Q2 2024 Healthcare Services Group Inc Earnings Call
Good morning and welcome to HCSG Inc.'s second quarter 2024 earnings call. All participants are now in a listen-only mode. After the speaker's remarks, we will have a question and answer session.
Operator: All participants are now in a listen-only mode. After the speaker's remarks, we will have a question and answer session. To ask a question, you'll need to press the star followed by the number one on your telephone keypad.
Unknown Executive: The matters discussed on today's conference call include forward-looking statements about the business prospects of Healthcare Services Group Inc. For Healthcare Services Group Inc.'s most recent forward-looking statement notice, please refer to the press release issued this morning, which can be found on our website, www.hcsg.com. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties, and important factors, including those discussed in the risk factors, MDNA, and other sections of the annual report on Form 10-K and Healthcare Services Group Inc.'s other SEC filings, and as indicated in our most recent forward-looking statement notice.
Speaker Change: Expressed or implied as a result of various risks uncertainties and important factors, including those discussed in the risk factors and DNA and other section of annual report on Form 10-K, and healthcare Services Group, Inc. 's other SEC filings and as indicated in our most reach.
Forward looking statements notice.
Speaker Change: Additionally, management will be discussing certain non-GAAP financial measures.
Speaker Change: Reconciliation of these items to U S. GAAP can be found in the morning. This morning's press release.
Unknown Executive: Additionally, management will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in this morning's press release. At this time, I would like to turn the call over to Ted Wahl, President and Chief Executive Officer. Please go ahead.
Speaker Change: At this time I would like to turn the call over to Ted Wahl, President and Chief Executive Officer. Please go ahead.
Theodore Wahl: Thank you 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.
Theodore Wahl: Thank you 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 today. In my opening remarks, I'll first discuss our Q2 Financial Highlights and Key Accomplishments. I'll then share our perspective on the latest industry trends and developments. And then lastly, I'll provide an update on our second half of the year priorities and outlook for the rest of the year. I'll then turn the call over to Matt to provide a more detailed discussion on that.
Speaker Change: Day in my opening remarks, I will first discuss our Q2 financial highlights and key accomplishments I'll then share our perspective on the latest industry trends and developments and then lastly, I'll provide an update on our second half of the year priorities and outlook for the rest of the year.
Speaker Change: Then turn the call over to Matt to provide a more detailed discussion on the quarter.
Theodore Wahl: So with that overview, I'd like to now discuss our Q2 Financial Highlights and Key Accomplishments. For the three months ended June 30, 2024, we reported revenue of $426.3 million, in line with expectations. Net loss and diluted loss per share of $1.8 million and $0.02, which includes the $0.22 impact of client restructuring charges, and reported cash flow from operations of $16.3 million and adjusted cash flow used in operations of $2.4 million.
Speaker Change: So with that overview I'd like to now discuss our Q2 financial highlights and key accomplishments.
Speaker Change: For the three months ended June 32024, we reported revenue of $426 3 million in line with expectations.
Matthew J. McKee: Net loss and diluted loss per share of $1 8 million and two cents, which includes the 22 cent impact of client restructuring charges and reported cash flow from operations of $16 3 million and adjusted cash flow used in operations of $2 4 million.
Theodore Wahl: Our field-based team delivered strong service execution, leading to another successful quarter of managing the cost of services, excluding CECL, within our targeted range. Additionally, we achieved over 96% cash collections during the quarter, which fell short of our 2-2 target, but showed improvement compared to last quarter and the same period last year, and importantly, keeps us on track to meet our 2024 Adjusted Cash Flow objective. We highlighted this issue last quarter, but the majority of our customers affected by the February healthcare cyber attack applied for CMS's accelerated and advanced payments program and expected that supplemental funding in late April to early May. Unfortunately, many of those affected clients encountered delays in receiving that supplemental funding.
Matthew J. McKee: Field based team delivered strong service execution, leading to another successful quarter of managing cost of services, excluding seasonal within our targeted range.
Matthew J. McKee: Additionally, we achieved over 96% cash collections during the quarter, which fell short of our Q2 target, but showed improvement compared to last quarter in the same period last year and importantly keeps us on track to meet our 2024 adjusted cash flow objectives. We highlighted this issue.
Last quarter, but the majority of our customers affected by the February change healthcare cyber attacks applied for CMS has accelerated and advanced payment program and expected that supplemental funding in late April early may. Unfortunately, many of those affected clients encountered delays in receiving.
Matthew J. McKee: Supplemental funding.
Theodore Wahl: As of today, we are confident that all of our affected customers that applied have received their supplemental funding, and we expect to make up the $12 to $15 million change healthcare-related delay in cash collection in the back half of the year, which is why we're reaffirming our 2024 adjusted cash flow range of $40 to $55 million. Our second quarter results also include the impact of the previously announced Leveque Care Center's Chapter 11 filing. The recent restructuring activity we've seen, including Lavee's, is the result of conditions and events that occurred over the course of the past few years, as opposed to a reflection of the sector's current state.
Matthew J. McKee: As of today, we are confident that all of our affected customers that applied have received their supplemental funding and we expect to make up the $12 million to $15 million change health care related delay in cash collection in the back half of the year, which is why we're reaffirming our 2024 adjusted cash flow range up.
Matthew J. McKee: 40 to 55 million.
Matthew J. McKee: Our second quarter results also include the impact of the previously announced with the care centers Chapter 11 filing the recent restructuring activity, we've seen including levee is the result of conditions and events that occurred over the course of the past few years as opposed to a reflection of the sectors current state and while this REIT.
Theodore Wahl: And while this restructuring impacts our second quarter results, longer term, it only further strengthens the financial health of our customers. I'd now like to share our perspective on the latest industry trends and developments. Industry fundamentals continue to trend positively, highlighted by a slow but steady increase in workforce availability, with the industry adding over 100,000 jobs since the beginning of 2023, rising occupancy, which now sits at 79.3%, 12 points higher than the January 2021 low, and just 1% under pre-pandemic levels, and a stable reimbursement environment, which includes CMS's proposed 4.1% increase in Medicare rates for fiscal year 2025, as well as continued positive reimbursement trends at the state level.
Matthew J. McKee: Structuring impacts our second quarter results longer term it only further strengthened the financial health of our customer base.
I'd now like to share our perspective on the latest industry trends and developments.
Speaker Change: Industry fundamentals continue to trend positively highlighted by a slow but steady increase in workforce availability with the industry, adding over 100000 jobs since the beginning of 2023.
Speaker Change: Rising occupancy, which now sits at 79, 3% 12 points higher than the January 2021, low and just 1% under pre pandemic levels.
Speaker Change: And a stable reimbursement environment, which includes Cms's proposed four 1% increase in Medicare rates for fiscal year 2025, as well as continued positive reimbursement trends at the state level.
Theodore Wahl: On the regulatory front, we continue to believe CMS's final minimum staffing rule will either undergo significant revision during the extended phase-in period or will not be implemented, especially given the pending litigation and the potential for legislation or administration. Specifically, as it relates to the pending litigation, the American Healthcare Association, the Texas Healthcare Association, and three Texas SNFs filed a lawsuit in the Northern District of Texas on May 23. They are represented by a former U.S.
Speaker Change: On the regulatory front, we continue to believe Cms's final minimum staffing rule will either undergo significant revision during the extended phase in period or will not be implemented, especially given the pending litigation and the potential for legislation or administration change.
