremental cost is so I think theres a series of questions.
That are that are being discussed.
And collaborated on a real time basis, there is some market.
Increased market variability as there is with everything on our business, but this is a fairly widespread challenge that the industry is facing which also then has a direct impact on occupancy right to the extent there is patient care labor challenges that has a direct.
Direct.
Correspond.
<unk> impact on the ability for a provider to fill their beds, which you've mentioned the surge delta variance surge, which happened in August that subsiding is certainly a positive but ultimately.
Providers need to have the patient care staff to be able to.
<unk> admits come into their facilities and.
Our spot industry, we've been stagnated in and around 72% occupancy for the past few months, which is disappointing because when you look at where the industry was where it really bottomed out in January.
Around 67%, we've seen about two tenths three tenths percent pretty consistently per week of an increase.
Is it nave and had good momentum heading into the back half of the year, but again, the delta variant surge and I think the impact the unprecedented labor shortage in labor availability issue, we're seeing now.
Is definitely having a dampening impact on that occupancy recovery.
Having said that.
<unk> had a few tease it out we haven't seen really early returns yet for that are meaningful for October but.
If the industry does which weeks were.
Hopefully, we're hopefully and cautiously optimistic two tenths of a percent recovery.
Between.
Per week.
Consistently had would put us back to that 80% that pre pandemic, 80% level sometime in June of 2022, which that 80% is important because thats really the a good a good baseline for what would be a self sustaining occupancy level.
And again, that's where we were pre pandemic.
<unk> said thats 110th of a percent per week and that puts us out sometime in the beginning of 2023, So we're going to monitor that recovery very closely at.
At the end of the day, though on a positive note the demographic tailwind the secular demographic trends are incredibly positive and when your point.
To that 80 to 84 year old cohort, which is about $6 4 million strong today, it's going to be over $8 million in 2025, and close to $11 million in 2030. So in a few short years, we will be talking about supply not not not supply considerations more.
More than the demand for the services.
On the provider side.
Yes, if I may.
Ask one last question.
How does the board and management think about the dividend continue hiking the dividend given that some of the recent Chinese.
Lack of few quarters.
How do you feel about the dividend increases going forward.
Well I think after after growth in internal investment from a capital allocation perspective, the dividend is certainly.
One of the highest priorities the board has as a company and there is no.
There is no.
Payout ratio.
But it's the consistency and the sustainability of the dividend that's always been attractive I think to our certainly our shareholder base as well as the board of directors and I think the fact that you know.
Rain sleet snow good times, and bad times, we've always been able to consistently and in a sustainable way.
Pay out the dividend has been has been certainly underscores the confidence that we had the board of directors has in the future of the company and we've always managed the balance sheet conservatively from a cash perspective, so our expectation Tao the board's expectation is that we'll continue to.
<unk> pay and increased the dividend in a way that's been.
Consistent with with our past now going on 74 quarters soon to be 75.
Got you. Thank you for taking my questions. Thank.
Thank you Tal.
Your next question comes from the line of Mitra.
With Sidoti Your line is open.
And Mitra your line is open if you're on a speakerphone. Please pick up your handset.
Yes, Hi can you hear me.
Yes, Mitra, we've got you now.
Yes, hi, sorry about that could you give me a sense in terms of the workforce exit you saw relative to your expectations and going forward how is it.
Going to impact your ability to.
Bringing on new business. It seemed like you had a lot of momentum coming into this quarter. After the recent 50 million new agreement.
Do you think things.
Things are going to be pushed out.
Well I think as far as our expectations on workforce availability and and the challenges that we saw.
I know last quarter, we spoke about Q2 being the most challenging labor environment My environment, we've ever faced which would've included 18 and 19 when unemployment was below 4%, even the height of the pandemic Mitra when health and safety concerns were at that peak, but I think the labor shortage and wage inflation we experienced.
Q3 was unprecedented and we alluded to it in some of our opening remarks, knowing that labor supply is a complex issue that delta variance Serge certainly the federal vaccine mandates had a disproportionate impact.
And the environment that we service each and every day.
