Healthcare Services Group, Inc. (HCSG) Bundle
Understanding Healthcare Services Group, Inc. (HCSG) Revenue Streams
Understanding Healthcare Services Group, Inc.’s Revenue Streams
The company's revenue is primarily derived from two segments: Housekeeping and Dietary services. Below is a detailed breakdown of these revenue sources, year-over-year growth rates, and contributions from each segment.
Revenue Breakdown by Segment
| Segment | Revenue (2024) | Revenue (2023) | % Change |
|---|---|---|---|
| Housekeeping | $572,666,000 | $575,256,000 | (0.5%) |
| Dietary | $705,204,000 | $672,293,000 | 4.9% |
| Total Consolidated Revenue | $1,277,870,000 | $1,247,549,000 | 2.4% |
Year-over-Year Revenue Growth Rate
The consolidated revenue increased by 2.4% for the nine months ended September 30, 2024, compared to the same period in 2023. The growth was primarily driven by the Dietary segment, which saw an increase of 4.9%.
Contribution of Different Business Segments to Overall Revenue
For the nine months ended September 30, 2024, the contributions from each segment were as follows:
- Housekeeping: 44.8% of total revenue
- Dietary: 55.2% of total revenue
Analysis of Significant Changes in Revenue Streams
Housekeeping revenues decreased slightly by 0.5%, attributed to a decline in the number of facilities serviced year-over-year. In contrast, the Dietary segment's revenue growth of 4.9% was fueled by increases in contractual pass-throughs of labor and food costs, influenced by inflation and market factors.
The following table highlights the revenue performance for the most recent quarter:
| Segment | Revenue (Q3 2024) | Revenue (Q3 2023) | % Change |
|---|---|---|---|
| Housekeeping | $191,101,000 | $190,920,000 | 0.1% |
| Dietary | $237,048,000 | $220,468,000 | 7.5% |
| Total Revenue | $428,149,000 | $411,388,000 | 4.1% |
The quarterly results show a consolidated revenue increase of 4.1%, with the Dietary segment outperforming the Housekeeping segment, which grew marginally.
A Deep Dive into Healthcare Services Group, Inc. (HCSG) Profitability
Profitability Metrics
Examining the profitability metrics of the company reveals several key figures that are essential for investors. The following metrics provide a clear picture of the financial health and operational efficiency of the company.
Gross Profit, Operating Profit, and Net Profit Margins
The company's financial performance can be assessed through its gross profit, operating profit, and net profit margins. The figures for the nine months ended September 30, 2024, are as follows:
| Metric | 2024 (in thousands) | 2023 (in thousands) | % Change |
|---|---|---|---|
| Revenues | $1,277,870 | $1,247,549 | 2.4% |
| Costs of Services Provided | $1,108,383 | $1,107,519 | 0.1% |
| Gross Profit | $169,487 | $140,030 | 20.9% |
| Operating Profit | $31,251 | $19,507 | 60.2% |
| Net Income | $27,551 | $14,878 | 85.5% |
| Net Profit Margin | 2.3% | 1.1% | 109.1% |
Trends in Profitability Over Time
Over the past year, the company has demonstrated significant improvements in profitability metrics. The net income increased from $14,878 in 2023 to $27,551 in 2024, reflecting a growth rate of 85.5%. This upward trend is also seen in the net profit margin, which improved from 1.1% to 2.3%.
Comparison of Profitability Ratios with Industry Averages
When compared to industry averages, the company's profitability ratios indicate a competitive position. The industry average net profit margin for similar companies stands at approximately 2.0%, suggesting that the company's 2.3% margin is above average.
Analysis of Operational Efficiency
The analysis of operational efficiency reveals that the cost of services provided as a percentage of revenues has decreased significantly from 88.8% in 2023 to 86.7% in 2024. This improvement indicates better cost management and operational efficiency.
The breakdown of costs of services provided for the nine months ended September 30, 2024, is summarized in the table below:
| Cost Component | 2024 (as % of Revenues) | 2023 (as % of Revenues) | Change |
|---|---|---|---|
| Bad Debt Provision | 2.9% | 2.6% | 0.3% |
| Self-Insurance Costs | 1.8% | 2.5% | (0.7%) |
The decrease in self-insurance costs reflects favorable adjustments to reserves, contributing positively to the overall profitability metrics.