Specifically as it relates to the pending litigation the American Health Care Association, The Texas Health Care Association, and three Texas snaps filed a lawsuit in the Northern district of Texas on May 23rd day.
Theodore Wahl: Solicitor General Paul Clement, arguably today's top constitutional and Supreme Court lawyer. ACCA and the other lead plaintiffs believe their arguments in their case are very strong on the merits and even further bolstered by SCOTUS's recent ruling that overturned the Chevron doctrine. As we head into the second half of the year, our three strategic priorities remain unchanged. First, we are continuing to manage the cost of services within our 86% targeted range, building on the operational momentum achieved in the second quarter.
Paul Clement: They are represented by a former U S Solicitor General Paul comment arguably today's top constitutional and Supreme Court lawyer.
HOKA and the other lead plaintiffs believes the arguments of their case are very strong on the merits and even further bolstered by SCOTUS as recent ruling that overturned the chevron doctrine.
Theodore Wahl: Second, is driving growth. We are raising our Q3 and Q4 revenue estimates to $425 million to $435 million and $430 million to $440 million, respectively, to reflect our second half-of-year top-line expectations. Third, is collecting what we bill.
Speaker Change: As we head into the second half of the year, our three strategic priorities remain unchanged first is continuing to manage cost of services within our 86% targeted range building on the operational momentum achieved in the second quarter.
Speaker Change: Second is driving growth, we are raising our Q3, and Q4 revenue estimate to $425 million to $435 million and $430 million to $440 million, respectively to reflect our second half of your top line expectations.
Speaker Change: Third is collecting what we bill we expect cash collections to continue to gain strength over the next six months and further still into 2025 and reaffirm our 2024 adjusted cash flow forecast of 40 to 55 million.
Theodore Wahl: We expect cash collections to continue to gain strength over the next six months and further still into 2025 and reaffirm our 2024 adjusted cash flow forecast of 40 to 55. Now, I'd like to elaborate on our second priority, driving growth. The past five years have presented unprecedented challenges to our industry, including a record number of ownership changes, the operational and clinical disruptions of COVID-19, a significant workforce exodus, depressed occupancy levels, and rapid wage inflation. Clearly, these were not ideal conditions to expand our footprint.
Speaker Change: To elaborate on our second priority driving growth there.
Speaker Change: The past five years have presented unprecedented challenges to our industry, including a record number of ownership changes the operational and clinical disruptions of COVID-19.
Speaker Change: Significant workforce exodus depressed occupancy levels and rapid wage inflation clearly these were not ideal conditions to expand our footprint power.
Matthew J. McKee: However, our dedicated team members have persevered, and the industry is steadily rebounding. Sector occupancy is approaching pre-pandemic levels, and we have growing confidence in our ability to assess the financial stability of potential customers. Most importantly, our value proposition for both existing and new clients has never been stronger, which positions us perfectly to capitalize on the multi-decade secular tailwind that will benefit the sector for years to come. This is truly an exciting time for our organization as we shift our focus back to growth.
Speaker Change: However, our dedicated team members have persevered and the industry has steadily rebounding sector occupancy is approaching pre pandemic levels and we have growing confidence in our ability to assess the financial stability of potential customers.
Speaker Change: Most importantly, our value proposition for both existing and new clients has never been stronger which positions us perfectly to capitalize on the multi decade secular tailwind that will benefit the sector for years to come.
Speaker Change: This is truly an exciting time for our organization as we shift our focus back to growth. We are confident that by leveraging our talent reputation and value proposition, we will deliver on our commitment to our existing customers, while capitalizing on the abundant new opportunities we've identified to achieve.
Matthew J. McKee: We are confident that by leveraging our talent, reputation, and value proposition, we will deliver on our commitment to our existing customers while capitalizing on the abundant new opportunities we've identified to achieve top line growth. We are eager to share our progress with you in the coming quarters and years. So in closing, our strong business fundamentals and strategic priorities position us to boost profitability, growth, and cash flow in the second half of the year, and we remain confident in our ability to deliver meaningful long-term shareholder value. So with those introductory comments, I'll turn the call over to Matt for a more detailed discussion on the court.
Speaker Change: Top line growth we.
Speaker Change: We are eager to share our progress with you in the coming quarters and years.
So in closing our strong business fundamentals and strategic priorities position us to boost profitability growth and cash flow in the second half of the year and we remain confident in our ability to deliver meaningful long term shareholder value.
Speaker Change: So with those introductory comments I'll turn the call over to Matt for a more detailed discussion on the quarter.
Matthew J. McKee: Thank you Ted and good morning, everyone revenue was reported at $426 $3 million in line with the company's expectations of $420 million to $430 million.
Matthew J. McKee: Thank you, Ted. And good morning, everyone.
Matthew J. McKee: Revenue was reported at $426.3 million, in line with the company's expectations of $420 to $430 million. Housekeeping and Laundry Segment revenues and margins were $191 million and $8.9 million, respectively. And we're raising our Q3 revenue estimate to $425 to $435 million and our Q4 revenue estimate to $430 to $440 million to reflect our second half of the year top line expectations. The cost of services was reported at $384.7 million, or 90.2%.
Matthew J. McKee: Housekeeping and laundry segment revenues and margins were $191 million and eight 9% dining and nutrition segment revenues and margins were $235 3 million and six 4%.
And we are raising our Q3 revenue estimate to $425 million to $435 million and our Q4 revenue estimate to $430 million to $440 million to reflect our second half of your top line expectations.
Matthew J. McKee: Cost of services was reported at $384 $7 million or 92%.
Matthew J. McKee: Cost of services includes $31.7 million, or 7.4% of bad debt expense. Of the bad debt expense, $21.9 million, or 5.1%, related to client restructuring activity, and $9.8 million, or 2.3%, related to CECL aging-related expenses. Cost of services also included a $5.2 million, or 1.2% benefit related to favorable workers compensation and general liability loss development. Our goal is to continue to manage cost of services in the 86%
Matthew J. McKee: Cost of services includes $31 7 million or seven 4% of bad debt expense.
Matthew J. McKee: Of the bad debt expense, $21 9 million or five 1% related to client restructuring activity and $9 $8 million or two 3% related to seasonal aging related expense.
Matthew J. McKee: Cost of services also included a $5 $2 million or one 2% benefit related to favorable workers' compensation and general liability loss development trends.
Matthew J. McKee: Our goal is to continue to manage cost of services in the 86% range.
Matthew J. McKee: SG&A was reported at $44 4 million or 10, 4%.
Matthew J. McKee: SG&A includes a $1 $3 million were 3% increase in deferred compensation and our goal continues to be achieving SG&A in the eight five to nine 5% range.
Matthew J. McKee: Other income was reported at $9 million or <unk>, 2% and other income includes a $1 3 million or <unk>, 3% increase in deferred compensation.
Speaker Change: Net loss and diluted loss per share were reported at $1 8 million and <unk> <unk> per share, which includes the 22 <unk> per share impact of client restructuring charges that Ted mentioned in his opening remarks.
Matthew J. McKee: SG&A was reported at $44.4 million, or 10.4%. SG&A includes a $1.3 million, or 0.3%, increase in deferred compensation, and our goal continues to be achieving SG&A in the 8.5% to 9.5% range. Other income was reported at $0.9 million, or 0.2%, and other income included a $1.3 million, or 0.3%, increase in deferred compensation. Net loss and diluted loss per share were reported at $1.8 million and $0.02 per share, which included the $0.22 per share impact of client restructuring charges that Ted mentioned in his opening remarks.
