Company Quick10K Filing
Healthcare Services Group
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$33.94 74 $2,510
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-28 Shareholder Vote
8-K 2019-04-30 Earnings, Other Events, Exhibits
8-K 2019-02-05 Earnings, Other Events, Exhibits
8-K 2018-12-31 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-10-16 Earnings, Other Events, Exhibits
8-K 2018-07-17 Earnings, Other Events, Exhibits
8-K 2018-05-29 Shareholder Vote
8-K 2018-04-17 Earnings, Other Events, Exhibits
8-K 2018-04-16 Earnings, Exhibits
8-K 2018-02-06 Earnings, Exhibits
8-K 2018-01-30 Earnings, Other Events, Exhibits
WAB Westinghouse Air Brake 11,620
MDR McDermott 1,340
AMSC American Superconductor 236
FSFG First Savings Financial Group 131
APPO Alphapoint Technology 0
PBIO Pressure Biosciences 0
YIHG Yakun 0
TTCM Tautachrome 0
DHGC Desert Hawk Gold 0
ICTV ICTV Brands 0
HCSG 2019-03-31
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Note 1-Description of Business and Significant Accounting Policies
Note 2-Revenue
Note 3-Accounts and Notes Receivable
Note 4-Allowance for Doubtful Accounts
Note 5-Changes in Accumulated Other Comprehensive Income By Component
Note 6-Property and Equipment
Note 7-Leases
Note 8-Other Intangible Assets
Note 9-Fair Value Measurements
Note 10-Stock-Based Compensation
Note 11-Dividends
Note 12-Income Taxes
Note 13-Segment Information
Note 14-Earnings per Common Share
Note 15-Other Contingencies
Note 16-Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ceosection302certifica.htm
EX-31.2 cfosection302certifica.htm
EX-32 section906certificatio.htm

Healthcare Services Group Earnings 2019-03-31

HCSG 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

HEALTHCARE SERVICES GROUP INC10-QMar 31, 2019FALSE2019Q1Large Accelerated 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Washington, D.C. 20549
Form 10-Q

(Mark One)
For the quarterly period ended March 31, 2019
For the transition period from                 to                    

Commission file number: 0-12015

(Exact name of registrant as specified in its charter)
Pennsylvania 23-2018365
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer Identification No.)
3220 Tillman Drive, Suite 300, Bensalem, PA 19020
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code:
(215) 639-4274

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES  þ    NO  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES  þ    NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filerþAccelerated filero
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act¨  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES  ¨    NO  þ

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. Common Stock, $.01 par value: 74,074,000 shares outstanding as of May 1, 2019.

Healthcare Services Group, Inc.
Quarterly Report on Form 10-Q
For the Period Ended March 31, 2019



Table of Contents

This report and documents incorporated by reference into it may contain 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, which are not historical facts but rather are based on current expectations, estimates and projections about our business and industry, and our beliefs and assumptions. Words such as “believes,” “anticipates,” “plans,” “expects,” “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 healthcare industry, primarily providers of long-term care; having a significant portion of our consolidated revenues contributed by one customer during the three months ended March 31, 2019; credit and collection risks associated with the healthcare industry; risks associated with the ongoing Securities and Exchange Commission investigation into our earnings per share calculation practices and related litigation; our claims experience related to workers’ compensation and general liability insurance; the effects of changes in, or interpretations of laws and regulations governing the healthcare industry, our workforce and services provided, including state and local regulations pertaining to the taxability of our services and other labor-related matters such as minimum wage increases; the Company's expectations with respect to selling, general, and administrative expense; continued realization of tax benefits arising from our corporate reorganization and self-funded health insurance program; risks associated with the reorganization of our corporate structure; realization of our expectations regarding the impact of the Tax Cuts and Jobs Act on our tax rates and financial results; and the risk factors described in Part I of our Form 10-K for the fiscal year ended December 31, 2018 under “Government Regulation of Clients,” “Competition” and “Service Agreements and Collections,” under Item IA. “Risk Factors” in such Form 10-K and under Item IA. "Risk Factors" in this Form 10-Q.

These factors, in addition to delays in payments from clients and/or clients in bankruptcy or clients with which we are in litigation to collect payment, 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 (including the impact of potential tariffs) could not be passed on to our clients.

In addition, we believe that to improve our financial performance we must continue to obtain service agreements with new clients, retain and 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 the successful execution of our projected growth strategies. 

