Q4 2022 Healthcare Services Group Inc Earnings Call
Okay.
Yeah.
[music].
Yes.
[music].
Yes.
[music].
Yeah.
Yes.
[music].
Yeah.
[music].
Yeah.
[music].
Good morning, and welcome to the healthcare services group 2022 annual earnings call.
At this time all lines are in a listen only mode.
After the Speakers' remarks, there will be a question and answer session.
I would like to ask a question simply press star followed by the number one on your telephone keypad.
The matters discussed on today's conference call include forward looking statements about the business prospects of healthcare Services Group Inc.
Forward looking 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 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.
Conditions expected future developments 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.
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 statements are not.
Guarantees are performances.
Some of the factors that could cause future results to materially differ from the recent results.
Or 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.
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.
Now I would like to turn the call over to Ted Wahl, President and CEO .
Thank you and good morning, everyone.
And I appreciate you joining us today, we released our fourth quarter results. This morning.
Hey, Mike.
Hey, good morning, everyone.
December 31 2022.
Sure.
24 million net.
Net income of $16 2 million or 20 SaaS first.
Sure.
Cash flow provided by operations.
Doug.
We also announced this morning.
This disciplined and balanced approach to managing capital and rebalancing of our capital allocation strategy.
<unk> financial flexibility.
Thanks.
Inorganic opportunity.
Great value creation.
As such the board of directors has suspended the quarterly cash dividend and authorized the repurchase of up to seven 5 million shares of our common stock.
Today in our opening remarks, I will discuss our Q4 accomplishments.
Our re balanced capital allocation strategy and our 2023.
I'll, then turn the call over to Matt for a more detailed discussion on our Q4 results after which time will be available for Q&A.
I am pleased with our Q4 results.
Your score and the resilience of our business model.
And perseverance.
In a challenging operating environment.
We achieved our 2022.
At year with cost of services in line with our historical target of 86%.
Our Q4 call on collecting what we bill.
A growing pipeline of future client partners.
2023.
Although each of these achievements related to different aspects of our business.
Hey gather they underscore.
The strength of our client relationships.
Hi, good morning.
Each of these accomplishments.
The accomplishment.
The completion of our 2022 service agreement qualification initiative.
This was a massive company wide.
The outcome of which is foundational to the scalability of our business model and partnerships.
As many of you are wondering.
The purpose of this initiative with toy Jonathan extraordinary labor inflation experienced during the second half of 2021 and two.
Well as contractual future equation labor on a more real time basis.
And it's one of the initiatives.
On that bottoms up client by client effort.
Patrick that required significant levels of autonomy.
Some are related coordination and collaboration.
I am pleased to report that.
Thanks of the contract modification work is complete.
Excellent.
Excluding the year with cost of services in line with our historical target.
6%.
The second accomplishment I'd like to highlight.
Our Q4 call collecting what we bill and what was our strongest cash collection quarter.
And although one quarter does not a trend.
This was a significant accomplishment and further validating our collection.
Strategy.
Andrew just to be a challenging industry landscape as well as providing a strong foundation and positive momentum heading into 2020.
Lastly, I would like to highlight the significant progress we made.
Hi, good morning.
Okay.
Thank you for asking.
Thanks.
For the first time.
Okay.
As many of you would recall the interest level and overall demand for our services remain high.
And then through the first half of 2000.
Morning.
However, our ability.
And further develop opportunities.
Okay.
And any type of scale with extremely limited.
The access issues challenges and accurately assessing the financial health of potential partners.
Clinical considerations.
Over the past six months that was a limiting factor.
My colleague diminished and we once again had a growing pipeline.
Qualified opportunity heading into 2023.
And although the timing of new business adds.
The ongoing replenishment of our pipeline.
<unk> is highly encouraging.
Now I'd like to move on to a discussion on our comprehensive rebalancing.
Our location strategy.
The board regularly reviews, the company's capital allocation strategy to ensure support creating value for shareholders by delivering on our near term operational objectives and on our growth outlook.