Matthew J. McKee: Adjusted EBITDA was $4 million, or 0.9%, and the company is no longer including bad debt adjustments or self-insurance actuarial adjustments in adjusted EBITDA. Instead, we will be providing disclosure for those items as part of our quarterly analytics and supplementary financial information. Accordingly, the calculation of adjusted EBITDA for the three and six-month periods ended June 30, 2024, will be different from the calculation of adjusted EBITDA used in prior periods. Cash flow from operations and adjusted cash flow used in operations were $16.3 million and $2.4 million, respectively. DSO for the quarter was $85,000.
Speaker Change: Adjusted EBITDA was $4 million or <unk>, 9% and the company is no longer including bad debt adjustments or self insurance actuarial adjustments in the adjusted EBITDA. Instead, we will be providing disclosure for those items as part of our quarter analytics and supplementary financial information.
Speaker Change: Accordingly, the calculation of adjusted EBITDA for the three and six month periods ended June 32024 will be different from the calculation of adjusted EBITDA used in prior periods.
Speaker Change: Cash flow from operations and adjusted cash flow used in operations were $16 3 million and $2 4 million respectively.
Speaker Change: DSO for the quarter was 85 days.
Operator: So with those opening remarks, we'd now like to open up the call for questions.
Speaker Change: So with those opening remarks, we'd now like to open up the call for questions.
Speaker Change: Okay.
Operator: Thank you. If you'd like to ask a question, please press star followed by the number one on your telephone keypad. Our first question comes from Sean Dodge from Urb-E-C. Please go ahead to your line to vote.
Speaker Change: Thank you if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.
Speaker Change: First question comes from Sean Dodge from RBC. Please go ahead. Your line is open.
Sean Wilfred Dodge: Yeah, thanks. Good morning.
Sean Wilfred Dodge: Yes. Thanks.
Sean Wilfred Dodge: Morning.
Theodore Wahl: Ted, you reaffirmed the full-year cash collections target, the $40 to $55 million, and talked about the supplemental payments coming through in the improving backdrop. Just as we try to understand the pacing toward this, is there anything you can share more explicitly around what you expect Q3 to look like?
Sean Wilfred Dodge: Could you reaffirmed.
Speaker Change: The full year cash collection is targeted to $40 million to $55 million in talking about the supplemental payments coming through in the improving backdrop.
Speaker Change: Just as we try to understand kind of the pacing toward this is there anything you can share more explicitly around what you expect Q3 will look like.
Speaker Change: Yes, Sean how are you today.
Theodore Wahl: Yeah, Sean, how are you today? I know we noted in the opening remarks the 90 over 96% cash collections during the quarter. And as you highlighted, it did fall short of our 5 to 15 million targeted range that we had for the quarter. But I do think it's important to note that it showed significant improvement. When you compare it to last quarter's 95% and really the same period last year of 92%, which certainly speaks to the trajectory of the industry recovery.
Speaker Change: We noted in the opening remarks, the 90 over 96% cash collections during the quarter and as you highlighted it did fall short of our 5% to $15 million targeted range that we had for the quarter, but I do think it's important to know that it showed significant improvement.
Speaker Change: When you compare it to last quarter's 95% and really the same period last year of 92%, which certainly speaks to the trajectory of the industry recovery I know, we've talked about cash collections as being a lagging indicator, especially compared to the recovery and the consistency we've seen in cost of services and now.
Theodore Wahl: I know we've talked about cash collections as being a lagging indicator, especially compared to the recovery and the consistency we've seen in the cost of services and now the re-ramping of our growth. So we continue to hold that view.
The re ramping of our growth. So that can we continue to hold that view I think importantly, it keeps us on track, where we performed in Q1 and Q2 first half of the year to deliver on those 2020 for cash flow.
Speaker Change: <unk> that we've shared and we reaffirm that this quarter at the end of the day what ended up being what ended up happening was that some of our clients, who who applied for CMS has accelerated and advanced payments in late.
Theodore Wahl: I think importantly, it keeps us on track where we performed in Q1 and Q2, the first half of the year, to deliver on those 2024 cash flow objectives that we've shared. And we've reaffirmed that this quarter. At the end of the day, what ended up happening was that some of our clients who applied for CMS's accelerated and advanced payments late as an expected payment in late April or early May ended up having delays in those receipts. So for us, you know, there's a cascading effect.
Speaker Change: And expected payment in late April early May ended up having delays to those receipts. So for us there's a cascading effect when they were delayed on their cash receipts that in turn delayed the repayment plans that we had scheduled I think on a positive note as of today, we believe all of those affected custom.
Theodore Wahl: When they were delayed in their cash receipts, that in turn delayed the repayment plans that we had scheduled. I think, on a positive note, as of today, we believe all of those affected customers have received their supplemental funding, and we expect to make up that shortfall in the back half of the year, which again is why we reaffirmed the $40 to $55 million. I think, Sean, heading into the second half of the year and certainly into 2025, we continue, our goal continues to be to collect what we bill in the quarters ahead, and we're going to focus on increasing that payment frequency from monthly to a higher frequency, weekly, ideally, if not weekly, biweekly, and we have over 60% of our customers that are now on a higher frequency payment schedule.
Speaker Change: <unk> have received their supplemental funding and we expect to make up that shortfall in the back half of the year, which again is why we reaffirmed a $40 to $55 million I think.
Speaker Change: Big picture, Sean heading into the second half of the year and certainly into 2025, we continue.
Speaker Change: Our goal continues to be to collect what we bill in the quarters ahead, and we're going to focus on increasing that payment frequency from monthly to a higher frequency weekly ideally if not weekly by weekly and we have over 60% of our customers that are now on a higher frequency payment schedule, we're going to continue to proactively utilized repayment.
Theodore Wahl: We're going to continue to proactively utilize repayment plans like I just referenced, but certainly promissory notes, ideally, in recovering some of the monies from the first half of the year and, you know, prior shortfalls, and then, I think, especially as we look to this next period of growth, remaining disciplined in our decision making for both new and existing business. So again, very excited to be able to reiterate that $40 to $55 million target, and in terms of the Q2 cash flow delays, it truly was just timing-related.
Speaker Change: Plans like I, just referenced but certainly promissory notes ideally in recovering some of the monies from the first half of the year end.
Fire shortfalls, and then I think especially as we look to this next period of growth remaining disciplined in our decision, making for both new and existing business. So again very excited to be able to reiterate that $40 million to $55 million target and in terms of the Q2 cash flow delays. It's truly was just <unk>.
Speaker Change: <unk> related.
Matthew J. McKee: Okay, great. And then the revenue growth that you're guiding to, is that coming mostly from the dining cross-sell, or is education contributing any of that? And then where are you from a manager training standpoint? Are you fully staffed at this point with enough managers to fill the facilities you need to drive the growth that you're guiding to in Q3 and Q4, or do you still need to do some more hiring and training to meet that?
Speaker Change: Okay, Great and then the.
Speaker Change: Revenue growth that youre guiding to is that coming mostly from the dining cross sell there is education contributing any of that and then.
Speaker Change: Or are you from a manager training standpoint are you fully staffed at this point with enough managers to fill the facilities you need to drive the growth that youre guiding to in Q3 and Q4 do you still need to do some more hiring and training.
To meet that.