The great resignation, we had two 9% of the workforce.
Sitting in its entirety and that had a disproportionate impact on the health care sector at large so I think all of those all of those considerations only further exasperated what was already a difficult environment. So I.
And then heading into the quarter, while it was very challenging.
Those events, which really manifested themselves in a.
A more significant way in August and September.
Were unanticipated, but certainly.
The commitment we made in service of the client.
And our customers and the residents that they serve was to do whatever it takes and get the job done and again I mentioned it earlier, but we have high conviction high levels of conviction that that was absolutely the right thing to do.
Given the environment.
As far as the new growth expectations, the growth expectations going forward and how.
How it could impact I think we just demonstrated that even in a very challenging environment.
We were able to not only open new business, but as Matt mentioned do it in a way that was very successful from an operational perspective, having said that there are cost implications and we're working through those now with those new clients. So.
So I think going forward.
Opportunistic growth I think just looking out over the next 90 days would be the word that I would use as the opportunities present themselves. There's so many variables right now it would be difficult to it would be difficult to be able to see.
Say with certainty that we're going to be able to execute.
<unk> on our growth strategy in Q4, just because theres variables.
That are in play that are outside of our control that doesn't mean, we're not going to grow that doesn't mean, there's not.
Great opportunity to grow, but I think because of the number of variables that are in play it would be difficult to say with confidence that.
Hey, we're going to successfully execute on our growth strategy in Q4, but as we gain more information and more insight into what's happening on the ground and hopefully as the labor availability issue begins to subside, we will be able to speak with more confidence as to the future of <unk>.
Near term growth strategy.
And Mitra.
To add one distinction relative to sort of the the exited <unk> of employees from the workforce.
That we faced wasn't as much a mass exodus of our employees, leaving.
Thankfully, we had implemented a pretty substantial employee engagement initiative.
Going back a few years now and we've been able to engage with our employees and obviously when it comes to staffing issues within a facility. If we don't have sufficient bodies, that's where the challenges arise in order to get the job done we've implemented.
Some of the premium pay and the usage of overtime retention bonuses referral bonuses.
Alluded to in his opening comments the greater challenge from US as a result of the sort of exited.
Our bodies from the workforce is just the availability and hiring the new hires REIT that's been the greater challenge from our perspective. So the fortunate situation is that we've developed that high level of engagement among our employee.
Base, where we're not seeing substantial turnover as a result of vaccine mandates or otherwise the challenge the greater challenge that we face as an <unk>.
Bringing new bodies in and we're getting we're seeing increased levels of applications and we're certainly investing more resources in our recruiting efforts, but that's been where.
The challenges.
More from a company perspective.
Okay, No that's great. Thanks for the color.
And then quickly on <unk>.
Food side.
Quickly you think you'll be able to consortium.
The increased costs you are seeing in terms of.
And yet with the pass it onto your clients.
Yeah, it's pretty it's pretty automatic generally speaking the majority of our contracts have a quarterly.
Q.
<unk> CPI I apologize CPI related adjustment.
That has a 90 day lag so Q3 CPI related adjustments would be.
In Q1 billings, so a 90 day lag at which time there implemented for the subsequent quarter.
Okay. Thanks, again for taking the questions.
Thanks Mitra.
Your next question comes from the line of Sean Dodge with RBC capital markets. Your line is open.
Okay. This is Tom Taylor on for Sean Thanks for taking the questions.
Ted you mentioned the difference between wage rate increases initiated by you and those initiated by the clients and the impact that has on whether or not they can be pass through.
Just to help better understand in the third quarter, which of the items noted.
Not able to pass along as it is.
Everything.
Reflect food costs.
Yeah.
Yes, typically we will typically when you think about our customers our contract structure place of the owner owners on that customer for developing the conditions of employment to attract and retain employees. So our general approach is to let them know what we're facing in any given labor market make recommended.
The higher <unk> on the adjustments and then ultimately pass along those increases.
That really does remain our approach and to that end, we're working with our clients to update their wage scales, but.
In this unprecedented environment and the labor shortage, what is typically as I mentioned earlier, a straightforward process is more complex.
