Healthcare Services Group, Inc. (NASDAQ:HCSG) Q4 2022 Earnings Call Transcript

A.J. Rice: Okay. I appreciate the comments on the Q1 revenue. There are a lot of moving parts going down the income statement, so it’s helpful to get that commentary. You also in the operating income side had some – obviously, you’ve called out the $9.8 million of workers’ comp of, $6.5 million of AR, incremental accrual? Any comments that you can give us about sort of run rate of operating income that would arrange for the first quarter margin for the first quarter – as you normalize for these unusual items or even, I guess, just give us your sense of where the normalized number would have been for fourth quarter ex these items.

Ted Wahl: Yes, well, I think maybe looking at it more prospectively A.J., we’re entering the year. We exited the year with that run rate of 86% cost of services, really with the most significant variable being, as you alluded to, CECL or AR-related reserves. That’s a bit unpredictable. I point out our past two – just illustratively our past two fourth quarters, 2021, Q4 and 2022, Q4. Last in both quarters, we collected what we built in Q4 of 2021 we had actually a $3,000 pickup under CECL. And in Q4 of 2022, we had an $8.6 million charge. So, we would expect that to even out as our collection experience normalizes more into that collecting what we bill category. I do know the way CECL works, it’s more of a, let’s say, a lagging indicator in the sense that it’s based off of a past collection performance rather than expected future performance.

So I think as we get better collection experience in 2023, as I alluded to with Andy, and that’s what we’re expecting into 2024, we would expect our CECL bad debt expense to normalize and certainly become that much more predictable.

A.J. Rice: Okay. I know you generally – and you’ve made some comments about things improving with the underlying customer base, particularly in nursing homes. I know traditionally, you’ve sort of given a sense of where you think occupancy is, how it’s stepped up and the pace of further step-ups? Do you have any update along those lines? And any comment about underlying labor availability to your customers and therefore, to you at the hourly level as well as anything on food inflation update?

Ted Wahl: Yes and look, the – I guess overall, the occupancy data are encouraging from an industry perspective. The most recent data are suggesting that the national occupancy sits today at 76.6%, A.J., which is about 1.5 points higher than what it was when we spoke three months ago and 4.5% higher than what it was when we reported last February so, slow and steady improvement there. Clearly – and Matt – I’ll ask Matt to touch more on the labor side, but as you know better than anyone, the key to occupancy recovery is really staffing availability and the interplay between those two remain significant. So it’s no surprise that as the labor environment – the overall labor environment. Although it remains difficult and challenging relative to historical perspective, it is slowly improving and that certainly has been a driving force behind some of the recent encouraging trends we’ve seen on the census front.

Matt McKee: And then A.J., just to address the final two components of your question on the labor market, within the industry, in general, there certainly remains significant challenges. There was a recent survey where providers overwhelmingly reported moderate to high levels of staffing shortages and difficulty hiring staff and nearly half of them report that staffing situation has deteriorated since even the midpoint of last year 2022. So operators are indicating that the biggest obstacle of hiring is the lack of interested or qualified candidates, but – and what remains a theme of have and have nots, about a third of those respondents reported that the overall workforce situation had gotten better during that time frame. So while wages continue to rise in the nursing home industry, the pace of those increases has slowed fairly dramatically from 8.1% in 2021 to 3.8% in 2022.