The dividend has been an important part of our capital allocation strategy for many years and the board recognize dividends positive impact on total shareholder returns over that time period, but as we went through.
Thanks.
And look to the future.
It was clear, especially given the prolonged industry recovery ongoing macroeconomic challenges.
Sure.
No.
Impactful and lasting ways to maximize shareholder value with our comments here.
Our rebalanced capital allocation strategy is designed to enhance financial flexibility to support future growth opportunity.
All right.
The new framework to suspend the quarterly cash dividend and prioritize investments in organic growth drivers inorganic growth opportunities and opportunistic share repurchases.
I'd like to describe in more detail each of these capital allocation priorities.
First and foremost in China.
<unk> growth will continue to be of the highest priority in terms of capital allocation.
Just need investments in organic growth drivers, Mike Powell Goldman and employee engagement.
Customer breadth and experience brand positioning and R&D are central to our business and.
Looking further ahead in the future.
Secondly, our balanced capital allocation framework.
And thats been at high quality.
Any growth opportunities and increase earnings.
<unk> and accelerate growth.
As many of you would recall we've done the same.
All are very successful.
Physicians over the past decade within our core market.
And more recently and further exploration of the education sector.
The acquisition of a premium brand.
Complement our organically developed EPS Brad.
The early returns from our work in the education space over the past 18 months continue to be positive as our value proposition is resonating in the market with similar products.
And working capital profile.
We remain active in developing our pipeline of organic and inorganic opportunities within the span and highly fragmented market.
We will also prioritize flooring complimentary inorganic opportunities within our core markets from strategic alliances to investments in emerging technology to adjacent service offerings.
Finally in keeping with the shift in overall capital allocation strategy.
There's more proactive impactful and then dwyane Wade to create shareholder value.
The directors suspended the dividend.
The repurchase.
Seven 5 million.
Sure.
As an opportunity and tax efficient way to return capital to shareholders.
All for China is will depend upon.
Generation, our liquidity position share price and alternative use have Alex.
Before I turn the call over to Matt I'd like to make a few remarks on our outlook for 2023.
While the industry continued headwinds related to workforce availability.
And supply chain constraints.
By the gradual but steady.
Improving facility.
And labor market trends.
We will continue to closely monitor.
And we haven't.
Three remain on a clear path towards recovery, albeit approval.
And through the new year with positive momentum and a strong foundation.
Moving the business forward.
Underlying fundamentals remain as strong as ever.
Our leadership and management team.
<unk> business model and the visibility we have into our business execution.
API and trends related customer experience systems.
Aaron's regulatory compliant.
This discipline.
Our learning platforms for training and development and employee engagement.
Our strong liquidity position with nearly 301 comp ratio over $120 million of cash and marketable securities and our recently renewed a $500 million credit facility.
And the growth opportunity that lies ahead.
So in closing for 2023, and we are confident in our ability to control the controllable realistic about the ongoing challenges everything within our industry, a broader economy and optimistic about creating meaningful shareholder value.
With those introductory comments I'll turn the call over to Matt for a more detailed discussion on our Q4 results.
Good morning, everyone. Thanks, Ted revenue for the quarter was reported at $424 million to housekeeping and laundry and dining and nutrition segment revenues were $198 million and $226 million respectively.
Again laundry.
<unk> segment margins.
And four 3% respectively.
Cost of services was recorded at $366 $8 million.
5% direct cost included $2 eight.
$8 million benefit related to favorable workers' compensation loss development trends.
$8 $6 million decrease in reserves.
Delighted in his opening remarks, we met our goal of exiting the year with cost of services.
Local target of 86%.
SG&A was reported at $35 million after adjusting for $2 $1 billion increase in deferred compensation actual SG&A was $37 $4 million 48, 8%.
2023.
Yes.
Okay.
Right.
You take the tax rate was 19, 4% for the fourth quarter and 23, 2% for the full year 2022.