Matthew J. McKee: Yes. This is Matt good morning, Shawn I would adjust the last portion of your question first and Youre exactly right. Your intuition is spot on Sean in the sense that management development is first and foremost none of the growth is possible without having the requisite number of managers in specific management capacity in any geography in which we're looking.
Matthew J. McKee: Yeah, this is Matt. Good morning, Sean.
Matthew J. McKee: I would address the last portion of your question first. And you're exactly right. Your intuition is spot on, Sean, in the sense that management development is first and foremost. You know, none of the growth is possible without having the requisite number of managers and specific management capacity in any geography in which we're looking to expand our footprint. You know, as to the complexion of growth in the near term, it will be, you know, largely driven by cross-sell of dining from a dollars and cents perspective. But we do remain committed to driving new environmental services opportunities within the core market. And then I would say, you know, sort of secondary to all of the above would be education opportunities.
Matthew J. McKee: To expand our footprint.
Matthew J. McKee: As to the complexion of growth in the near term it will be largely driven by cross sell of dining from a dollars and cents perspective, but we do remain committed to driving new environmental services opportunities within the core market and then I would say sort of secondary to all of the above would be education.
Speaker Change: <unk> so.
Speaker Change: We're comfortable obviously offering.
Matthew J. McKee: So, you know, we're, you know, comfortable obviously offering the anticipated range for both Q3 and Q4. We've onboarded a modest amount of new business in Q2 and are in the midst of, you know, prospect discussions that will amount to more meaningful ads obviously in the coming quarters, some of which are already signed and running. Some are signed but not yet started, and others are simply, you know, further along in the contracting stage.
Speaker Change: Anticipated range for both Q3 and Q4, we've on boarded a modest amount of new business in Q2 and are in the midst of prospect discussions that will amount to more meaningful adds obviously in the coming quarters. Some of which are already signed and started some are signed but not yet started and then others are simply further along in the contracting stage.
Speaker Change: So we've talked about previously will having improved visibility into the pipeline of new business tie.
Matthew J. McKee: So, you know, we've talked about previously while having improved visibility into the pipeline of new business. You know, timing is always a bit of a question mark. But, you know, back to your question, Sean, as far as the drivers of that top line growth are concerned, they would likely be in this order: dining cross-sell, environmental services, new business opportunities, and then education.
Timing is always a bit of a question mark but back to your question, Sean as far as the.
Speaker Change: The drivers of that topline growth it would likely be in this quarter dining cross sell.
Speaker Change: Environmental services, new business opportunities in education.
Sean Wilfred Dodge: Okay, great. Thanks, Thanks for the time.
Matthew J. McKee: Okay, great. Thanks for the time.
Sean Dodge: Okay.
Sean Dodge: Our next question comes from Bill Sutherland from Benchmark. Please go ahead. Your line is open.
William Sutherland: Our next question comes from Bill Sutherland from Benchmark. Please go ahead. Your line is open.
William Sutherland: Thank you. Good morning guys.
William Sutherland: Thank you Ray.
William Sutherland: Good morning, guys.
William Sutherland: I assume the guidance is I guess.
Speaker Change: Assuming that the levee.
Matthew J. McKee: I assume the guidance is, I guess it's assuming that the Levee facilities are all continuing with you guys.
Speaker Change: Facilities are all <unk>.
Speaker Change: Continuing with you guys.
Speaker Change: Thats correct.
Matthew J. McKee: That's correct. You know, I know we obviously made the announcement previously regarding the impact that that restructuring would have on our quarterly results. But I do think it's important to note, as you mentioned, that we absolutely expect all we are continuing services, and we expect to continue to provide services and do not expect any impact on go forward revenues, earnings, or collections. And, you know, I know we mentioned it in that previous release, but really, I think this action that they took makes them stronger and really better positions to partnership moving forward.
Speaker Change: Obviously, we made the announcement previously regarding the impact that that restructuring would have on our quarterly results, but I do think it's important to note as you mentioned that we absolutely expect Ob are continuing services and we expect to continue to provide services and do not expect any impact on go forward revenues, earning.
Speaker Change: Our collections.
Speaker Change: And I know, we mentioned it in that previous release, but really ultimately think that.
William Sutherland: This action that they took makes them stronger and really better positions the partnership moving forward Bill.
Matthew J. McKee: Got it. And I know that they're pretty heavily weighted in Florida, at least the ones that you're with and Florida. Medicaid has been slow to update rates, and I think something's coming soon. Maybe you could give us some color on that and maybe what's happening with a couple of your other key states in terms of the Medicaid rate picture.
Speaker Change: Got it.
Speaker Change: <unk>.
Speaker Change: I know that.
Speaker Change: They are.
Speaker Change: Pretty heavily weighted in Florida at least the ones that you win.
Speaker Change: Florida.
Speaker Change: <unk> has been slow to update rates and I think something is coming soon maybe you could give us some color on that and maybe what's happening with a couple of your other key states.
Speaker Change: In terms of the Medicaid rate picture.
Matthew J. McKee: Yeah, I know we talked about just overall from an industry perspective, the stabilizing if not positive reimbursement environment, certainly at the federal level. You know, I think there's been some recent positive news with CMS's proposed 4.1%. We talked about that a bit last quarter.
Speaker Change: Yes, I know, we had talked about just overall from an industry perspective, the stabilizing if not positive reimbursement environment certainly at the federal level.
Speaker Change: I think there's been some recent positive news with Cms's proposed four 1%, we talked about that a bit last quarter that will get commented on through the through the process. The engagement process with the provider community and they'll come out with a final rule.
Matthew J. McKee: That'll get commented on through the process, the engagement process with the provider community, and they'll come out with a final rule. We expect to see that in the coming weeks, if not, you know, by the end of the summer. So that's, I think, been well-received by the industry, and there's potential upside there. And then, beyond that Medicare payment rule, there's been a clear shift in the provider community's focus and really efforts from the federal level to the state level. And you know, you mentioned Florida.
Speaker Change: We expect to see that in the coming weeks if not.
Speaker Change: By the end of the summer. So that's I think been well received by the industry and there is potential upside there and then beyond that Medicare payment rule. There has been a clear shift in the provider community focus and really efforts from the federal level to the state level.
Speaker Change: And you mentioned, Florida. They are due for a nearly double digit type of increase in their Medicaid rate and I'd say another notable state Kentucky is going we're going to see some.
Matthew J. McKee: They are due for a nearly double-digit type of increase in their Medicaid rate. And I'd say another notable state, Kentucky, is going to – we're going to see some, you know, ongoing and improved reimbursement there. That's going to be north of 10% in terms of the impact that it's going to have on the provider community. And then we've talked about some of these others before, whether it be North Carolina, Illinois, or Pennsylvania, which continues to work towards stabilization.
Speaker Change: Ongoing and improved reimbursement there that's going to be north of 10% in terms of the impact that's going to have on the provider community and then we've talked about some of these others before whether it be North Carolina, Illinois, Pennsylvania continues to work towards stabilization, Texas has had some positive reimbursement news.
Matthew J. McKee: Texas has had some positive reimbursement news. So we track and trend this information on a consistent basis, Bill. So you know, not that it determines a decision on whether or not we would work with or continue to work with a provider, but it does – it does feed into that holistic picture that we like to paint when we're making our assessments of, you know, a given relationship. So you know, we continue to monitor that closely. But overall, favorable trends at the reimbursement level. Right? Okay.