Table of Contents
Item 1. Financial Statements (Unaudited)
Healthcare Services Group, Inc.
Consolidated Balance Sheets
(in thousands, except per share amounts)
March 31,
December 31,
Current assets:
Cash and cash equivalents$28,362 $26,025 
Marketable securities, at fair value78,508 76,362 
Accounts and notes receivable, less allowance for doubtful accounts of $58,630 and $47,209 as of March 31, 2019 and December 31, 2018, respectively353,106 341,838 
Inventories and supplies40,982 41,443 
Prepaid expenses and other assets24,048 22,468 
Total current assets525,006 508,136 
Property and equipment, net30,077 12,900 
Goodwill51,084 51,084 
Other intangible assets, less accumulated amortization of $18,257 and $17,216 as of March 31, 2019 and December 31, 2018, respectively25,477 26,518 
Notes receivable – long–term portion, less allowance for doubtful accounts of $10,000 as of March 31, 2019 and December 31, 201839,291 43,043 
Deferred compensation funding, at fair value31,812 29,113 
Deferred income taxes20,177 20,552 
Other noncurrent assets 1,257 
Total assets$722,924 $692,603 
Current liabilities:
Accounts payable$60,254 $61,467 
Accrued payroll, accrued and withheld payroll taxes51,359 35,198 
Other accrued expenses10,740 8,890 
Borrowings under line of credit30,000 30,000 
Income taxes payable1,410 7,140 
Accrued insurance claims21,719 20,696 
Total current liabilities175,482 163,391 
Accrued insurance claims — long-term portion60,680 58,904 
Deferred compensation liability31,909 29,528 
Lease liability - long-term portion 12,304 — 
Commitments and contingencies (Note 15)
Common stock, $.01 par value; 100,000 shares authorized; 75,465 and 75,344 shares issued, and 74,058 and 73,877 shares outstanding as of March 31, 2019 and December 31, 2018, respectively755 753 
Additional paid-in capital264,936 259,440 
Retained earnings184,592 190,092 
Accumulated other comprehensive income, net of taxes1,574 158 
Common stock in treasury, at cost, 1,407 and 1,467 shares as of March 31, 2019 and December 31, 2018, respectively(9,308)(9,663)
Total stockholders’ equity442,549 440,780 
Total liabilities and stockholders’ equity$722,924 $692,603 
See accompanying notes.

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Healthcare Services Group, Inc.
Consolidated Statements of Comprehensive Income
(in thousands, except per share amounts)

Three Months Ended March 31,
2019 2018 
Revenues$476,111 $500,562 
Operating costs and expenses:
Costs of services provided427,265 469,252 
Selling, general and administrative expense41,101 33,777 
Other income (expense):
Investment and other income, net5,203 1,796 
Interest expense(1,056)(724)
Income (loss) before income taxes11,892 (1,395)
Income tax provision (benefit)2,736 (1,467)
Net income$9,156 $72 
Per share data:
Basic earnings per common share$0.12 $0.00 
Diluted earnings per common share$0.12 $0.00 
Weighted average number of common shares outstanding:
Basic74,301 73,913 
Diluted74,719 74,725 
Comprehensive income:
Net income$9,156 $72 
Other comprehensive income:
Unrealized gain (loss) on available-for-sale marketable securities, net of taxes1,416 (1,138)
Total comprehensive income (loss)$10,572 $(1,066)

See accompanying notes.


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Healthcare Services Group, Inc.
Consolidated Statements of Cash Flows
(in thousands)
 Three Months Ended March 31,
 2019 2018 
Cash flows from operating activities:
Net income$9,156 $72 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization3,489 2,410 
Bad debt provision18,470 37,137 
Stock-based compensation expense1,838 1,569 
Amortization of premium on marketable securities382 339 
Unrealized gain on deferred compensation fund investments(3,445)(300)
Changes in operating assets and liabilities:
Accounts and notes receivable(25,986)(16,769)
Inventories and supplies300 119 
Prepaid expenses and other assets(323)(3,483)
Deferred compensation funding744 (259)
Accounts payable and other accrued expenses(5,322)(5,478)
Accrued payroll, accrued and withheld payroll taxes18,465 18,546 
Income taxes payable(5,730)(14,439)
Accrued insurance claims2,622 3,443 
Deferred compensation liability2,917 1,024 
Net cash provided by operating activities17,577 23,931 
Cash flows from investing activities:
Disposals of fixed assets64 63 
Additions to property and equipment(1,336)(1,335)
Purchases of marketable securities(4,277)(5,397)
Sales of marketable securities3,539 2,467 
Net cash used in investing activities(2,010)(4,202)
Cash flows from financing activities:
Dividends paid(14,588)(14,149)
Reissuance of treasury stock pursuant to Dividend Reinvestment Plan24 24 
Proceeds from the exercise of stock options1,913 5,005 
Net repayments from short-term borrowings (9,382)
Payments of statutory withholding on net issuance of restricted stock units(579)(295)
Net cash used in financing activities(13,230)(18,797)
Net change in cash and cash equivalents2,337 932 
Cash and cash equivalents at beginning of the period26,025 9,557 
Cash and cash equivalents at end of the period$28,362 $10,489 