The company expects for 2023 tax rate of 24% to 26%.
Cash flow from operations for the quarter was $22 $9 million.
Three.
Decrease in accrued payroll, including.
The second half were $24 $4 million.
DSO for the quarter was down.
So we would point out that the Q1 payroll accrual 60 days that compares to the 14 days in Q4.
I just wanted to three in the corresponding period.
Okay.
And the impact ultimately washes out.
Sure Joe.
Those opening remarks on the call.
All of our questions.
Okay.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
We will pause for just a moment.
To get the roster.
Okay.
Your first question comes from the line of Sean Sean Dodge with RBC capital markets.
Okay.
Thanks, Scott Good morning, and congratulations on the strong fourth quarter strong year strong fourth quarter.
So Ted on the re balanced capital allocation strategy, you mentioned potentially pursuing some.
Organic opportunities and it sounds like specifically in education.
No. It's still early there I think like you said around 18 months been exploring that market can you give us a sense of how.
Revenue education, contributing now and maybe how big you think it could be in the next couple of years and then maybe compare and contrast education that end market versus snacks. It seems like education is probably less structurally challenged over the long term.
And then where do you think the margins could be in that market versus.
You have generated historically.
Yes, I think I think in terms of your first question is Sean you highlighted we're still less than 18 months in but clearly.
For us it's beyond the pilot stage and we really believe it's an opportunity that.
No warrants further exploration and we're willing to further commit to that currently it's less than 5% of revenue certainly when it makes sense to share more of the specifics around that we will do so.
The returns continue to be remarkably positive and again, the 2047 mindset, our purpose vision and values is kind of the niche when you think about the big three players and where we're really concentrating our efforts within more of the private and independent school space.
It really provides a lot of possibility and we're very optimistic optimistic about that in the future. So I think from a from a possibility perspective just to address that question I think its as great if not greater even than what we have in our core market and when you look at the number of candidates for the types of services, we would be offering.
The other attractive part of it is.
The margin profile certainly the working capital.
<unk> profile as well as other components of the business similar product offerings in terms of facility management I E custodial and janitorial type work as well as dining so we.
We really view it as an opportunity and are excited about those possibilities in the future.
Okay.
Great and then the share repurchase authorization can you give us just a little bit of a sense on how you expect that to unfold, but is the plan to do something accelerated there it's going to be more of just kind of a gradual or opportunistic buyback.
Buyback.
Yes, we're thinking of it in terms of opportunism and I mentioned it in my opening remarks, that's really going to be term it going to be determined by a variety of different factors.
The least of which is our liquidity position and expected free cash flow clearly our share price. We will look at items like our dilution rates via share creep in any given year and of course, what's the highest and best use of capital vis vis alternative use analysis. So we're going to look at it holistically, but we're committed to being opportunistic.
With that going forward.
Okay. Thanks again.
Thank you Sean.
Your next question comes from the line of <unk> with Stifel.
Okay.
Hey, good morning, guys.
So when you talk about the growth pipeline of future client partners heading into 2023, I'd like to focus on the nursing home side. It sounds like you think some of the constraints anticipating could you give us an idea in terms of how large the opportunity set is I didn't hear any comments around the leadership pipeline could you provide any color.
On kind of recent pipeline developments.
Development there.
Yes.
Yes, Im glad you asked that question Todd because make no mistake, we are absolutely committed to continuing to play in the core market and there remains massive opportunity there we think about defining that.
Opportunity within the long term and post acute care space as being about 23000 facilities or so only 20% of whom are currently outsourcing.
Housekeeping and laundry services and by our calculations less than 10% of outsourcing the dining and nutrition.
Services, certainly significant runway of opportunity that exists in that core market and we remain very much committed.
To that space. This may go without saying, but with respect to topline considerations. It's worth reminding everyone that our revenue considerations include not only new business additions, but also retaining the existing business and while we certainly remain bullish about the industry recovery and our own ability to execute operationally, we've always allow for the fact that eggs.