Speaker Change: So we track and trend this information.
Speaker Change: On a consistent basis bill so not that it determines a decision on whether or not we would work with are continue to work with a provider.
Speaker Change: But it does it does feed into that holistic picture that we like to paint when we're making our assessments on a given relationship so.
Speaker Change: We continue to monitor that closely but overall favorable trends at the reimbursement level right.
Matthew J. McKee: All right. Okay. Thanks, Ted.
Tim: Alright, okay. Thanks, Tim.
Tim: Thank you Bill.
Speaker Change: Our next question comes from Andrew Wittmann from Baird. Please go ahead. Your line is open.
Andrew John Wittmann: Our next question comes from Andrew Wittmann from Baird. Please go ahead. Your line is open.
Andrew John Wittmann: Great. Good morning, Thanks for taking my question guys.
Andrew John Wittmann: Great. Good morning.
Andrew John Wittmann: I just thought I'd ask first here on a little bit more detail on the $9 $8 million of aged receivables that you guys called out in the quarter I was just wondering.
Andrew John Wittmann: If that is one customer a couple of larger customers or if this is just.
Just kind of broad based and lots of little things that added up to that I think some context on that would be helpful. And also if you could just comment on if those those write downs are going to continue as existing customers or if those are reflective of something other than that.
Matthew J. McKee: Thanks for taking my question, guys. I just thought I would ask first here for a little bit more detail on the $9.8 million of aged receivables that you guys called out in the quarter. I was just wondering if that was, you know, one customer or a couple of larger customers, or if this was just kind of broad and lots of little things that added up to that. I think some context on that would be helpful. And also, if you could just comment on whether those write-downs are going to continue as existing customers or if those are reflective of something other than that.
Andrew John Wittmann: Yes, I guess specifically Andy.
Matthew J. McKee: I guess specifically, Andy, as it relates to the age portion, we thought that was valuable disclosure and information to be able to provide. As we talked about before, CECL is calculated using a historic loss rate formula that's based on aged accounts and notes receivable, and then it's cut off as of the balance sheet date.
Andy: Andy as it relates to the <unk> portion, we thought that was valuable disclosure and information to be able to provide.
Andy: As we talked about before <unk> is calculated using a historic loss rate formula that's based on aged accounts and notes receivable and then its cutoff as of the balance sheet date, so essentially what that in plain English is suggesting is it's really timing related the reason because we were below our cash flow targets in <unk>.
Matthew J. McKee: So essentially, what that, in plain English, is suggesting is it's really timing related. The reason is because we were below our cash flow targets, and I highlighted the primary reasons why, really related to the delays in our customers receiving some of their CMS advance payment receipts, and then, in turn, our repayment plans getting pushed out further into the second half of the year. As those accounts aged further, they rolled over into a bucket that had a higher loss rate assigned to them.
Andy: Highlighted the primary reasons why really related to the delays in our customers receiving some of their CMS advanced payment receipts and then in turn are our repayment plans getting pushed out further into the second half of the year as that as those accounts aged further.
Andy: They rolled over into a bucket that had a higher loss rate assigned to them. So it's noncash we believe it's temporary and the reason we thought aside from providing.
Matthew J. McKee: So it's non-cash. We believe it's temporary. And the reason we thought, aside from providing context for this quarter, moving forward, we will likely see some quarters as our cash collections accelerate. Certainly, where that CECL aged bucket normalizes, we could see it where it actually reverses in total and becomes income in a quarter. So we think, regardless of how it cuts, we think it's important to share.
Andy: Context for this quarter moving forward, we will likely see some quarters as our cash collections accelerate certainly where that.
Andy: So age bucket normalizes, we could see it where it's actually reverses in total and becomes <unk>.
Andy: Income in a quarter. So we think whether it's regardless of what way. It cuts we think it's important to share.
Andrew John Wittmann: Yes, that's a super helpful context. I appreciate that.
Speaker Change: Yes, that's super helpful context, I appreciate that.
Speaker Change: Excuse me.
Speaker Change: Kind of related but not related to that is just you.
Speaker Change: Youre definitional changes here on adjusted EBITDA, not adjusting for <unk> and you guys didn't provide the adjusted EPS guidance.
Speaker Change: This quarter I was just wondering was that a result of.
Speaker Change: Is that just a philosophical change.
Speaker Change: Have a conversation with the FCC or what was the impetus for the.
Matthew J. McKee: Ted, excuse me, I guess kind of related but not related to that is just your definitional changes here on adjusted EBITDA, not adjusting for CSOI. And you guys didn't provide the adjusted EPS guidance this quarter. I was just wondering, was that a result of, or is that just a philosophical change? Did you have a conversation with the SEC? Or what was the impetus, I guess, for the change in approach on these adjusted metrics that we've been using the last few quarters?
The change in approach on these adjusted metrics that we've been using in the last few quarters.
Matthew J. McKee: Yeah, and it's a great question, Andy. We're always open to feedback from key stakeholders on how to maximize transparency and disclosure. We have had some engagement even with shareholders about, you know, their perspectives on how to best present the information. We did have some recent engagement with the staff as well regarding non-GAAP reporting, and we concluded ultimately that items like bad debt and even actuarial adjustments to self-insurance, whether they're related to prior periods or not, are most appropriately excluded from non-GAAP, at least in the context of HCSG and, you know, the type of business that we're in and the type of industry that we're in.
Speaker Change: And it's a great question, Andy we're always open to feedback from key stakeholders on how to maximize transparency and disclosure we have had some engagement even with shareholders about their perspectives on how to best present. The information. We did have some recent engagement with the staff as well regarding non-GAAP reporting and we conclude it ultimately.
Speaker Change: That items like bad debt and even actuarial adjustments to self insurance, whether they are related to prior periods or not are most appropriately excluded from non-GAAP at least in the context context of HCS G and the type of business that we're in and the type of industry that we're in so all of that.
Matthew J. McKee: So all of that said, I did want to reiterate that we're going to continue providing similar, and I would argue even more enhanced disclosure for items like bad debt expense and insurance adjustments that may impact comparability and to provide a would-be investor or existing stakeholder and shareholder perspective on, you know, in making their decisions. So again, we think the more information, the better, and we thought it was valuable to break it down the way we did.
Speaker Change: Said I did want to reiterate we're going to continue providing similar I would argue even more enhanced disclosure for items like bad debt expense and insurance adjustments that may impact comparability and to provide would be invest or existing stakeholder and shareholder perspective on and making there.
Speaker Change: A decision. So again, we think the more information that better than we thought it was valuable to break it out the way we did.
Matthew J. McKee: Okay, that's helpful. And then last question for me, just on the SG&A comment and the nine and a half percent target that you guys have talked about for some time. I don't know if you wanted to just talk a little bit about what your outlook could be there. Obviously, with the second half growth ramping, I think leverage has always been the key to that SG&A target achievability. I assume that that's unchanged, that revenue leverage is still the key thing here. But Ted and Matt, do you have a view as to when you think that that range is realistic?
Speaker Change: Okay. That's helpful. And then last question for me.
Speaker Change: Just on the SG&A comment not 5% target that you guys have talked about for some time I don't know if you wanted to just talk a little bit about what your outlook could be there obviously with the second half growth ramping.
Speaker Change: I think leverages always been the key to that SG&A target achieve ability I assume that thats unchanged that revenue leverage is still the key thing here.