See accompanying notes.

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Healthcare Services Group, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands)

For the three months ended March 31, 2019
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income, net of taxesRetained EarningsTreasury StockStockholders’ Equity
Balance, December 31, 201875,344 $753 $259,440 $158 $190,092 $(9,663)$440,780 
Comprehensive income:
Net income for the period— — — — 9,156 — 9,156 
Unrealized gain on available-for-sale marketable securities, net of taxes— — — 1,416 — — 1,416 
Comprehensive income for the period— — — — — — $10,572 
Exercise of stock options and other stock-based compensation, net of shares tendered for payment115 2 1,911 — — — 1,913 
Payment of statutory withholding on issuance of restricted stock and restricted stock units— — (579)— — — (579)
Share-based compensation expense — stock options, restricted stock and restricted stock units— — 1,656 — — — 1,656 
Treasury shares issued for Deferred Compensation Plan funding and redemptions— — 535 — — 1 536 
Shares issued pursuant to Employee Stock Plan— — 1,781 — — 349 2,130 
Dividends paid and accrued— — — — (14,656)— (14,656)
Shares issued pursuant to Dividend Reinvestment Plan— — 18 — — 5 23 
Other6 — 174 — — — 174 
Balance, March 31, 201975,465 $755 $264,936 $1,574 $184,592 $(9,308)$442,549 


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For the three months ended March 31, 2018
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss), net of taxesRetained EarningsTreasury StockStockholders’ Equity
Balance, December 31, 201774,960 $750 $244,363 $837 $163,860 $(9,858)$399,952 
Comprehensive income:
Net income for the period— — — — 72 — 72 
Unrealized loss on available-for-sale marketable securities, net of taxes— — — (1,138)— — (1,138)
Comprehensive loss for the period$(1,066)
Exercise of stock options and other stock-based compensation, net of shares tendered for payment205 2 5,003 — — — 5,005 
Payment of statutory withholding on issuance of restricted stock and restricted stock units— — (295)— — — (295)
Share-based compensation expense — stock options, restricted stock and restricted stock units— — 1,408 — — — 1,408 
Treasury shares issued for Deferred Compensation Plan funding and redemptions— — 514 — — (34)480 
Shares issued pursuant to Employee Stock Plan— — 2,474 — — 346 2,820 
Dividends paid and accrued— — — — (14,189)— (14,189)
Shares issued pursuant to Dividend Reinvestment Plan— — 20 — — 4 24 
Other4 — 205 — — — 205 
Balance, March 31, 201875,169 $752 $253,692 $(301)$149,743 $(9,542)$394,344 

See accompanying notes.

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Healthcare Services Group, Inc.
Notes to Consolidated Financial Statements

Note 1—Description of Business and Significant Accounting Policies

Nature of Operations

Healthcare Services Group, Inc. (the “Company”) provides management, administrative and operating expertise and services to the housekeeping, laundry, linen, facility maintenance and dietary service departments of the healthcare industry, including nursing homes, retirement complexes, rehabilitation centers and hospitals located throughout the United States. Although the Company does not directly participate in any government reimbursement programs, the Company’s clients receive government reimbursements related to Medicare and Medicaid. Therefore, they are directly affected by any legislation relating to Medicare and Medicaid reimbursement programs.

The Company provides services primarily pursuant to full service agreements with its clients. In such agreements, the Company is responsible for the day-to-day management of employees located at the clients’ facilities. The Company also provides services on the basis of management-only agreements for a limited number of clients. The agreements with clients typically provide for renewable one year service terms, cancellable by either party upon 30 to 90 days’ notice after an initial period of 60 to 120 days.

The Company is organized into two reportable segments: housekeeping, laundry, linen and other services (“Housekeeping”), and dietary department services (“Dietary”).

