Yahoo Finance Healthcare Services Group Inc (HCSG) (Q1 2024) Earnings Call Transcript Highlights: Strategic ...
Revenue: $423.4 million, aligned with expectations.
Net Income: Reported at $15.3 million.
Diluted EPS: $0.21, with adjusted diluted EPS at $0.22.
Adjusted EBITDA: $28.9 million, up 10.7% from Q1 2023.
Cost of Services: Adjusted cost at 84.4%, with a target to maintain around 86%.
SG&A: Adjusted SG&A at $42.8 million, representing 10.1% of revenue.
Cash Flow: Q1 adjusted cash flow used in operations was $9.2 million.
Cash Collections: Achieved 95%, despite disruptions from a cyberattack.
2024 Cash Flow Forecast: Reiterated range of $40 million to $55 million.
Q2 Revenue Forecast: Estimated between $420 million to $430 million.
Q2 Adjusted Cash Flow Forecast: Projected to be between $5 million to $15 million.
Release Date: April 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Healthcare Services Group Inc reported strong Q1 financial results with a 10.7% increase in adjusted EBITDA over Q1 of 2023.
The company achieved 95% cash collections despite the temporary impact of the Change Healthcare cyberattack.
Healthcare Services Group Inc is confident in delivering year-over-year growth in 2024, with significant new business additions expected in the second half of the year.
Industry fundamentals are improving, with a slow but steady increase in workforce availability and rising occupancy rates nearing pre-pandemic levels.
The company has made strategic investments in employee engagement and technology to enhance customer experience and operational efficiency.
Negative Points
The Change Healthcare cyberattack disrupted Q1 operations, affecting cash collections and billing activities of many customers.
Q1 is historically the most challenging quarter for cash collections, following Q4 which typically sees the strongest collections.
Adjusted SG&A was reported at 10.1%, which is outside the company's target range of 8.5% to 9.5%, due to increased investments.
There are ongoing industry challenges such as the CMS's final minimum staffing rule, which could lead to facility closures and reduced access to care if implemented.
The company faces potential risks from higher ownership turnover in the SNF industry, which could affect client retention.
Q & A Highlights
Q: Can you comment on client retention in the quarter? Just curious about if you had to offset the exits and -- in that light, what the new adds were in the quarter? A: From a retention perspective, our retention was greater than 90%, which is in line with our expectations. We had modest new business adds which offset some of the exits. Looking ahead, we expect to ramp up our new business additions in the second half of the year.
Q: How much of a drag do you think the Change Healthcare outage was in the quarter? Are there any bookends you can give us around some quantification there? A: The Change Healthcare disruption affected about half of our customers in some form. We estimate anywhere from $12 million to $15 million being directly related to the Change impact on our forecasted cash flow to adjusted cash flow.
Q: On cost of sales, adjusted was 84.4% so you continue to manage that very well. Is there anything else to call out there that's onetime or more transient than helping right now? Or do you think you can continue to operate well within this 86% range? A: The contract enhancements from 2022 are a key factor in providing the durability of our cost of services line. The positive trends in customer experience, system adherence, regulatory compliance, and budget discipline are central to driving consistency of cost of services and ultimately, margins.
Q: You adjusted SG&A at 10.1%, it's outside the range. Is there anything in particular there? A: We have increased investments in employee engagement and experience, marketing, branding, and ongoing tech investments. These investments are central to our organic growth strategy and employee retention drivers. We expect to see the SG&A as a percentage of revenue come back in line with our target as we leverage the top line.
Q: As it relates to the expected second half ramp in organic growth, is there one of your particular segments that's expected to see more growth than the other? A: The primary driver of growth will be organic growth within the long-term and post-acute care segment, our primary segment. We also remain committed to the education space and expect growth opportunities there as well.
Q: What are your expectations for the Education segment in the second half of 2024 and into 2025? A: We reiterate our commitment to the opportunity that exists in the education space. It still represents less than 5% of total company revenue, but we feel very bullish about the opportunity that exists there. We expect it to be a more meaningful component of total company revenue in the future.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