Speaker Change: Matt do you have a view as to when you think that that range is realistic.
Speaker Change: Yes.
Matthew J. McKee: Yeah, harder to quantify, to sort of specify a date range necessarily, Andy, or even, you know, sort of our top line trigger that would see us at that level. But you're exactly right in your logic that the leverage exists as we grow the top line. You know, certainly in advance or in the lead up to onboarding some of this new business, there's been investments that we've made to be ready to onboard new facilities and expand our footprint.
Speaker Change: Quanta.
Speaker Change: Specify.
Speaker Change: The.
Andy: Date range necessarily Andy or even sort of our topline trigger that would see us at that level, but youre exactly right in your logic.
Speaker Change: The leverage exists as we grow the top line certainly in advance or in the lead up to on boarding some of this new business, there's been investments that we've made.
Speaker Change: To be ready to onboard new facilities and expand our footprint. We've continued to make investments in employee engagement and experience that we've talked about previously ongoing investments in marketing and branding and positioning for the company and then technology investments leveraging technology as appropriate to further enhance and optimize our.
Matthew J. McKee: You know, we've continued to make investments in employee engagement and experience that we've talked about previously, ongoing investments in marketing and branding and positioning for the company, and then technology investments, you know, leveraging technology as appropriate to further enhance and optimize our operations. So, you know, all of the above certainly has led us to those elevated levels. And, you know, the leverage does exist in top-line growth.
Speaker Change: Operations. So all of the above certainly has led us to those elevated levels and the leverage does exist in the top line growth. So apologies for not being able to offer any specifics on either timing or sort of a topline threshold at which we will see that pivot, but I guess the.
Matthew J. McKee: So apologies for not being able to offer any specifics on either timing or, you know, sort of a top line threshold at which we'll see that pivot. But I guess the, you know, plainest way to say it would be to reiterate our confidence that with growth, we do anticipate getting back to that eight and a half to nine and a half percent targeted range.
Plainest way to say it would be to reiterate our confidence that with growth. We do anticipate getting back to that eight five to nine 5% targeted range, Andy I would only add a little a little color to our stubbornness of committing to 86% net eight five to nine 5% range, even though we're over performing.
Matthew J. McKee: Andy, I would only add a little color to our stubbornness of committing to 86% in that eight and a half to nine and a half percent range, even though we're overperforming on the cost of services side, and we're underperforming relative to the financial metric and range on the SG&A side. I would propose, and without being able to draw a straight line between the investments we've made in areas like employee engagement and experience, marketing, and brand positioning, even some of the tech investments we've made, there are absolutely some efficiencies within the four walls of the communities we serve that we're gaining.
Andy: On the cost of services side, and we're underperforming relative to the financial metric and range on the SG&A side.
Speaker Change: I would propose and without being able to draw a straight line between the investments we've made in areas like employee engagement and experience marketing and brand positioning even some of the tech investments. We've made there is absolutely some efficiencies within the four walls of the communities we service that we're garnering.
Matthew J. McKee: Again, we're measuring that, and we're gathering data, but we do continue, as Matt said, to believe the top line is the shortest distance between point A and point B in terms of leveraging SG&A, both as a percentage of, if not in absolute dollars. But those investments, we believe, are wise and are paying off in terms of not just the bottom line but also areas like customer satisfaction, employee retention, and the like. I just wanted to highlight that for you and for the benefit of everyone that's on the call. Yeah, that's right.
Matthew J. McKee: We are measuring that and we're gathering data, but we do continue as Matt said to believe the topline is the shortest distance between a and point b in terms of leveraging SG&A, both as a percentage of us if not in absolute dollars, but those investments we believe are one.
Matthew J. McKee: As in are paying off in terms of not just the bottom line, but also.
Speaker Change: Areas like customer satisfaction employee retention and alike. So just wanted to highlight that for you and for the benefit of everyone. That's on the call.
Andrew John Wittmann: Yep, that's a point taken, and I appreciate all the color guys. Hope you have a good day.
Speaker Change: Yes.
Speaker Change: Point taken and I appreciate all the color guys, but we have a good day.
Andy: Thanks, Andy.
Speaker Change: Our next question comes from AJ Rice from UBS. Please go ahead. Your line is open.
A.J. Rice: Our next question comes from A.J. Rice from UBS. Please go ahead; your line is open.
AJ Rice: Hi, everybody, maybe just a couple of questions here first to go back to the cash flow comment so the targets, 40% to 55 million.
A.J. Rice: Hi everybody. Maybe just a couple questions here.
AJ Rice: What you need to make all of that in the back half of the year I Wonder is there a way to quantify how much is still tied up in change related.
Andy: Sure.
A.J. Rice: First, to go back to the cash flow comment. So the target's 40 to 55 million, which you need to make in the back half of the year. I wonder, is there a way to quantify how much is still tied up in change-related receivables that you expect to get as we move into the third quarter? How much is where we end in the second quarter to year end due to a favorable payroll or unfavorable payroll swing? And then, how much has really got to come from operations, just to give us some perspective?
Speaker Change: Receivables that you expect to get as we move into the third quarter.
Speaker Change: Much is where we ended the second quarter to year end due to a favorable payroll or unfavorable payroll swing and then how much is really got to come from operations just to give us a perspective.
Matthew J. McKee: Yes, specifically to the second part of your question, I will say at its base level, second quarter in many respects, A.J. It was just seasonality. We, you know, from a targeting, from a cash collections target perspective, we had baked in a degree of seasonality in the sense that even though our business is not overly seasonal, you could go back year after year, many different periods, and Q1 is typically our weakest quarter of cash collections, Q4 is typically our strongest, and then you can, you know, you gain strength throughout the year. So Q2, just standing on its own, was next in line.
Speaker Change: Yeah, specifically to the second part of your question I will say at its base level second quarter in many respects a J was just seasonality we from a targeting from a cash collections target perspective, we had.
Speaker Change: Baked in a degree of seasonality in the sense that even though our business is not overly seasonal you could go back year. Many years in many different periods and Q1 is typically our weakest quarter of cash collections Q4 is typically our strongest and then you can you gained strength throughout the year.
Speaker Change: So Q2, just standing on its own was was in line what didn't happen, though was that anticipated carryover of a portion of the change healthcare delays, we estimated $12 million to $15 million as being the total impact of those change healthcare related delays a portion of those.
Matthew J. McKee: What didn't happen, though, was that anticipated carryover of a portion of the change healthcare delays. We estimated $12 to $15 million as being the total impact of those change healthcare related delays. A portion of those we expected to recapture in Q2. Again, the good news is we're expecting that to carry over into the back half of the year. So I would just add, as well, we are off to a very strong start in July and, you know, expect to continue those positive trends through the quarter and through the end of the year. Which is why, as you highlighted, what we're implicitly suggesting is $50 to $65 million of adjusted cash flow in the back half of the year, which would offset, you know, cash use and operations through the first half of the year.
Speaker Change: Expected to recapture in Q2 again the good news is we're expecting that to carryover into the back half of the year. So I would just add as well we are off to a very strong start in July.
Speaker Change: And expect to continue those positive trends through the quarter and through the end of the year, which is why as you highlighted what were implicitly suggesting is $50 million to $65 million of adjusted cash flow in the back half of the year, which would offset the cash used in operations through the first half of the year.
Speaker Change: Okay.
Speaker Change: <unk>.