Housekeeping consists of managing the clients’ housekeeping departments, which are principally responsible for the cleaning, disinfecting and sanitizing of resident rooms and common areas of a client’s facility, as well as the laundering and processing of the bed linens, uniforms, resident personal clothing and other assorted linen items utilized at a client facility.

Dietary consists of managing the clients’ dietary departments, which are principally responsible for food purchasing, meal preparation and dietitian professional services, which includes the development of menus that meet residents’ dietary needs.

Unaudited Interim Financial Data

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, these consolidated financial statements do not include all of the information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows. However, in the Company’s opinion, all adjustments which are of a normal recurring nature and are necessary for a fair presentation have been reflected in these consolidated financial statements. The balance sheet shown in this report as of December 31, 2018 has been derived from, and does not include all of, the disclosures contained in the financial statements for the year ended December 31, 2018. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for any future period.

Use of Estimates in Financial Statements

In preparing financial statements in conformity with U.S. GAAP, estimates and assumptions are made that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Significant estimates are used in determining, but are not limited to, the Company’s allowance for doubtful accounts, accrued insurance claims, valuations, deferred taxes and reviews for potential impairment. The estimates are based upon various factors including current and historical trends, as well as other pertinent industry and regulatory authority information. Management regularly evaluates this information to determine if it is necessary to update the basis for its estimates and to adjust for known changes.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Healthcare Services Group, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.


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Cash and Cash Equivalents

Cash and cash equivalents are held in U.S. financial institutions or in custodial accounts with U.S. financial institutions. Cash equivalents are defined as short-term, highly liquid investments with a maturity of three months or less at time of purchase that are readily convertible into cash and have insignificant interest rate risk.

Accounts and Notes Receivable

Accounts and notes receivable consist of Housekeeping and Dietary segment receivables from contracts with customers. Accounts receivable initially are recorded at the transaction amount, and are recorded after the Company has an unconditional right to payment where only the passage of time is required before payment is received. Each reporting period, the Company evaluates the collectability of outstanding receivable balances and records an allowance for doubtful accounts representing an estimate of probable losses. Additions to the allowance for doubtful accounts are made by recording a charge to bad debt expense reported in costs of services provided.

Notes receivable are initially recorded when accounts receivable are transferred into a promissory note. Notes receivable are recorded as an alternative to accounts receivable to memorialize an unqualified promise to pay a specific sum, typically with interest, in accordance with a defined payment schedule.

Refer to Note 3—Accounts and Notes Receivable herein for further information.

Inventories and Supplies

Inventories and supplies include housekeeping, linen and laundry supplies, as well as food provisions and supplies. Non-linen inventories and supplies are stated at cost to approximate a first-in, first-out (FIFO) basis. Linen supplies are amortized on a straight-line basis over their estimated useful life of 24 months.

Revenue Recognition

The Company recognizes revenue from service agreements with customers when or as the promised goods and services are provided to customers. Revenues are reported net of sales taxes that are collected from customers and remitted to taxing authorities.

The guidance under the Financial Accounting Standards Board ("FASB") Accounting Standards Codification subtopic 606 Revenue from Contracts with Customers ("ASC 606") became effective and was adopted by the Company as of January 1, 2018 by applying the modified retrospective method for contracts that were not completed as of January 1, 2018. The standard requires the Company to recognize revenue as the promised goods and services within the terms of the Company’s contracts are performed and satisfied. The amount of revenue recognized by the Company is based on the consideration to which the Company expects to be entitled in exchange for providing the contracted goods and services. The adoption of this standard did not have a material impact on the Company's accounting for revenue earned relating to the Housekeeping and Dietary segments. The Company also did not recognize an opening adjustment to retained earnings as a result of the adoption of the standard. Refer to Note 2—Revenue herein for further information.


The guidance under FASB Accounting Standards Codification subtopic ASC 842 Leases (“ASC 842”) became effective and was adopted by the Company as of January 1, 2019, by applying a modified retrospective transition approach which resulted in the capitalization of the Company's existing operating leases as of January 1, 2019. As such, the Company records assets and liabilities on the balance sheet to recognize the rights and obligations arising from leasing arrangements with contractual terms greater than twelve (12) months, as permitted by U.S. GAAP. A leasing arrangement includes any contract which entitles the Company to the right of use of an identified tangible asset where there are no restrictions as to the direct of use of the asset, and the Company obtains substantially all of the economic benefits from the right of use. As of March 31, 2019 and December 31, 2018, the Company was only the lessee of operating lease arrangements.