Overall, the company's financial performance illustrates a robust profitability trend, enhanced operational efficiency, and competitive positioning within the industry.
Debt vs. Equity: How Healthcare Services Group, Inc. (HCSG) Finances Its Growth
Debt vs. Equity: How Healthcare Services Group, Inc. Finances Its Growth
As of September 30, 2024, the company reported total debt of $85.2 million, comprising $25 million in short-term borrowings under its line of credit and $60.2 million in irrevocable standby letters of credit.
The debt-to-equity ratio stands at 0.17, reflecting a conservative approach to leverage compared to the industry standard of approximately 0.50. This indicates that the company relies more on equity financing than debt, a strategy that can reduce financial risk but may also limit growth potential.
In the most recent period, the consolidated interest expense was reported at $5.3 million for the nine months ended September 30, 2024, down from $5.8 million for the same period in 2023.
Recent activity includes the amendment of the line of credit on November 22, 2022, which established a $300 million unsecured revolving loan facility. The current borrowing under this facility is $25 million, with a floating interest rate starting at the Term Secured Overnight Financing Rate (SOFR) plus 165 basis points.
The company has consistently maintained compliance with its financial covenants. As of September 30, 2024, the funded debt to EBITDA ratio was 0.63, significantly below the required maximum of 3.50, and the EBITDA to interest expense ratio was 12.62, well above the minimum requirement of 3.00.
To balance its financing strategy, the company utilizes a combination of debt and equity funding. For instance, as of September 30, 2024, the total stockholders' equity stood at $488.7 million, indicating a solid equity base to support operations and growth.
| Financial Metric | Amount |
|---|---|
| Total Debt | $85.2 million |
| Short-term Borrowings | $25 million |
| Standby Letters of Credit | $60.2 million |
| Debt-to-Equity Ratio | 0.17 |
| Consolidated Interest Expense (2024) | $5.3 million |
| Consolidated Interest Expense (2023) | $5.8 million |
| Line of Credit Limit | $300 million |
| Current Borrowing Under Line of Credit | $25 million |
| Equity as of September 30, 2024 | $488.7 million |
Assessing Healthcare Services Group, Inc. (HCSG) Liquidity
Assessing Healthcare Services Group, Inc. Liquidity
Current Ratio: At September 30, 2024, the current ratio was 2.9 compared to 2.6 at December 31, 2023.
Quick Ratio: The quick ratio is approximately 2.7 as of September 30, 2024, indicating strong short-term liquidity.
Analysis of Working Capital Trends
Working capital as of September 30, 2024, was $380.9 million, up from $354.8 million at December 31, 2023.
| Period | Current Assets (in thousands) | Current Liabilities (in thousands) | Working Capital (in thousands) |
|---|---|---|---|
| September 30, 2024 | $578,118 | $197,204 | $380,914 |
| December 31, 2023 | $571,696 | $216,928 | $354,768 |
Cash Flow Statements Overview
Operating Cash Flow:
For the nine months ended September 30, 2024, cash flows from operating activities were $(5,402) thousand, compared to $(5,947) thousand for the same period in 2023.
Investing Cash Flow:
Cash used in investing activities for the nine months ended September 30, 2024, totaled $(15,751) thousand, increased from $(1,910) thousand in 2023.
Financing Cash Flow:
Cash flows from financing activities resulted in a net cash used of $(5,038) thousand for the nine months ended September 30, 2024, compared to a net cash provided of $12,891 thousand in 2023.
| Cash Flow Type | 2024 (in thousands) | 2023 (in thousands) |
|---|---|---|
| Operating Activities | $(5,402) | $(5,947) |
| Investing Activities | $(15,751) | $(1,910) |
| Financing Activities | $(5,038) | $12,891 |
Potential Liquidity Concerns or Strengths
The company reported cash, cash equivalents, and marketable securities totaling $103.8 million as of September 30, 2024, down from $147.5 million at December 31, 2023. The decline in cash balances is attributed to increased capital expenditures and higher working capital requirements.
As of September 30, 2024, the company had $300 million available under a line of credit, with $25 million drawn. The line of credit is subject to financial covenants, which the company is currently in compliance with:
- Funded Debt to EBITDA Ratio: 0.63 (requirement: less than 3.50)
- EBITDA to Interest Expense Ratio: 12.62 (requirement: not less than 3.00)
Is Healthcare Services Group, Inc. (HCSG) Overvalued or Undervalued?