<unk> business is sometimes the best course of action for the company, whether thats, a distressed or uncooperative client or if it's the result of an administrator or operator or ownership change we remain nimble and those certainly not cavalier about leaving business if that makes sense. So having said that looking forward to Q1, we would anticipate that.
You would likely be in the $420 to $425 million range essentially projected relatively flat sequential revenue.
Get a bit of a new benefit from the contract modification price increases kicking in but this will be offset by exits related to the comp by the completion of that exercise.
As well as allowing for normal course of business type facility exit so while our pipeline is certainly robust and growing and we're very much committed to further cultivation of that pipeline. The new facility adds that we're anticipating are not quite mature enough to onboard in earnest in Q1. So we'll continue to focus on management development and positioning ourselves to be.
Zoom, our growth posture, but onboarding new facilities in a more meaningful way to al likely would occur beyond Q1.
Got you understood and just some clarification point on the $8 $6 million increase in AI research could you break that down to kind of dining and housekeeping.
Yes, so we don't have that information available and typically that's not how we look at it.
The bad debt is our reserves are more calculated based off of each specific customer irrespective of services, it's more customer driven than it is service driven.
So is it spread out across multiple client has always been concentrating appeal.
It's spread across multiple clients and Thats really driven if you recall pre C. So there was it was a highly qualitative approach taken towards bad debt analysis and review CSO has introduced.
What I would describe as a highly quantitative approach that truly based off of aging buckets and customer specific.
Aging so it's different than it has had been conducted say pre 2020 are pre 2021, but we're it's obviously the accounting guidance that we're required to adhere to and we're doing just that.
That's helpful. Thank you.
Thank you.
Your next question comes from the line of Andy Wittmann with Baird.
Okay, great. Thanks, guys, sorry, if there's some background noise here I guess I wanted to dig in a little bit on the $9.8 million benefit from the workers comp.
Certainly having.
Employee injuries trending downwards as a good thing there's no doubt about that but I just wanted to understand the accounting here.
I suspect that this is the actuarial review that you guys have to do annually that looks back a number of years.
That's right the majority the majority of that benefit what does it relate.
Andy are you there.
I'm sorry, we lost you for a moment, but yes.
Majority of that Youre right. It was it was based off of our annual actuarial review and the majority of that benefit related to claims experience and trends for 2020, and 2021 as well as a portion of it for 2022, but that's where the vast majority of it related to.
Okay, Okay got it sorry about the background noise here.
Just thought Ted maybe thank you for clarifying.
Our reserves can you just talked about.
I don't know your overall qualitative assessment equals more quantitative what what can you tell us about.
Getting reduced they've obviously kind of working back up here. After a couple of years of better performance on <unk>.
R 22 had some more blender Susan I guess I mean, I know these things are always unpredictable, but just you have gone through the whole portfolio you've talked to all your customers.
Where are you on this one and how you're feeling about 23.
Okay well.
Look I think.
In terms of 2023, we would expect as the industry is going through its prolonged but steadily improving recovery ongoing challenges in the first half of the year right. It's never easy to collect what we bill it's easy to say, it's always been more difficult to execute on but the industry.
<unk> is on a clear and positive trend towards recovery, but its still not recovered. So we're geared up as we always have been but in particular, our senses are heightened in this.
Still challenging environment, but we're optimistic if you compare it to where our collection experienced last year, where we had a $60 million shortfall.
And that really all took place in quarters, one through three with collecting what we bill in Q4, we do have strong momentum heading into the new year I would only add that we did have the benefit in Q4 that ended up your attention Andy where Q1 historically has always been.
A bit softer than that.
Its previous quarter.
The quarter preceding it which was Q4 that said we are expecting a better collection experience in 2023, largely driven by our continued the continued success, we're having with our collection strategy, coupled with an improving environment and the success we've had in.