The Company did not recognize an opening adjustment to retained earnings as a result of the adoption of ASC 842, and prior period amounts continue to be reported in accordance with previous guidance. 
Refer to Note 7—Leases herein for further information.


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Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Under this method, income tax expense or benefits are recognized for the amount of taxes payable or refundable for the current period. The Company accrues for probable tax obligations as required, based on facts and circumstances in various regulatory environments. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. When appropriate, valuation allowances are recorded to reduce deferred tax assets to amounts for which realization is more likely than not.

Uncertain income tax positions taken or expected to be taken in tax returns are reflected within the Company’s financial statements based on a recognition and measurement process.

Earnings per Common Share

Basic earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is computed using the weighted-average number of common shares outstanding and dilutive common shares, such as those issuable upon exercise of stock options and upon the vesting of restricted stock and restricted stock units.

Share-Based Compensation

The Company estimates the fair value of share-based awards on the date of grant using the Black-Scholes valuation model for stock options and using the share price on the date of grant for restricted stock and restricted stock units. The value of the award is recognized ratably as an expense in the Company’s Consolidated Statements of Comprehensive Income over the requisite service periods, with adjustments made for forfeitures as they occur.

Identifiable Intangible Assets and Goodwill

Identifiable intangible assets are amortized on a straight-line basis over their respective lives. Goodwill represents the excess of cost over the fair value of net assets of acquired businesses. Management reviews the carrying value of goodwill annually during the fourth quarter to assess for impairment, or more often if events or circumstances indicate that the carrying value may exceed its estimated fair value. No impairment loss was recognized on the Company’s intangible assets or goodwill during the three months ended March 31, 2019.


Certain prior period amounts have been reclassified to conform to current year presentation. The Company has modified its presentation of interest expense, which is now presented separately in the Consolidated Statements of Comprehensive Income.

Correction of Immaterial Errors

In the first quarter of 2019, the Company updated its presentation of the tax benefit from equity compensation plans in the Consolidated Statements of Cash Flows. The tax benefit from equity compensation plans is now reflected as a component of the change in income taxes payable, as opposed to an offset to stock-based compensation expense. There was no impact to the Company's net cash provided by operating activities as a result of the correction in the Consolidated Statement of Cash Flows. Additionally, the Company updated its presentation of the income and costs associated with the Company's wholly-owned captive insurance company. Historically, such income and costs were reflected in the Company's revenues and costs of services provided within the Housekeeping segment. Such income and costs are now presented in "Investment and other income, net" in the Consolidated Statements of Comprehensive Income and for segment reporting purposes, those amounts are reflected in Corporate and eliminations. Prior period information has been revised to reflect the changes, which resulted in a $1.2 million and $0.7 million reduction of revenue and costs of services, respectively, in the first quarter 2018 Consolidated Statement of Comprehensive Income, with a corresponding increase of $0.5 million to Investment and other income, net. There was no impact to the Company's net income as a result of the historical errors or the corrections. 


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Concentrations of Credit Risk

The Company's financial instruments that are subject to credit risk are cash and cash equivalents, marketable securities, deferred compensation funding and accounts and notes receivable. At March 31, 2019 and December 31, 2018, substantially all of the Company’s cash and cash equivalents and marketable securities were held in one large financial institution located in the United States. The Company’s marketable securities are fixed income investments which are highly liquid and can be readily purchased or sold through established markets.

The Company’s clients are concentrated in the healthcare industry and are primarily providers of long-term care. The revenues of many of the Company’s clients are highly reliant on Medicare, Medicaid and third party payors’ reimbursement funding rates. New legislation or changes in existing regulations could directly impact the governmental reimbursement programs in which the clients participate. As a result, the Company may not realize the full effects of such programs until these laws are fully implemented and governmental agencies issue applicable regulations or guidance.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments ("ASC 326"). The standard significantly changes how entities will measure credit losses for most financial assets, including accounts and notes receivables. The standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The standard is effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently assessing the impact of adopting this standard on the Company’s financial statements and related disclosures.

Note 2—Revenue

The Company presents its consolidated revenues disaggregated by reportable segment, as Management evaluates the nature, amount, timing and uncertainty of the Company’s revenues by segment. Refer to Note 13—Segment Information herein as well as the information below regarding the Company’s reportable segments.