Which is why in terms of what would typically be outside the scope of that contractual arrangement.
Things that are initiated by US for instance, overtime uses which in a normal environment would be considered.
Inefficiency, if we decided to institute special bonuses or.
Commendam referral or retention programs for our employees they would be initiated by us almost outside of a typical contract structure.
Different than say, a wage scale adjustment, where the facilities adjusting its wage scale our departments would be part of that adjustment and then we would pass along the corresponding.
Funding increase as we adjust the wage rate structure. So that's what we're in the process of working with our clients on now and.
And ultimately we expect the right sizing of those wage rates.
To be adjusted and then passed along to our clients, but in the meantime, as we're working through that process. Some of these cost I referenced earlier and a.
Special attendance bonuses retention referral bonuses premium pay overtime are going to be incurred like they were in the third quarter.
Okay. That's helpful. Thank you.
And then given the tighter labor markets, where do you all stand currently from a new manager development standpoint are you continuing to recruit and train new.
Is it kind of business, usually go on that side or where given the state of things. If you have you paused a lot of that activity for for now.
Yeah again, Thomas I would say that to a degree it's business as usual.
As recently as the second quarter, we were talking about having an IRR on growth rate and an obvious first step.
And for Us to think about Onboarding, new facilities is having that managerial wherewithal the managerial capacity at the local facility level to do so so that is one thing that's been beneficial in one regard is that at the local levels, our folks have been recruiting and they have been hiring folks and putting them through our management training and development program.
In order for there has been a little bit of a curve ball obviously with.
The significant challenges in labor availability in the labor market that we've described that's yet another tactic that we employed throughout the quarter in order to make sure that we could get the job done at the facility was re purpose, if you will or sort of reroute some of those personnel.
Graham versus toward facilities that were especially in crisis are facing needs from a labor and a personnel perspective. So there were some instances where.
Perhaps unanticipated portion of our management trainees training program is going to route them to a facility, where theyre going to be an extra set of hands and they're going to be.
Learning firsthand how to deal with the challenges that can arise in scenarios like this so a great learning environment, certainly a challenging learning environment, but.
It will serve us well certainly as we.
You have attained that market stability and begin to transition out toward growth mode with with greater.
<unk> confidence.
Okay. Thanks, and then one last quick one if I can ask you think about the cost or margin trajectory in the next couple of quarters.
Costs are collected in the third quarter should we expect some incremental step up.
Q4.
Yeah at this point in time were.
We don't really we don't really have great visibility into that I would say sitting here today, knowing what's in front of us and knowing that there's so many variables in the marketplace right now.
We would we would venture to guess that Q4 could look more like Q3.
We will continue to work through this process, but again ultimately.
<unk>, our expectation as we work through these conversations with the customers and right sizing the wage scales that.
That we would return back to our typical.
86% cost of services were better operating model.
Okay, great. Thanks, guys.
Your next question comes from the line of Ryan Daniels with William Blair. Your line is open.
Hey, guys, Nick <unk> in for Ian Thanks for taking my question I.
I guess.
Kind of going on with cost inflation, how does this affect.
Sales process for incremental business.
So not just kind of.
Synergistic kind of dining.
Dining rep sale.
I would assume.
It's kind of a double edged sword in that kind of catch a little bit easier.
Folks are seeing their cost in play and they are trying to find you know.
Operator bring those down but I should also see that build.
So I guess just your thoughts there.
No Youre your intuition is exactly correct Nick in a sense that we certainly have more resources at our avail, we are able to better mitigate these challenges than the in house.
Managed operator, so that serves us well and obviously.
In times of greater industry, duress or when the industry is especially challenged pressured.
The.
The leanings towards outsourcing all types of services increases right and certainly that applies to the services that we provide as well the challenge that we face and.
<unk> kind of surveying and.
Putting proposals together and projecting new business opportunities is understanding the relative stability of that facility's financial profile right. You can look at our facility at a point in time and see a certain occupancy level, perhaps a certain payer mix.
