Healthcare Services Group
Annual Report 2007

Plain-text annual report

YE 07 Cautionary Statement Regarding Forward-Looking Statements i i f t il ti ki l ” d l ” “ ” “ ” “ l id tif i t d d t t ” “ ill ” “ This report contains 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 (the “Exchange Act”), as amended, are not historical facts but rather based on current expectations, estimates and projections about our business and industry, our beliefs and assumptions. Words such as “b li “believes,” “anticipates,” “plans,” “expects,” “will,” “goal,” and similar expressions are intended to identify forward-looking d i 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 care industry primarily providers of long term care; credit and collection risks associated with this industry; one client accounting for approximately 16% of revenues in 2007; risks associated with our 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 the risk factors described in our Form 10-K filed with the Securities and Exchange pertaining to the taxability of our services; and the risk factors described in our Form 10 K filed with the Securities and Exchange Commission for the year ended December 31, 2006 Part I thereof under ‘‘Government Regulation of Clients’’, ‘‘Competition’’ and ‘‘Service Agreements/Collections’’, and under Item IA “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 threatened to 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 near future. Additionally, our operating results would be adversely affected if unexpected increases in the costs of labor and labor related costs, materials, supplies and equipment used in performing services could not be passed on to our clients. g g y 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. g p j g g 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 HEALTHCARE SERVICES GROUP Industry Trends • Legislation • Cost Containment/Managed Care Cost Containment/Managed Care • The “Graying” of America • DRGs DRG • Subacute Care • Assisted Living Prospective Pay System (PPS) • Prospective Pay System (PPS) HEALTHCARE SERVICES GROUP Market Penetration M k t P ti t Number of Facilities Total Expenditures Housekeeping & Laundry Costs Contractual Management Contractual Management Food Service Cost Contractual Management g osp ta s Hospitals 6,915 $611 Billion Long-Term Care g 23,000 $121.9 Billion $18.3 Billion (3%) $7.3 Billion (6%) 24% 24% $36.6 Billion (6%) Less than 10% Less than 10% $14.6 Billion (12%) 28% 28% Less than 4% Less than 4% Source: American Hospital Association, Dept. of Health and Human Services, Center for Medicare and Medicaid Services, Modern Healthcare Survey HEALTHCARE SERVICES GROUP HEALTHCARE SERVICES GROUP • Largest Independent Housekeeping and Laundry Service for Long-Term Care • Over 2,200 Facilities Under Management • 90% Client Retention Rate - Base Business • Long-Term Revenue Stream R S T Current Major Markets j Total Long-Term Care Facilities Approximately 17,400 VT WA 20 OR 16 NV 7 CA 203 MT 1 ND MN 38 ID 4 SD 12 SD 12 WY 4 WI 56 ONTARIO CANADA 4 MI 27 NY 30 UT 5 CO 16 KS 40 NE 31 IA 6 PA 226 OH 93 V WV IL 41 IN 85 MO 66 KY 39 AZ 11 NM 26 OK 13 AR 35 TN 30 VA 56 VA 56 4 4 NC 123 SC 55 8 ME 12 NH 8 MA 139 RI 23 23 CT 30 NJ 90 DE 12 MD 24 DC 1 TX 66 LA 21 38 GA 61 GA 61 MS AL 38 FL 173 HEALTHCARE SERVICES GROUP INC. Services (% of Sales) Facilities, Maintenance and Supplies - 1% Linen and Laundry - 24% Food Service - 19% Housekeeping - 56% HEALTHCARE SERVICES GROUP HEALTHCARE SERVICES GROUP CENTRAL OFFICE NORTHEAST DIVISION MID-ATLANTIC DIVISION MIDWEST/ NO. CENTRAL DIVISION DIVISION MIDWEST/ SOUTH DIVISION DIVISION SOUTHEST/ SOUTHWEST DIVISION DIVISION FAR WEST DIVISION NEW ENGLAND