Valuation Analysis
Price-to-earnings (P/E) ratio as of September 30, 2024, is 20.3. The P/E ratio for the same period in 2023 was -28.9.
Price-to-book (P/B) ratio is 2.4 as of September 30, 2024, compared to 2.3 in 2023.
Enterprise value-to-EBITDA (EV/EBITDA) ratio stands at 12.6 for the year 2024.
Stock price trends over the last 12 months show an increase from $8.00 to $14.00, representing a 75% increase.
The annual dividend yield is currently 0%, as there has been no dividend issued since 2022.
The payout ratio remains at 0%, indicating no dividends have been paid out relative to earnings.
Analyst consensus on stock valuation indicates a buy rating from 5 analysts, a hold from 3 analysts, and a sell from 1 analyst.
| Metric | 2024 | 2023 | % Change |
|---|---|---|---|
| P/E Ratio | 20.3 | -28.9 | Not Applicable |
| P/B Ratio | 2.4 | 2.3 | 4.3% |
| EV/EBITDA | 12.6 | Not Available | Not Applicable |
| Stock Price | $14.00 | $8.00 | 75% |
| Dividend Yield | 0% | 0% | 0% |
| Payout Ratio | 0% | 0% | 0% |
| Analyst Consensus | Buy: 5, Hold: 3, Sell: 1 | Not Available | Not Applicable |
As of September 30, 2024, the company reported a net income of $27.6 million for the nine months ended, compared to $14.9 million in the same period of 2023, reflecting a growth rate of 85%.
The consolidated revenue for the nine months ended September 30, 2024, was $1,277.9 million, up from $1,247.5 million in 2023, marking a growth of 2.4%.
Costs of services provided for the nine months ended September 30, 2024, were $1,108.4 million, slightly increasing from $1,107.5 million in 2023.
For the nine months ended September 30, 2024, selling, general and administrative expenses were $138.2 million, compared to $120.5 million in 2023, reflecting a 14.7% increase.
Investment and other income for the nine months ended September 30, 2024, totaled $12.1 million, up from $7.0 million in 2023, indicating a growth rate of 72.3%.
Consolidated interest expense for the nine months ended September 30, 2024, was $5.3 million, compared to $5.8 million in 2023, showing a decrease of 9.3%.
Key Risks Facing Healthcare Services Group, Inc. (HCSG)
Key Risks Facing Healthcare Services Group, Inc.
The financial health of Healthcare Services Group, Inc. is influenced by various internal and external risk factors that can significantly impact its operations and profitability. Below is an overview of these risks, including competition, regulatory changes, and operational challenges.
1. Industry Competition
Healthcare Services Group operates in a highly competitive environment. The company faces competition from numerous regional and national providers of housekeeping and dietary services. This competition can lead to price pressures and reduced margins. As of the nine months ended September 30, 2024, the company reported consolidated revenues of $1,277.9 million, a 2.4% increase from $1,247.5 million in the same period of 2023, indicating a need to maintain competitive pricing while managing costs.
2. Regulatory Changes
The healthcare industry is subject to extensive federal, state, and local regulations. Changes in regulations can affect operational costs and service delivery. For instance, compliance with labor laws and healthcare standards requires ongoing investments in training and infrastructure. The company has a line of credit of $300 million, which provides liquidity but also imposes financial covenants that must be maintained.
3. Market Conditions
Fluctuations in market conditions, including inflation and economic downturns, can adversely affect the company's financial performance. The company has noted that labor and supply costs have increased, impacting profitability. For example, costs of services provided increased to $1,108.4 million for the nine months ended September 30, 2024, compared to $1,107.5 million in the same period of 2023.
4. Operational Risks
Operational risks include the management of labor costs and the ability to retain skilled personnel. The company reported a bad debt provision of $36.8 million for the nine months ended September 30, 2024, which reflects challenges in customer payments and potential bankruptcies within its client base. The operational efficiency is crucial, as the costs of services provided represented 86.7% of total revenues during this period.
5. Financial Risks
Financial risks primarily stem from the company's debt obligations. At September 30, 2024, the company had $25 million drawn under its line of credit and was required to comply with specific financial covenants. The funded debt to EBITDA ratio was reported at 0.63, well below the required threshold of 3.50. This indicates a healthy leverage position but highlights the need for careful financial management to avoid breaches of covenants.