And really where even a certain wage scale and you have to determine whether each of those is scaled appropriately for that particular facility to not only for that moment in time, but going forward, we talked about the challenges that we faced throughout parts of the pandemic, where there were infusions of government funds that could absolutely create the.
<unk> entity for Fools gold in assessing new business opportunities, Brian a customer calls you the value proposition resonates very clearly with them. They are interested in partnering with us and they show you a balance sheet, that's reflective of a much healthier version of what exists perhaps behind the curtains on a go forward basis relative to occupancy.
The opportunity of Labor challenge that we've talked about so we need to as a part of that comprehensive financial assessment of the facility determined is this the appropriate wage scale in this building. The last thing that we would want to do is on.
Onboard a new facility, establishing new partner, where the average wages $9 an hour and then all of this.
And some get in there and we determined that boy, we're not able to get anybody in for less than $11 50.
Youre sort of blowing up the unit level economics right out of the chute. So it is yet another component Nick of that facility based assessment not only the moment in time, but it is a little bit of a moving target and we have to do our best to project out.
Suddenly how sustainable Hal appropriately scaled.
The unit level.
Economics of that particular facility.
Thanks, I can appreciate that.
And then I guess as a follow up and.
In regards to kind of the cross selling opportunity with the dining and nutrition how far along.
I guess are you in.
The potential.
To do that are you still kind of the early innings of that.
Or are you kind of I guess, where are you in that process.
Hi.
Describe it next similar to the.
Amit that I described as it relates to management development REIT the management development function as one that is executed and established locally based upon existing managerial needs and likewise the go forward growth prospects and similarly busy.
This development is assessed executed and ultimately on boarded.
So we are at different stages throughout the country based upon customer relationships based upon the stability in the labor market and other factors.
Some of those conversations about converting housekeeping and laundry customers to becoming a dining customer are years in the making and if.
We're confident that that customer can tick all the boxes with respect to those elements that I just outlined in addition to of course first and foremost will they hold the contract with the utmost integrity will they ultimately commit to paying us on time and in full.
We can tick all those boxes, then we would feel confident to forge.
Each forward and to convert some of those new opportunities in the near term, but generally speaking yes.
Really wide variability in what you'd find based upon kind of the local conditions and where they are with both the management capacity and that assessment of those facility based financials and go forward profile that I described earlier.
If youre going to put like a number on that like is that a thousand clients 2000 clients like is there kind of like a number that you guys are.
Wrapping I guess.
The one number that I would point out Nick is that we continue to have.
Less than 50% of our housekeeping and laundry customers for whom we're providing.
The dining services. So that is certainly the most obvious and immediate low hanging fruit for us as a company, it's a tremendous opportunity and runway that lies ahead in the near term.
We wouldn't feel comfortable to put numbers associated with either the timing or the number of facilities that we would expect to convert within any sort of anticipated.
Got you frame.
Got you Thats fair. Thanks for taking my question guys.
Your next question comes from the line of a J Rice with credit Suisse. Your line is open.
Hi, everybody.
A couple of things if I could ask so in the press release and I'm, sorry, I got on a few minutes late so.
A bit of time, let me know we can cover it offline. If you have already talked about this but you discussed we've taken a look at every aspect of the business looking at operational changes I wondered if you could flush out a little more specifically.
Where you think there is opportunities to respond to what youre seeing in the marketplace.
Well I think in terms of actions that we're taking a J specifically with respect to the labor market we've talked about.
Some of the initiatives that we've launched that we that have been in place, but that we're continuing to innovate around but certainly repurposing redeploying resources to high need facilities.
Introducing employee incentive in our referral program streamlining onboarding processes just to name a few so.
There are some of the recruiting among many many other programs and innovations that we continue to have an implement throughout the organization in terms of our customer base I think we have.
<unk> approach that has worked since company inception around wage wage rate and wage scale pass through provisions in the unprecedented environment that we're in right now obviously, that's more of a process than an event.
What was otherwise it would typically be at pretty straightforward conversation.