Organizing the majority of that $60 million more than half of that 60 million I referenced into promissory notes, so that will be a tailwind as well relative to Q3 2023 collections.
Okay.
Alright, great. Thanks, guys.
Andy.
Your next question comes from the line of a J rice with credit Suisse.
Hi, everybody, maybe a couple of questions if I could.
Just remind us on the contract modification, but what is the price January one price increase roughly that you anticipate or that you've realized at this point.
Yes, really difficult to quantify that a J in the sense that this wasn't sort of an across the board date certain increase.
<unk> amount it was as we've described previously very much a bottoms up customer by customer exercise.
And along with kind of the variability of the increase is based upon the specific facility considerations was also timing right we talked about some of the.
Effect of those negotiations.
Running through the results in the back half of the year, but certainly more in earnest as we get to Q1 so.
Too much of a moving target AJ to give any sort of a meaningful specific number as to the increases.
Okay.
I appreciate the comments on the Q1 revenue there are a lot of moving parts going down the income statement. So it's helpful to get that commentary.
You also on the operating income side had some.
Obviously, you've called out the $9 $8 million of Workers' comp was $6 $5 million of they are.
Incremental accrual.
Any comment that you can give us about sort of.
Run rate of operating income range for the first quarter margin for the first quarter as you start to know as you normalize for these unusual items.
Or even I guess, just give us your sense of where the normalized number would have been for fourth quarter ex all of these all these items.
Yes.
Yeah, well I think maybe looking at it more prospectively a J, we're entering the year, we exited the year with that run rate of 86% cost of services really with the most significant variable being as you alluded to.
See solar or a related reserves that is a bit unpredictable.
Point out our past to just illustrative Lee our past two fourth quarters, 2021, Q4, and 2020 to Q4 last in both quarters, we collected what we build.
In Q4 of 2021, we had actually a $3000 pickup undersea saw and in Q4 of 2022, we had an $8 $6 million charge. So we would expect that to even out as our collection experience normalizes more into that.
Collecting what we bill a category I do know the way <unk> works, it's more of a let's say lagging indicator in the sense that.
It's based off of past collection performance rather than expected future performance. So I think as we get better collection experience in 2023, as I alluded to with Andy and that's what we're expecting into 2024, we would expect our seasonal bad debt expense to normalize and certainly become that much more.
More predictable.
Okay.
I know you generally and you've made some comments about things improving the underlying.
Customer base, particularly in nursing homes.
Traditionally you've sort of given a sense of where you think occupancy is how it stepped up in the pace of further step ups do you have any update along those lines annuity comment about underlying labor availability to your customers and therefore to you at the hourly level as well.
Is anything on the food inflation update.
Yes.
The I guess overall the occupancy the occupancy data are encouraging from an industry perspective. The most recent data are suggesting that the.
The national occupancy sits today at 76, 6%, a J which is.
A point and a half higher than what it was when we spoke.
Three months ago, and four 5% higher than what it was when we reported last February so slow and steady improvement there.
Clearly and that's all I'll.
I'll ask Matt to touch more on the labor side, but as you know better than anyone the key to occupancy recovery is really staffing availability and the interplay between those two remains significant so it's no. It's no surprise that as the labor environment. The overall labor environment, although it remains.
So difficult and challenging relative to historical.
Perspective, it is slowly improving and that certainly has been a driving force behind some of the recent encouraging trends we've seen on the census front.
Yes.
And then AJ just just to address that the final two components of your question on the labor market within the industry in general there certainly remains significant challenges. There was a recent survey where providers overwhelmingly reported moderate to high levels of staffing shortages and difficulty hiring staff and nearly half of them report that staffing.
<unk> has deteriorated since even the midpoint of last year 2022, so operators are indicating that the biggest obstacle to hiring is the lack of interested or qualified candidates but.
In what remains a theme of have and have nots about a third of those respondents reported that the overall workforce situation had gotten better during that timeframe. So while wages continue to rise in the nursing home industry. The pace of those increases has slowed fairly dramatically from eight 1% in 2021 to three 8% in 2020.