6. Strategic Risks
The ability to secure new contracts and retain existing clients is essential for growth. The company’s revenues from housekeeping services decreased by 0.5% for the nine months ended September 30, 2024, compared to the same period in 2023, emphasizing the challenges in maintaining market share. Additionally, strategic decisions regarding capital expenditures are crucial, with estimated capital expenditures for 2024 projected between $5 million to $7 million.
7. Mitigation Strategies
The company employs various strategies to mitigate these risks, including diversifying its client base, enhancing service offerings, and investing in technology to improve operational efficiency. It is also focusing on maintaining compliance with regulatory requirements to minimize legal risks. The management has indicated a commitment to managing costs effectively and improving cash flow, which is essential for sustaining operations.
| Risk Factor | Impact | Financial Data |
|---|---|---|
| Industry Competition | Price pressure and reduced margins | Consolidated revenues: $1,277.9M (2024), $1,247.5M (2023) |
| Regulatory Changes | Increased operational costs | Line of credit: $300M |
| Market Conditions | Increased costs of services | Costs of services provided: $1,108.4M (2024), $1,107.5M (2023) |
| Operational Risks | Labor cost management | Bad debt provision: $36.8M |
| Financial Risks | Debt obligations | Funded debt to EBITDA ratio: 0.63 |
| Strategic Risks | Client acquisition and retention | Housekeeping revenues: -0.5% decline |
| Mitigation Strategies | Diversification and operational efficiency | Estimated capital expenditures: $5M to $7M |
Future Growth Prospects for Healthcare Services Group, Inc. (HCSG)
Future Growth Prospects for Healthcare Services Group, Inc.
Analysis of Key Growth Drivers
The company is positioned for growth through several key drivers:
- Product Innovations: Continuous enhancements in service offerings, particularly in dietary management, are expected to drive revenue. For example, dietary services experienced a revenue growth of 4.9% for the nine months ended September 30, 2024, compared to the same period in 2023.
- Market Expansions: The company serves approximately 2,200 customer facilities for housekeeping and 1,600 for dietary services, indicating a broad market presence that can be further expanded.
- Acquisitions: Strategic acquisitions are anticipated to enhance service capabilities and market share. Recent investments include $51.5 million in marketable securities.
Future Revenue Growth Projections and Earnings Estimates
Revenue for the nine months ended September 30, 2024, totaled $1.28 billion, up from $1.25 billion in 2023, reflecting a 2.4% increase. Earnings before income taxes reached $38.1 million, compared to $20.8 million in the prior year. Future projections suggest continued revenue growth driven by increasing demand for both housekeeping and dietary services.
Strategic Initiatives or Partnerships
The company has initiated several strategic partnerships aimed at enhancing operational efficiencies and expanding service offerings. These partnerships are expected to leverage existing customer relationships and improve service delivery, potentially increasing customer retention and acquisition rates.
Competitive Advantages
The company maintains several competitive advantages:
- Strong Market Presence: With revenues from housekeeping and dietary services comprising approximately 44.8% and 55.2% of total revenues, respectively, the company enjoys significant market share in these segments.
- Robust Financial Health: As of September 30, 2024, the company reported a current ratio of 2.9, indicating strong liquidity. Additionally, the company has a $300 million line of credit available for further growth.
- Cost Management: The costs of services provided as a percentage of revenues improved to 86.7% for the nine months ended September 30, 2024, down from 88.8% in 2023, showcasing effective cost management strategies.
Financial Data Overview
| Financial Metric | 2024 | 2023 | Change (%) |
|---|---|---|---|
| Total Revenues | $1,277.9 million | $1,247.5 million | 2.4% |
| Housekeeping Revenues | $572.7 million | $575.3 million | -0.5% |
| Dietary Revenues | $705.2 million | $672.3 million | 4.9% |
| Income Before Income Taxes | $38.1 million | $20.8 million | 83.7% |
| Net Income | $27.6 million | $14.9 million | 85.5% |
Overall, the financial trajectory indicates a positive outlook for the company, supported by strategic initiatives and market dynamics conducive to growth.
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Article updated on 8 Nov 2024
Resources:
- Healthcare Services Group, Inc. (HCSG) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Healthcare Services Group, Inc. (HCSG)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Healthcare Services Group, Inc. (HCSG)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.