The Trump you have a client that is in a position where they're asking many many different questions among their own departments. Let alone. The departments were operating in trying to understand whether the environment is transitory or whether it's permanent and then if it's permanent that would trigger a series of additional conversations so.
I think in.
And quarter ahead.
Given all of the variables, which is why when I was asked the question about next quarter. What I can answer is not exactly what next quarter is going to look like from a financial outcome perspective, but I can't speak with great certainty on what we're prioritizing which is recruiting and retaining staff working.
<unk> with our clients on updating employee wage scales and then remaining laser focused on the elements of the business that are within our control.
So that's really going to be our focus beyond that we continue to keep an eye towards growth.
The other parts of the business that will manager today.
I guess I didn't really understand.
Working.
And it sounds like the focus is on the recruiting side.
That pipeline.
So I wonder it almost read like maybe there was some way you could you were thinking about retooling the infrastructure of the management infrastructure that you have in that model, but that doesn't sound like that's on the table.
Thanks.
No no definitely not.
Okay.
I guess.
The pass through elements of what you have on dining pass through elements of the wages for.
For the hourly labor has always been.
Great aspect of the company, it's given your protection.
So when you're in an environment like maybe we're in now.
Were you just.
No.
Nursing homes, you are in a position where they have trouble raising the wage they have to have.
The deal with their own workers and with your workers.
And raising and deal with the increase in dining.
Food input cost.
Got it.
They can only go so far are they put themselves in financial distress or are we dealing with that kind of thing. It seems like the occupancy rates sort of bounced off the bottom, but it sort of plateaued here at <unk>.
Relative to pre pandemic levels depressed and I just wonder.
<unk> weather.
That's one of the challenges is even though you've got the REIT potentially to pass through.
These wage increases they're just not in a position financially to raise rates enough to get the.
The labor and therefore, there is sort of in a catch 22.
And we at that point, yet or not really youre thinking about it.
Exactly correctly, a J in that.
Not only do they not necessarily have the financial wherewithal to increase those wages, they don't know where to take them right because <unk> got to keep in mind that.
Once you, let the toothpaste out of the tube, it's really hard to get back in REIT. If you completely adopt the we'd scale for what could be.
A moment in time, it's really hard to walk that back right I mean, once that starting wage gets up above.
From the example, I gave earlier from $9 to $11 50, really hard to walk that back REIT that becomes the new norm. So thats part of the challenge and how that impacts us as we've discussed previously when theres, a customer whose slow to respond.
And are slow to adjust the wage scale the facility to adapt to labor market conditions that can create operational challenges for us right. It can make it harder to get people in the front door. It can create challenges and keeping them from walking out the back door. When that's posted pressured to the next level. It can create the need for us to utilize overtime.
And as you know better than anyone we joke about overtime being the dirtiest of Dirty words in our business, it's an absolute budget killer, but with the commitment that we make to the residents in these facilities and to getting the job done for our clients.
We'll utilize whatever it takes to leverage the employees that we have in that building to get the job.
Job done so whether that's utilizing overtime hours or implementing some of the premium pay or bonuses that had alluded to that's the commitment that we make now the good the benefit is that once the facility ultimately sort of REIT sizes and re scales. The wage structure. That's when we do in fact have the opportunity to pass along those increases.
But in the meantime, there certainly can be operational and that can bleed into financial challenges that were required to bear in service of getting the job done until that facility wage scales right sized.
I would just add.
What hasn't changed even if this environment as difficult as it is for all the reasons you outlined persist.
Assist ultimately our approach contractual and otherwise, it's fair and beneficial to the client it's fair to the client in the sense that.
They are if we were not there and that's really the view ultimately that the customer would look at their decision and if we were not there they would be subject to the same wage pressures.
And have to make the same adjustments if not if not greater adjustments than we would and it's beneficial because whatever adjustments that client would otherwise have to make would likely be on a larger employee base because of the efficiency that we have in operating the business. So those two components to any discussion in any contractual.
Actual otherwise our omni present in the room and again, it's a process in this unprecedented situation as.
As opposed to in past years or occurrences, it's more of an event.
Okay and any of I.
I guess just trying to understand this dynamic given it's sort of unique.
