Healthcare Services Group, Inc. (NASDAQ:HCSG) Q2 2023 Earnings Call Transcript

Operator: The next question is from Jack Malek with William Blair.

Unidentified Analyst : Yes. Hi, good morning, Jack on for Ryan this morning. Any additional insight into how you’re getting comfort over any potential exposure to the finalized rule that might increase staffing requirements? Is the comfort coming from client conversations? Are you doing more site specific analogies to gauge risk? And just kind of curious how you’re thinking about this potential headwind?

Ted Wahl : Yes, Jack, it’s a good question. And it’s certainly as you alluded to, it’s certainly a talk within the industry right now. And I think the latest is that the proposed plan is expected soon, although, we’ve heard that for months at this point, but all industry stakeholders remain on high alert, I’d say the industry view/ perspective is around minimum staffing is that if there were an appropriate pilot and appropriate phase in periods, and with it a recognition of the labor constraints, and it was fully funded, then the industry would and really has leaned into that type of framework. But if it’s an unfunded mandate, without recognizing the realities on the ground. I do not believe that would be well received. No from our perspective assuming there is a minimum staffing requirement announced later this year, our assessment of it is it would likely be very narrow, meaning it would be related to patient care staff only, it would likely have a phasing period of up to five years, probably in the three to five year range, there would likely be a robust waiver process, especially for rural facilities.

And it would have to survive political changes and administration and all the inevitable litigation that would come with it. So there’s a lot of roads to hoe here, Jack, but I would say stay tuned. There’s going to be more to come from a minimum staffing perspective. But in the meantime, we’ll wait and see. I think just to bring it back to us for a moment. The fact that uncertainty is out there, around not just the regulatory environment, but also the recovery of the industry, the reimbursement environment, does force to a degree providers to look for ways to create more certainty in their business. And we’ve talked about this before, but the central theme in our value proposition is providing operational and financial peace of mind. So not just with the minimum staffing requirements, but all of the other variables within the industry, some of which are not necessarily new, creates that demand for the types of services that we’re able to provide.

Unidentified Analyst : Okay, that’s super insightful. Appreciate that. I guess just switching gears a little bit. Any update on your capital allocation strategy?

Ted Wahl : No, from our perspective, it continues to go down the path, we expected it to our number one capital allocation priority continues to be internal investment and investment in organic growth drivers. We remain active on the inorganic front, and exploring activities looking to build selectively inorganic opportunities that we can fold in strategically within the company. There’s nothing to announce. But that’s something we remain active in. And we continue to keep an eye open for buyback opportunities. We did not have any buybacks in Q2, but that will continue to be a very selective, a very opportunistic approach that we take towards buybacks.

Operator: The next question is from Bill Sutherland with the Benchmark Company.

Bill Sutherland: Hey, good morning, guys. Thanks for the question. The state based reimbursement that you called out in the PR this morning. Can you give us a little color on states that we have a higher number of contracts? Just kind of curious, the benefits that those facilities are starting to see at a state level?