Matthew J. McKee: Can you just give us an update on where things stand with respect to the underlying hourly wage increases that you and your clients are seeing, and are you able to capture that fully from your clients as you are experiencing it? And then is there anything on food inflation as well worth calling out?
Speaker Change: Could you just give us an update on where things stand with respect to <unk>.
Speaker Change: Underlying our hourly wage increases that you and your clients are seeing and are you able to capture that fully.
Speaker Change: From your clients as you are experiencing that and then is there anything on the food inflation is well worth calling out.
Speaker Change: Yes.
Matthew J. McKee: Yeah, you know, AJ, we're seeing the unemployment rate has climbed to 4.1%, which is the highest rate since November of 2021. And, you know, job postings continue to decline. We're seeing that in the national data, and for healthcare services groups, you know, wage growth appears to have more or less returned to its pre-pandemic trends. You know, so, you know, there's definitely a mixed bag, but directionally, certainly stability.
Speaker Change: The unemployment rate has climbed to four 1%, which is the highest rate since November of 2021 job postings continue to decline we are seeing that in the national data and for health care services group wage growth appears to have more or less return to its pre pandemic trends.
Speaker Change: So.
Speaker Change: There is definitely a mixed bag, but directionally certainly stability and from a health care services group perspective, we do feel like we're pretty darn close to operating at pre pandemic levels as it relates to employee retention.
Matthew J. McKee: And from a healthcare services group perspective, you know, we do feel like we're pretty darn close to operating at pre-pandemic levels as it relates to employee retention, job postings, and our ability to hire and retain employees. And again, seeing a stabilization and a slowdown in, you know, wage growth. So all of that bodes well, I would note, and Ted mentioned this in his earlier comments, but you know, the industry is still about 116,000 jobs short relative to pre-pandemic levels. So we're definitely seeing improvement, but from what was about a quarter of a million dollar loss at its peak. So there is directional improvement there.
Speaker Change: <unk> postings, and our ability to hire and retain employees and again seeing a stabilization and a slowdown in.
Speaker Change: Wage growth so all of that bodes well I would note and Ted mentioned this in his earlier comments, but the industry is still about 116000 jobs short relative to pre pandemic levels. So we're seeing definitely improvement but.
Matthew J. McKee: More specifically on wage inflation, there's a bit of a lag in the availability of those data. So we're looking at Q1 wage inflation, specifically in nursing and residential care facilities, which was around 1.2%. And that was up from the 8% that we saw in Q4. Now, again, we've recalibrated our contracts to be able to capture that wage inflation. And there's something close to real time, but we absolutely have bolstered those agreements such that we can capture any and all of that wage inflation. So that certainly is, is favorable for us going forward.
Speaker Change: From what was about a quarter of $1 million loss at its peak so directional improvement there more specifically on the wage inflation there is a bit of a lag in the availability of those data. So we're looking at Q1 wage inflation, specifically in nursing and residential care facilities was around one 2% and that was up for.
Speaker Change: 8% that we saw in Q4 now again, we've re calibrated our contracts to be able to capture that wage inflation something close to real time, but absolutely have bolstered those agreements such that we can capture any and all of that wage inflation.
Matthew J. McKee: On the food side, you look at CPI for all items in the quarter, and it was point 3%, which compared to 1.1%. For Q1, food at home, which is a more meaningful measure for us, was down sequentially, actually showing point 1% deflation, that was aided by point 2% deflation in the month of April, offset by 0.1% inflation in June. And then that compares again to food at home of 0.4% in Q1.
Speaker Change: That certainly is favorable for us going forward on the food side, you look at CPI for all items in the quarter and it was <unk>, 3%, which compared to one 1% for Q1 food at home, which is a more meaningful measure for us was down sequentially.
Speaker Change: Actually showing 1% deflation that was aided by 2% deflation in the month of April.
Speaker Change: <unk> offset by 1% inflation in June.
Speaker Change: And then that compares again to the food at home.
Speaker Change: <unk>, 4% in Q1, so just to remind you what we would've seen as a pass through in this quarter was <unk>, 5% from the fourth quarter of 2023 that was ultimately pass through customers in this quarter and then that modest deflation that we saw in the second quarter of 2024 will ultimately be.
Matthew J. McKee: So just to remind you, what we would have seen as a pass through in this quarter was 0.5% from the fourth quarter of 2023. That was ultimately passed through to customers in this quarter. And then that modest deflation that we saw in the second quarter of 2024 will ultimately be passed through by way of a modest reduction for clients in the fourth quarter of this year.
Matthew J. McKee: Okay, that's great. Maybe one last question.
Speaker Change: Pass through.
Speaker Change: By way of a modest.
Speaker Change: Reduction for clients in the fourth quarter of this year.
A.J. Rice: Obviously, a lot of focus on the back half of the year. If you are able to achieve your targets, any thoughts, early thoughts on 25 and even long-term, what sustainable growth might be? Do you have something you're sort of planning for, thinking about at this point, or is it just too early to tell?
Speaker Change: Okay. That's great maybe one last question, obviously, a lot of focus on the back half of the year view.
Speaker Change: Are able to achieve your <unk>.
Speaker Change: <unk>.
Speaker Change: Any thoughts early thoughts on 'twenty, five and even long term wood.
What the sustainable growth might be do you have something near sort of planning forward thinking about at this point is it just too early to tell.
Matthew J. McKee: I think we'd like to finish the year, AJ, and we'll be in a position, I think, going into 2025 to be able to speak more specifically about that. But I guess, at the highest of high levels, when we look out over the next three to five years, especially on the heels of the continued positive trends we're seeing in the industry, we'd still like to see a more even recovery. You know, Matt talks about even the industry occupancy, which is nearly at pre-pandemic levels, but yet you have a hundred thousand employee deficit within the industry. You wonder how A plus B equals C there?
Speaker Change: I think we'd like to finish the year, a J and we'll be in a position I think going into 2025 to be able to speak more specifically about that but I guess at the highest of high levels. When we look out over the next three to five years, especially on the heels of the continued positive trends.
Matthew J. McKee: Being in the industry, we still like to see a more even recovery, Matt talking about even the you have industry occupancy, which is nearly at pre pandemic levels, but yet you have 100000 employee deficit within the industry you Wonder how how does a plus b equals C. There because the key to occupancy recovery.
Matthew J. McKee: Because the key to occupancy recovery is really having the available labor. The demand is there from a demographics perspective and from a need perspective. And the reason is because of unevenness or a lack of even recovery, meaning you still have winners, which are at or above pre-pandemic levels from an occupancy perspective, but then you have a group, a subgroup of facilities, namely the rural communities and certain select urban environments that are still below pre-pandemic levels.
Speaker Change: <unk> is really having the available labor the demand is there from a demographic perspective and from a need perspective, and the reason is because of the unevenness or the lack of uneven recovery, meaning you still have.
Matthew J. McKee: Winners, which are at or above pre pandemic levels from an occupancy perspective, but then you have a group a sub a subgroup of facilities, namely the rural communities in certain select urban environments that are below pre pandemic levels still so we'd like to see that even out a bit more.
Matthew J. McKee: To really have conviction more specifically on a year to year cadence, but again at the highest level, we really see a mid single digit type top line.
Matthew J. McKee: So we'd like to see that even out a bit more to really have conviction more specifically on a year to year cadence. But again, at the highest level, we really see a mid single-digit type top line expansion, which over the next three to five years, we should be able to deliver on and certainly be able to see some quarters or years where we're in the high, mid to high single digits, if not touching, you know, something greater than that. So, but the mid, mid, mid, single digit range is where we certainly feel confident based on the data and the information we have today. All right.