Well.
Either you or the nursing home is paying a.
Referral bonus or sign on bonus or retention bonus.
If they pay that does that automatically get in your rate structure or if you're paying that are they is that getting pass through or are you having to absorb that.
If you get outside of the hourly standardization when you start doing these.
These bonuses.
Yes, the distinction that we would make in that regard AJ relates to which party initiated the bonus program right. If you think back.
<unk>.
Not that long ago in the midst of the pandemic, we had customers throughout the country that we're instituting attendance bone attendance bonuses and hero bonuses for those folks that were coming in to do yeoman's work in these health care facilities throughout the midst of the pandemic.
When a bonus such as that was initiated by the customer. They are typically asking that we likewise paas that bonus availability along to our employees and then we're able to get reimbursed by the customer for those type bonuses, that's different and distinct from a bonus that we would implement.
It ultimately serve to our benefit in our ability to staff the facility right. If we're offering referral bonuses as a means to span out the availability of labor in a particular market. That's a decision that we would make and ultimately bear that cost. Similarly, some of the attendance bonuses and premium pay an unfortunate.
Fortunately in instances in which were forced to utilize overtime hours.
Corresponding costs are ones that are borne by us because they are decisions that we've made obviously those.
Those decisions are made in service of the client and service of the resident and getting the job done, but that's the distinction a J as too.
That would those programs and bonuses that would have been initiated by the customer which would be a direct pass through whereas some of the other sort of tactical.
<unk> and programs that we've implemented are in service of allowing us to get the job done cost we would likely bear now we will go back to the customer and there is certainly a conversation that happens throughout this process where were.
Some of the commendations on ways that they can rightsize the wage scale to facility. We are certainly informing them of the challenges that we face and we're hoping that they will provide a remedy.
A more durable basis at the facility and in instances in which we are incurring overtime hours or some of these bonuses I've spoken up there's nothing that stops us.
Making brought back to the Comverse client and initiating a conversation about the possibility of getting reimbursed. We generally don't have the contractual the availability to directly pass those through but it's certainly a conversation with the client.
Okay, alright, thanks, so much.
Yes.
Final question comes from the line of Brian.
With Jefferies. Your line is open.
Hi, good morning, its Jackson on for Brian. Thanks for taking my question just a quick one to close out here.
Just as it relates to Genesis any update you can give there or.
Could you, let us know kind of what your thoughts are given the current.
Our environment on whether or not there is risk that.
Right and payment concessions would need to be extended past their current timelines. Thanks.
Got.
In terms of the relationship again continues to be a strong partnership from the facilities right on through their C suite, they're a great partner frequent communication.
And they continue to execute on their restructuring plans that they have previously outlined.
With us in prior to them going private.
Two the public now theres been some changes and with new management and new leadership there.
We continue to evolve that plan and innovate.
Throughout there.
Exercise of that plan, but again overall, it's a strong relationship and.
Nothing to speak to in terms of risks that you outlined I mean that no different than any other client or any other customer in this environment, we're closely watching and monitoring all of our customers and.
The best way for us to judge.
<unk> any clients creditworthiness is by.
And then living up to their commitments financially and otherwise and to date they've continued to do that.
Got it thank you.
Okay.
Turn the call back over to Mr. Ted Wahl for some final remarks.
Thank you Tamara.
While we are mindful of the near term challenges, we will continue to use our longer term view as our true north as we navigate these uncertain times with discipline intention and purpose to best position the company for when we emerge from this unprecedented period in the quarter ahead, we will closely monitor industry.
Recovery occupancy trends and further government funding as we prioritize recruiting and retaining staff working with our clients on updating employee wage scales and remaining laser focused on managing the elements of our business within our control will also keep an eye towards opportunistic growth and remain.
<unk> committed to internal investment and returning capital to shareholders.
Looking out further we remain confident in the longer term growth outlook for the company given our market leadership efficient operating model and attractive demographics. So on behalf of Matt and all of US at healthcare services group I wanted to thank to me for.
Hosting the call today and thank you again to everyone for joining.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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