Too so.
We as a company health care services to continue to see challenges, our experienced and hiring and retaining employees and managing wage rate increases is modestly better than the industry averages. So there is a similar story of notable differences market to market, but generally speaking, we're seeing ongoing improvement and on a same store basis, we were.
Net positive and increasing our number of employees and Thats, an improvement certainly versus 2020. One so in summary ongoing challenges, but encouraging trends on the labor front and then to your final question with respect to sort of the overall inflationary environment.
CPI for all items for the quarter was <unk>, 4% that compares favorably to what was <unk>, 5% in Q3 and just for context, you might recall that there was a two 6% increase in both Q1 and Q2 of 2022, so improvement there more specifically food at home inflation was one 1% for Q4.
That was the lowest it's been since Q1 of 2021.
Modest improvement there as well whether that.
Continuous directionally certainly, we'll keep an eye on that and then and then on the wage inflation again, we spoke to it a bit but specifically in the nursing and residential care facilities wage inflation in Q3 was around one 2% and thats down from 2% that we saw in Q3.
And maybe even just for some further context the average annual wage inflation for the five years preceding Covid was two 4% annually and we've certainly seen substantial increases since then with 3% in 2025, 7% in 2021 and six 4% in 2020.
Two so clearly.
We have gone out of our way to better capture all of the above noted increases and our customers.
Have been doing their best to.
A lobby the various specifically state based agencies to get the requisite.
Reimbursement increases to better capture those costs.
Directional improvement is how I would sort of summarize.
And I would only add one thing AJ to matts remarks, and that would be to underscore the last trend. The final trends. He gave on the labor inflationary side, where that hockey stick kind of adjustment between 2021, and then 2022 just to underscore one more one more time how sick.
<unk> the achievement and the conclusion of our contract modification initiative was having now for the majority of our clients a much more mechanical kind of data driven labor adjustment that's reflective of actual experience that's.
Thats contractually required as opposed to what we what served the company well for decades, but up to and including 2021, So big achievement and I think thats. The information, Matt just share just further underscores the reason why.
Okay, great. Thanks, a lot thank.
Thank you a J.
Your next question comes from Jack Malik with William Blair.
Yes.
Okay.
Yes, Thanks for taking my question and congrats on the nice quarter here.
Thank you with respect to a more.
Flexible capital allocation strategy.
What sort of investments are you ideally Yang for near term opportunities for instance in investments in tech.
Tuck ins or any other quick wins that could help drive.
Better margins our base growth in 2023, thank you.
No. It's a great question and I know I touched on it at a higher level in the prepared remarks, but wanted to emphasize again that internal investment and organic growth continue to be of the highest priority and we'll be making obviously sustained investments, but in some cases increased investments in some of these organic growth drivers.
And Matt mentioned it as part of an answer to one of the earlier questions, but when you think about the untapped market again less than 20% in evs less than 10% and dining using a third party contract company the opportunity and the runway within our core market, it's easy to forget how how long in.
Strong that is in light of the challenges over the past few years, but with the demographic trends and our market leading position, we're more optimistic than ever that certainly with the growing pipeline that we have in the year ahead and beyond we're going to be able to grow grow our core business.
For many years to come but.
In terms of internal investments I mentioned talent development and employee engagement certainly more important today than its ever been in this fiercely competitive labor environment and those investments will continue from the leadership level all the way through our associate level employees, I'd mentioned customer and resident experience.
We're preparing to launch what I would consider almost like a moonshot type initiative around customer and resident experience in the coming months. We think it is going to be transformational to the experience of our customers and our ultimate customer the resident and really differentiate us that much further into the future.
Brand positioning is another one increasingly critical from our in our view not just for external stakeholders, but internal stakeholders as well in this again competitive labor environment. So we're going to be moving that from what I would describe more as a neutral today to a core company strength.
