BENSALEM, PA--(BUSINESS WIRE)--Healthcare Services Group, Inc. (NASDAQ:HCSG) reported for the three months ended December 31, 2020 revenue of $423.2 million, net income of $27.7 million, or $0.37 per basic and diluted common share, and cash flow from operations of $75.7 million. The Company’s Board of Directors declared a quarterly cash dividend of $0.20625 per common share, the 70th consecutive increase since the initiation of dividend payments in 2003. Additionally, the Company expects to repurchase up to 1.0 million shares of its common stock, pursuant to its previous authorization, over the next 12 months.

Ted Wahl, Chief Executive Officer, stated, “As I reflect on this past year, I’m filled with gratitude for how industry leaders, clients and frontline healthcare workers, especially our HCSG heroes, have led and served through one of the most trying periods for our industry and country. I’d also like to thank you, fellow shareholders, for your ongoing support, trust and confidence in HCSG and our team during these unprecedented times.”

Mr. Wahl continued, “Our strong Q4 results are a testament to the passion and perseverance of our team members and our ability to execute in even the most challenging environment. In short, we were able to control the elements of our business that are within our control exceedingly well. We will remain laser focused on delivering strong operational and financial results in the year ahead.”

Mr. Wahl concluded, “With the vaccine rollout currently underway, we're hopeful that the worst of the clinical nightmare is behind us. That said, we know 2021 will still have its share of pandemic-related challenges, as the industry gradually shifts from crisis mode to a state of recovery. And while COVID remains a near-term headwind on revenue, our commitment to internal investment and returning capital to shareholders underscores our positive, longer term growth outlook and creates value for all stakeholders.”

Fourth Quarter Results

Revenue for the quarter was $423.2 million, with housekeeping & laundry and dining & nutrition segment revenues of $219.9 million and $203.3 million, respectively. Revenue included $5.1 million of COVID supplemental billings, primarily related to employee pay premiums passed through to customers.

Direct cost of services was reported at $352.2 million, or 83.2%. Direct cost included a $14.0 million benefit related to favorable workers’ compensation loss development trends, as the Company continues to successfully execute on its strategy of managing claim frequency, scope and severity. Direct cost also included $7.0 million of leadership recognition bonuses for facility-based and district operational leaders, who were not included in “hero pay” programs that recognized our hourly line staff, for their extraordinary and heroic efforts throughout 2020. The Company’s goal remains to manage direct cost at or below 86.0%.

Housekeeping & laundry and dining & nutrition segment margins were 9.9% and 7.7%, respectively. Selling, general and administrative (“SG&A”) was reported at $42.0 million, or 9.9%; after adjusting for the $5.2 million increase in deferred compensation, actual SG&A was $36.7 million, or 8.7%. The Company expects near-term SG&A around 8.5%, with the primary leverage existing in top-line growth. Longer term, the Company’s target remains 7.5%.

The Company reported an effective tax rate of 20.4% for the fourth quarter and 23.6% for full year 2020. The Company expects a 2021 tax rate of 24% to 26%.

Cash flow from operations for the quarter was $75.7 million. This includes a $45.2 million increase in accrued payroll, inclusive of a $14.3 million increase in deferred payroll taxes under the CARES Act.

Dividend & Share Repurchase

The Company’s Board of Directors declared a quarterly cash dividend of $0.20625 per common share, payable on March 26, 2021 to shareholders of record at the close of business on February 26, 2021. This represents the 71st consecutive quarterly cash dividend payment, as well as the 70th consecutive increase since the initiation of quarterly cash dividend payments in 2003. Additionally, the Company remains authorized to repurchase 1.7 million shares of our common stock pursuant to the previous Board of Directors’ authorization and expects to repurchase up to 1.0 million shares over the next 12 months.

SEC Matter Update

As previously disclosed, the Securities and Exchange Commission (“SEC”) has been conducting an investigation into the Company’s earnings per share (“EPS”) calculation practices. Following receipt of a letter from the SEC in November 2017 regarding its inquiry into those practices and a subpoena in March 2018, the Company authorized its outside counsel to conduct an internal investigation, under the direction of the Company’s Audit Committee, into matters related to the SEC subpoena. This investigation was completed in March 2019, and the Company has continued to cooperate with the SEC’s investigation and document requests since then.

The Company and the SEC have recently commenced discussions regarding a potential resolution of the investigation, which focuses on periods prior to 2018. As discussions regarding a potential resolution are ongoing, Mr. John C. Shea, the Company’s Chief Financial Officer, has notified the Company that he is taking a temporary leave of absence from his duties. During Mr. Shea’s leave of absence, Mr. Andrew Brophy, a Certified Public Accountant who has served as the Company’s Director of Accounting since November 2020 and SEC Reporting Manager since January 2018, will serve as the Company’s Acting Principal Accounting Officer.

Website Redesign

The Company recently launched its redesigned website at www.hcsg.com, which better represents the organization in services offered, and reflects the Company’s Purpose, Vision, Values and Social Responsibility perspective. A new company intranet site called the HUB has also been created and will be accessible to all employees. The HUB is designed to address the challenges of communicating directly with line staff employees, given that they are dispersed over so many facilities and are generally not frequent users of email. The HUB offers an interactive platform through which to initiate two-way communication with all employees and generally further engage every associate.

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