SOURCE: Healthcare Services Group, Inc.

February 13, 2007 14:58 ET

Healthcare Services Group, Inc. Reports Record Results for the Three Months and Year Ended December 31, 2006

BENSALEM, PA -- (MARKET WIRE) -- February 13, 2007 --

--  Quarterly net income up 32% over 2005 quarter on 19% increase in
    revenues
--  Annual net income 33% over 2005 annual net income on a 10% increase in
    revenues
--  Quarterly cash dividend raised 8% over 2006 third quarter cash
    dividend and 40% over 2005 fourth quarter cash dividend
    
Healthcare Services Group, Inc. (NASDAQ: HCSG) reported that revenues for the three months ended December 31, 2006 increased 19% to $139,790,000 compared to $117,864,000 for the same 2005 period. Net income for the three months ended December 31, 2006 increased 32% to $7,227,000 or $.26 per basic and $.25 per diluted common share, compared to 2005 fourth quarter net income of $5,475,000 or $.20 per basic and $.19 per diluted common share, representing increases of 30% and 32%, respectively, in basic and diluted earnings per common share.

The Company also reported that revenues for the year ended December 31, 2006 increased by 10% to $511,631,000 compared to $466,291,000 for the 2005 year. In addition, annual net income increased 33% to 25,452,000 or $.93 per basic and $.89 per diluted common share, compared to the year ended December 31, 2005 net income of $19,096,000 or $.71 per basic and $.67 per diluted.

Additionally, on January 23, 2007 our Board of Directors declared a regular quarterly cash dividend of $.14 per common share, payable on February 14, 2007 to shareholders of record at the close of business February 5, 2007. This dividend represents an 8% increase over the dividend declared for the 2006 third quarter and a 40% increase over the 2005 same period payment. It is the fifteenth consecutive regular quarterly cash dividend payment, as well as the fourteenth consecutive increase since our initiation of regular quarterly cash dividend payments in 2003.

The 2006 financial results include the cumulative effect of a non-material adjustment in its deferred compensation liability which results from applying the provisions of Securities and Exchange Commission Staff Accounting Bulletin No. 108 ("SAB No. 108"). We have adopted SAB No. 108 at December 31, 2006 and for the year then ended. Historically, the appreciation on our Common Stock held in our Deferred Compensation Plan (the "Plan") trust account was not recognized in the reporting of the deferred compensation liability. In accordance with the guidance provided by Emerging Issues Task Force Issue No. 97-14 ("EITF No. 97-14"), we increased our recorded deferred compensation liability to reflect the current fair market value of our shares held in the Plan trust account. Prior to the adoption of SAB No. 108, we used the "rollover" method described therein in evaluating the materiality of financial statements' adjustments. We determined the impact from the adjustment to be immaterial to current and prior periods' financial results under the "rollover" method. Additionally, we have evaluated the adjustment using the dual approach method described in SAB No. 108. Pursuant to the guidance of SAB No. 108, the adjustment to the liability was accomplished by the recording in 2006 of the cumulative effect, as of January 1, 2006, of a $1,432,000 ($856,000 net of income taxes) increase to correct the liability balance as of December 31, 2005, with a corresponding charge to retained earnings 2006 beginning balance. The 2006 financial statements were affected by the adjustment through a $970,000 ($605,000 net of income taxes) increase to the liability with a corresponding charge to deferred compensation expense to reflect the changes in fair market value during 2006. Of this adjustment, approximately $530,000 ($335,000 net of income taxes) was applicable to previously reported 2006 periods through September 30, 2006 and $440,000 ($270,000 after income taxes) impacted our 2006 fourth quarter results. In accordance with SAB No. 108, reported results for periods prior to January 1, 2006 have not been adjusted.

The Company also announced the planned retirement of its Chief Financial Officer, James L. DiStefano. Mr. DiStefano will continue to serve in his current capacity through the end of March 2007. Richard W. Hudson, who has been with the Company since 1989 and has served as its Vice President of Finance since 1993, will be appointed to the office of Chief Financial Officer upon Mr. DiStefano's retirement.

The Company announced that it will make a presentation on February 14, 2007 regarding the Company at the "UBS Warburg Global Healthcare Services Conference" at the Grand Hyatt in New York City. Additionally, this presentation will be audio webcast at www.ibb.ubs.com.

Forward-Looking Statements/Risk Factors

This press release may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are not historical facts but rather are based on current expectations, estimates and projections about our business and industry, our beliefs and assumptions. Words such as "believes," "anticipates," "plans," "expects," "intends," "will," "goal," and similar expressions are intended to identify forward-looking statements. The inclusion of forward-looking statements should not be regarded as a representation by us that any of our plans will be achieved. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Such forward looking information is also subject to various risks and uncertainties. Such risks and uncertainties include, but are not limited to, risks arising from our providing services exclusively to the health care industry, primarily providers of long-term care; credit and collection risks associated with this industry; one client accounting for approximately 18% of 2006 annual revenues (the client completed its previously announced merger on March 14, 2006); risks associated with our recent acquisition of Summit Services Group, Inc., including integration risks and costs, or such business not achieving expected financial results or synergies or failure to otherwise perform as expected; our claims' experience related to workers' compensation and general liability insurance; the effects of changes in, or interpretations of laws and regulations governing the industry, including state and local regulations pertaining to the taxability of our services; and risk factors described in our Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2005 in Part I thereof under "Government Regulation of Clients," "Competition" and "Service Agreements/Collections" and "Risk Factors." Many of our clients' revenues are highly contingent on Medicare and Medicaid reimbursement funding rates, which Congress has affected through the enactment of a number of major laws during the past decade. These laws have significantly altered, or may alter, overall government reimbursement funding rates and mechanisms. The overall effect of these laws and trends in the long-term care industry have affected and could adversely affect the liquidity of our clients, resulting in their inability to make payments to us on agreed-upon payment terms. These factors, in addition to delays in payments from clients, have resulted in and could continue to result in significant additional bad debts in the future. Additionally, our operating results would also be adversely affected if unexpected increases in the costs of labor and labor related costs, materials, supplies and equipment used in performing our services could not be passed on to clients.