Matthew J. McKee: Type expansion, which over the next three to five years, which we should be able to deliver on and certainly being able to see some quarters or years, where we are in the high mid to high single digit if not touching.
Matthew J. McKee: Something greater than that so but mid mid mid single digit range is where we certainly feel confident based off the data and the information we have today.
A.J. Rice: All right, great. Thanks a lot.
Speaker Change: Alright, great. Thanks, a lot.
Speaker Change: Our next question comes from Ryan Daniels from William Blair. Please go ahead. Your line is open.
Ryan Daniels: Our next question comes from Ryan Daniels from William Blair. Please go ahead. Your line is open.
Jackson: Hey, guys. This is Jackson on for Ryan Daniels. Thanks for taking the questions first can you give us any insight into what client retention looked like in the quarter. I know there was the client bankruptcy there probably was overshadowing.
Jack A. Senft: Hey, guys, this is Jack Senft on for Ryan Daniel. Thanks for taking the question. First, can you give us any insight into what client retention looked like in the quarter? I know there was the client bankruptcy that probably was overshadowing and, you know, probably some exits as well. So just kind of curious about retention and even new ads.
Jackson: Probably some exits as well so just kind of curious what retention and even new adds look like thanks.
Speaker Change: Yes, good morning, Jack I had mentioned earlier that we did onboard a modest amount of new business in the fortunate thing is that that was really offset by very modest customer exits.
Matthew J. McKee: Yeah, good morning, Jack. I mentioned earlier that, you know, we did onboard a modest amount of new business. And, you know, the fortunate thing is that that was really offset by very modest customer exits. We did see, you know, north of our targeted level of retention, which historically had been 90%. So, you know, we did have a really strong quarter by way of client retention. Glad you bring that up, though, because, you know, circling back to the conversations that we've had with respect to revenue and top line growth.
Speaker Change: Did see.
Speaker Change: North of our targeted level of retention, which historically had been 90%. So we did have a really strong quarter by way of client retention I'm glad you bring that up because circling back to the conversations that we've had with respect to revenue and top line growth.
Matthew J. McKee: You know, we'd be remiss if we didn't remind everybody that, you know, a component of that top line growth is retaining our existing business. So, you know, we don't foresee any significant exits up here in the near term, but it's always worth reiterating that, you know, in the final stages of that ongoing industry recovery that Ted just mentioned, and, you know, with changes in facility operation or ownership, that can alter our view on, you know, any piece of business or a portfolio.
Speaker Change: I'd be remiss, if we didn't remind everybody that a component of that top line growth is retaining our existing business. So we don't foresee any significant exits up here in the near term, but always worth reiterating that.
Speaker Change: In the final stages of that ongoing industry recovery that Ted just mentioned and with changes in facility operation or ownership that can alter our view on any piece of business or a portfolio. So we do have to remain nimble and if we believe it's in our best interests in the near term <unk> long term to exit a client group about whom we have concerns.
Matthew J. McKee: So we do have to remain nimble, and if we believe it's in our best interest in the near term and or long term to exit a client group about whom we have concerns, then certainly, you know, we need to be able to do that. But, you know, overall, we do have confidence in our ability to retain that business and, you know, ultimately deliver on those growth targets that we talked about, not only in the back half of this year but beyond that.
Speaker Change: Then certainly we need to be able to do that but overall, we do have confidence in our ability to retain that business and net net ultimately deliver on those growth targets that we talked about not only in the back half of this year, but beyond that.
Speaker Change: Understood. Thanks.
Matthew J. McKee: And just as a quick follow-up to last quarter, you mentioned that you're kind of sort of at the tail end of the selling season in the education space. So can you just talk about the puts and takes here, how the selling season shaped up, and you know, maybe even visibility into possible growth opportunities in the space down the road? Thanks.
Speaker Change: Just as a quick follow up to last quarter. You mentioned that you are kind of sort of the sort of at the tail end of the selling season in the education space. So can you just talk about the puts and takes year kind of how the selling season shapes up and maybe even visibility into possible growth opportunities in this space down the road. Thanks.
Speaker Change: Yes, we're not in.
Matthew J. McKee: Yeah, we're not in a position to share specifics as yet, but directionally, I would share that, you know, our campus services team felt really strongly about how they pulled through that, you know, quote-unquote selling season. I wouldn't want to be pinned down to specifically defining any month or portion of the calendar as explicitly defined as selling season, but generally speaking, the proposals that they presented, and the requests that they did receive for proposals, you know, yielded fruit, and we feel very positive.
Speaker Change: In a position to share specifics as yet, but directionally I would share that our campus services team.
Speaker Change: Felt really strongly about how they pulled through that quote unquote selling season, I wouldn't want to be pinned down to be specifically defining any month or a portion of the calendar as explicitly defined as selling season, but generally speaking.
Speaker Change: The proposals that they presented.
Speaker Change: The requests that they did receive four proposals yielded fruit and we feel directionally very positive would remind you that the total revenue for the education business is still less than 5% of total company revenue. So.
Matthew J. McKee: You know, would remind you that the total revenue for the education business is still less than 5% of total company revenue, so, you know, not meaningful enough yet for us to feel compelled to speak about it with any level of specificity, but directionally we do feel like we had, you know, strong results in pulling through business opportunities and, you know, as we get into the fall and ramping back into kind of the operational execution season for the education business, you know, we'll be continuing to look at that portfolio and determine at what point it makes sense for us to be more specific in sharing, you know, some of those results.
Speaker Change: Not meaningful enough yet for us to feel compelled to speak about it with any level of specificity, but directionally, we do feel like we had.
Speaker Change: Strong results in pulling through business opportunities and as.
Speaker Change: As we get into the fall and ramping back into kind of the operational execution season for the education business.
We'll be continuing to look at that portfolio and determine at what point it makes sense for us to be more specific in sharing.
Speaker Change: Some of those results.
Speaker Change: Understood. Thank you again.
Speaker Change: We have no further questions I would like to turn the call back over to Ted Wahl for closing remarks.
Theodore Wahl: We have no further questions. I would like to turn the call back over to Ted Wahl for closing remarks.
Theodore Wahl: It's an incredibly exciting time for the company. The challenges we have navigated the past few years have further solidified our value proposition, the durability of our business model, and our market-leading position. The company's underlying fundamentals are as strong as ever, and with the industry at the beginning of a multi-decade demographic tailwind, we are very favorably positioned to capitalize on the opportunities ahead and deliver meaningful long-term shareholder value. So, on behalf of Matt and all of us at HCSG, I wanted to thank Julianne for hosting the call today, and thank you to everyone for joining.
Theodore Wahl: Okay, Great Julien.
Theodore Wahl: It's an incredibly exciting time for the company the challenge as we navigated the past few years have further solidified our value proposition the durability of our business model and market leading position. The companys underlying fundamentals are as strong as ever and with the industry at the beginning of a multi decade demographic tailwind we are very.
Theodore Wahl: Favorably positioned to capitalize on the opportunities ahead and deliver meaningful long term shareholder value.
Theodore Wahl: So on behalf of Matt and all of US at <unk> I wanted to thank Julian for hosting the call today and thank you to everyone for joining.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change: Okay.
Speaker Change: Okay.
Yeah.