REGIONS NEW YORK REGIONS MID-ATL REGIONS REGIONS MID-ATL REGIONS REGIONS MID- WEST REGIONS NO. CENTRAL REGIONS MID- WEST - S REGIONS MID- SOUTH REGIONS S.E. REGIONS REGIONS S.W. REGIONS REGIONS FAR WEST REGIONS REGIONS CALIF REGIONS REGIONS DISTRICT MGT. DISTRICT DISTRICT DISTRICT MGT. MGT. MGT. DISTRICT MGT. DISTRICT MGT. DISTRICT MGT. DISTRICT MGT. DISTRICT MGT. DISTRICT MGT. DISTRICT MGT. DISTRICT MGT. FACILITY FACILITY MGT. FACILITY FACILITY MGT. FACILITY FACILITY MGT. FACILITY FACILITY MGT. FACILITY FACILITY MGT. FACILITY FACILITY MGT. FACILITY FACILITY MGT. FACILITY FACILITY MGT. FACILITY FACILITY MGT. FACILITY FACILITY MGT. FACILITY FACILITY FACILITY FACILITY MGT MGT HEALTHCARE SERVICES GROUP HEALTHCARE SERVICES GROUP Operational Management Structure Vice President - Operations Divisional Vice President 6 Divisions Regional Vice President / Manager President / Manager 55 Regions g District Manager 220 Districts Training Training Manager Facility Manager and Assistant Facility Manager Over 2,200 Facilities HEALTHCARE SERVICES GROUP HEALTHCARE SERVICES GROUP Marketing and Sales Structure President Vice President - Marketing Director of Corporate Sales Divisional Vice Presidents Corporate Divisional Divisional Regional Vice Presidents / Managers g Regional Regional Directors Regional R i l District District Managers District HEALTHCARE SERVICES GROUP HEALTHCARE SERVICES GROUP Sources of Growth • Geographic Expansion of Regional and Local Clients • National Chains • New Facilities of Existing Clients • Sale of Linen Services to New and Existing Clients • Sale of Food Services to New and Existing Clients HEALTHCARE SERVICES GROUP HEALTHCARE SERVICES GROUP The Advantage • Demonstrated Cost Savings to Long-Term Care Facilities • Superior Professional Management System • National Network to Service Local, Regional g , and National Accounts • Substantial Capacity to Generate Incremental p y Business with Existing Infrastructure Revenues (000) Revenues (000) , 9 $442,494 $ $466,291 $511,631 $577,721 $379,718 $328,499 $800,000 $800 000 $700,000 $600,000 $500,000 $400,000 $300,000 $300 000 $200,000 $100,000 $0 2002 2003 2004 2005 2006 2007 Year End HEALTHCARE SERVICES GROUP Net Income (000) Net Income (000) , $35,000 $30,000 $25,000 $25,000 $20,000 $15,000 $15 000 $10,000 $5,000 $5 000 $29,578 $29 578 $25,452 $19,096 $14,694 $10,860 $10 860 $8,630 2002 2003 2004 2005 2006 2007 Year End HEALTHCARE SERVICES GROUP HEALTHCARE SERVICES GROUP Investment Considerations Year End 12/31/07 • Cash - $92.4 million • Current Assets - $195.0 million • Current Ratio – 7:1 • Stockholder Equity - $194.7 million • Dividend - $.52 p/share – annually (post 3:2 Dividend $ 52 p/share annually (post 3:2 split) • Book Value - $4.60 HEALTHCARE SERVICES GROUP HEALTHCARE SERVICES GROUP Growth Objectives Expand Established Regions Locally • Expand Established Regions Locally • Local Operators • National Chains l Ch i N ti • Expand Food Service to Client Base • 90% Client Retention Rate Growth Objectives Growth Objectives 25% Growth Rate in Existing Base WA 20 OR 16 NV 7 CA 203 MT 1 ND MN 38 ID 4 SD 12 SD 12 WY 4 WI 56 ONTARIO CANADA 4 MI 27 NY 30 UT 5 CO 16 KS 40 NE 31 IA 6 PA 226 OH 93 V WV IL 41 IN 85 MO 66 KY 39 AZ 11 NM 26 OK 13 AR 35 TN 30 VA 56 VA 56 4 4 NC 123 SC 55 VT 8 ME 12 NH 8 MA 139 RI 23 23 CT 30 NJ 90 DE 12 MD 24 DC 1 TX 66 LA 21 38 GA 61 GA 61 MS AL 38 FL 173 HEALTHCARE SERVICES GROUP INC. HEALTHCARE SERVICES GROUP HEALTHCARE SERVICES GROUP Opportunity • “Graying” of America/Cost Containment y g • Growing Market with Little Competition • Growing Market with Little Competition • Organization in Place for Growth 

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