In addition, we believe that to improve our financial performance we must continue to obtain service agreements with new clients, provide new services to existing clients, achieve modest price increases on current service agreements with existing clients and maintain internal cost reduction strategies at our various operational levels. Furthermore, we believe that our ability to sustain the internal development of managerial personnel is an important factor impacting future operating results and successfully executing projected growth strategies.

Healthcare Services Group, Inc. is the largest national provider of professional housekeeping, laundry and food services to long-term care and related facilities.


                      HEALTHCARE SERVICES GROUP, INC.
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                                (Unaudited)

                                                 December 31,  December 31,
                                                     2006          2005
                                                ------------- -------------
Cash and cash equivalents                       $  72,997,000 $  91,005,000
Accounts receivable, net                           78,086,000    59,197,000
Other current assets                               17,154,000    15,414,000
  Total current assets                            168,237,000   165,616,000

Property and equipment, net                         4,875,000     4,744,000
Notes receivable- long term, net                    7,861,000     4,555,000
Goodwill, net                                      14,543,000     1,612,000
Other Intangible Assets, net                        7,148,000
Deferred compensation funding                       7,385,000     5,626,000
Other assets                                        5,507,000     6,277,000
                                                ------------- -------------

Total Assets                                    $ 215,556,000 $ 188,430,000
                                                ============= =============


Accrued insurance claims- current               $   4,647,000 $   4,405,000
Other current liabilities                          22,963,000    18,676,000
                                                ------------- -------------
  Total current liabilities                        27,610,000    23,081,000

Accrued insurance claims- long term                10,843,000    10,277,000
Deferred compensation liability                    11,626,000     6,909,000
Stockholders' equity                              165,477,000   148,163,000
                                                ------------- -------------

Total Liabilities and Stockholders' Equity      $ 215,556,000 $ 188,430,000
                                                ============= =============




                     HEALTHCARE SERVICES GROUP, INC.
                    CONSOLIDATED STATEMENTS OF INCOME
                                (Unaudited)

                                                For the Three Months Ended
                                                        December 31,
                                                     2006          2005
                                                ------------- -------------
Revenues                                        $ 139,790,000 $ 117,864,000
Operating costs and expenses:
   Cost of services provided                      118,398,000   102,075,000
   Selling, general and administrative             10,885,000     8,014,000
Other income:
   Investment and interest income                   1,288,000     1,056,000
                                                ------------- -------------
Income before income taxes                         11,795,000     8,831,000
Income taxes                                        4,568,000     3,356,000
                                                ------------- -------------
Net income                                      $   7,227,000 $   5,475,000
                                                ============= =============

Basic earnings per common share                 $         .26 $         .20
                                                ============= =============

Diluted earnings per common share               $         .25 $         .19
                                                ============= =============

Cash dividends per common share                 $         .13 $         .09
                                                ============= =============
Basic weighted average number of
 common shares outstanding                         27,607,000    27,098,000
                                                ============= =============

Diluted weighted average number of
 common shares outstanding                         28,986,000    28,418,000
                                                ============= =============




                      HEALTHCARE SERVICES GROUP, INC.
                     CONSOLIDATED STATEMENTS OF INCOME
                                (Unaudited)

                                                    For the Year Ended
                                                        December 31,
                                                     2006          2005
                                                ------------- -------------
Revenues                                        $ 511,631,000 $ 466,291,000
Operating costs and expenses:
   Cost of services provided                      438,617,000   406,114,000
   Selling, general and administrative             37,196,000    32,576,000
Other income:
   Investment and interest income                   4,905,000     3,198,000
                                                ------------- -------------
Income before income taxes                         40,723,000    30,799,000
Income taxes                                       15,271,000    11,703,000
                                                ------------- -------------
Net income                                      $  25,452,000 $  19,096,000
                                                ============= =============

Basic earnings per Common Share                 $         .93 $         .71
                                                ============= =============

Diluted earnings per Common Share               $         .89 $         .67
                                                ============= =============

Cash dividends per common share                 $         .46 $         .30
                                                ============= =============
Basic weighted average number of
 common shares outstanding                         27,451,000    26,921,000
                                                ============= =============

Diluted weighted average number of
 common shares outstanding                         28,765,000    28,320,000
                                                ============= =============

Contact Information

  • Company Contacts:
    Daniel P. McCartney
    Chairman and Chief Executive Officer
    215-639-4274

    Thomas Cook
    President and Chief Operating Officer
    215-639-4274