And then R&D you don't hear us talk about innovation and invention and a lot of the things where we are.
We're exploring but that will be a big point of emphasis for us in the future as we rewrite the post Covid playbook I think of a few examples that we have underway right now on the R&D side.
Client portal, which creates transparent and an integrated platform between us and our client partners, we have central kitchen type pilot programs underway. We're also exploring robotics in a more intentional type of way in both Evs and dining. So again all of these items are central to our business.
And we're going to just further enhance those in the future and of course, we talked about already on the call the inorganic opportunities.
Tapping in what I believe is like an organizational superpower I E. Our business resilience and tapping into that more with more intention and leveraging that in the future in some inorganic opportunities that are highly attractive and then obviously opportunistic buybacks. So all of the above more.
<unk> strategy than what we've had in the past, but we are excited to bring it to life that I can tell you.
Great I appreciate all the color there. Thank you.
Okay.
Your next question comes from Brian <unk> with.
With Jefferies.
Hi, Thank you for taking my corner. This is thank you for taking my question is Hitachi on for Brian . So to start I just wanted to go back to the gross margin commentary you brought down costs by more than 4%. So just curious I know you called out favorable workers' comp and a reserve.
Can you.
Any other levers that drove that change and can you discuss the sustainability of that gross margin in the current operating environment.
Well I think the ultimate lever or the ongoing positive trends related to labor inflation that Matt highlighted but ultimately it was the completion of the contract modification work, which we didn't see the full benefit of we saw some modest incremental benefit the full run rate of that will be reflected in Q.
Four but we did in fact exited the year with the run rate of cost of services in line with that 86% historical target beyond that I think annually. There is an actuarial review, which is where you'd see some let's call. It.
Property and casualty insurance.
Variability depending on the trends in our how were trending from a claims management perspective, but quarter to quarter as we sit here to date business execution. Obviously, it's we don't talk enough about that it's difficult to execute on the day to day in this business. So that would be one potential factor that could impact.
Our success or lack thereof relative to managing the services in line with our budgets. The other would be seesaw, which I spoke about earlier, which hasnt.
<unk> is based off of historical rather than prospective performance. So that could that could have some variability to it as well, but otherwise from an underlying business perspective, we have conviction that we're in a good place heading into 2023.
Great. Thanks, and just one more question for me and now we had talked about labor quite a bit.
And this improvement throughout the year can you kind of size what that looked like in Q4, I guess, maybe in terms of net hires and how thats trended throughout the year.
Yes, we don't have those data specifically with respect to Q4, but just from a directional perspective, we certainly saw.
Improving trends across the board as it relates to our ability to.
Fill vacant positions to hire employees to train them appropriately and then just as importantly to retain our current employees. So we certainly put a lot of resources into it we've leveraged technology.
But significant partnership between our home office here in Pennsylvania, supporting our field based representatives. So.
Really significant progress there in the number of applicants that we were receiving.
Our ability to retain employees and certainly that has a trickle down effect into the facility level offering our management folks to flexibility to appropriately staff the facilities to deliver the services as required.
Thank you.
Yes.
There are no further questions I will now turn the call back to Tim.
Okay, well, great. Thank you Angela for hosting our call today and the here ahead.
Our day to day focus will continue to be on operational excellence and execution with the goal of delivering our on our operational imperative of customer experience systems adherence regulatory compliance and budget discipline.
Cash collections with the goal of collecting what we bill and growth with the goal of Opportunistically, adding new business from our growing pipeline of future client partners.
We're excited about our re balanced capital allocation strategy, which prioritizes more proactive impactful and enduring ways to create shareholder value our future investments in organic growth drivers inorganic growth opportunities and opportunistic share repurchases will not only accelerate value creation.
<unk>, but most importantly, best position the company to deliver sustainable profitable growth over the long term.
So on behalf of Matt and all of US at healthcare services group. Thank.
Thank you again for joining the call.
This concludes today's call you may now disconnect.
Okay.