Housekeeping accounted for $233.1 million and $245.2 million of the Company’s consolidated revenues for the three months ended March 31, 2019 and 2018, respectively, which represented approximately 49.0% of the Company's revenues in each period. The services provided under this segment include managing clients’ housekeeping departments, which are principally responsible for the cleaning, disinfecting and sanitizing of resident rooms and common areas of the clients’ facilities, as well as the laundering and processing of the bed linens, uniforms, resident personal clothing and other assorted linen items utilized at the clients’ facilities. Upon beginning service with a client facility, the Company typically hire and train the employees previously employed by such facility and assign an on-site manager to supervise and train the front-line personnel and coordinate housekeeping services with other facility support functions in accordance with client requests. Such management personnel also oversee the execution of various cost and quality control procedures including continuous training and employee evaluation, and on-site testing for infection control.


Dietary services accounted for $243.0 million and $255.4 million of the Company’s consolidated revenues for the three months ended March 31, 2019 and 2018, respectively, which represented approximately 51.0% of the Company's revenues in each period. Dietary services consist of managing clients’ dietary departments which are principally responsible for food purchasing, meal preparation and professional dietitian services, which include the development of menus that meet the dietary needs of residents. On-site management is responsible for all daily dietary department activities, with regular support being provided by a District Manager specializing in dietary services, as well as a registered dietitian. The Company also offers clinical consulting services to facilities which if contracted is a service bundled within the monthly service provided to clients. Upon beginning service with a client facility, the Company typically hire and train the employees previously employed by such facility and assign an on-site manager to supervise and train the front-line personnel and coordinate dietitian services with other facility support functions in accordance with client requests. Such management personnel also oversee the execution of various cost- and quality-control procedures including continuous training and employee evaluation.


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Revenue Recognition

All of the Company's revenues are derived from contracts with customers. The Company accounts for revenue from contracts with customers in accordance with ASC 606, and as such, the Company recognizes revenue to depict the transfer of promised goods and services to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods and services. The Company’s costs of obtaining contracts are not material.

The Company performs services and provides goods in accordance with its service agreement contracts with its customers. Such service agreement contracts typically provide for a renewable one year service term, cancellable by either party upon 30 to 90 days' notice, after an initial period of 60 to 120 days. A performance obligation is the unit of account under ASC 606 and is defined as a promise in a contract to transfer a distinct good or service to the customer ASC 606. The Company’s Housekeeping and Dietary contracts relate to the provision of bundles of goods, services or both, which represent a series of distinct goods and services and that are substantially the same and that have the same pattern of transfer to the customer. The Company accounts for the series as a single performance obligation satisfied over time, as the customer simultaneously receives and consumes the benefits of the goods and services provided. Revenue is recognized using the output method, which is based upon the delivery of goods and services to the clients’ facilities. In limited cases, the Company provides goods, services or both, before the execution of a written contract. In these cases, the Company defers the recognition of revenue until a contract is executed. The amount of such deferred revenue was not material as of March 31, 2019 and December 31, 2018. Additionally, all such revenue amounts deferred as of December 31, 2018 were subsequently recognized as revenue during the three months ended March 31, 2019. 

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to its customers. The transaction price does not include taxes assessed or collected. The Company’s contracts detail the fees that the Company charges for the goods and services it provides. For certain contracts which contain a variable component to the transaction price, the Company is required to make estimates of the amount of consideration to which the Company will be entitled, based on variability in resident and patient populations serviced, product usage or quantities consumed. The Company recognizes revenue related to such estimates only when Management determines that there will not be a significant reversal in the amount of revenue recognized. The Company’s contracts generally do not contain significant financing components, as the contracts contain payment terms that are less than one year.

The Company allocates the transaction price to each performance obligation, noting that the bundle of goods, services or goods and services provided under each Housekeeping and Dietary contract represents a single performance obligation that is satisfied over time. The Company recognizes the related revenue when it satisfies the performance obligation by transferring a bundle of promised goods, services or both to a customer. Such recognition is on a monthly or weekly basis, as goods are provided and services are performed. In some cases, the Company requires customers to pay in advance for goods and services to be provided. As of March 31, 2019 and December 31, 2018, the value of the contract liabilities associated with customer prepayments was not material. Additionally, all such revenue amounts deferred as of December 31, 2018 were subsequently recognized as revenue during the three months ended March 31, 2019.

Transaction Price Allocated to Remaining Performance Obligations

The Company recognizes revenue as it satisfies the performance obligations associated with contracts with customers, which due to the nature of the goods and services provided by the Company, are satisfied over time. Contract's may contain transaction prices that are fixed, variable or both. The significant majority of the Company’s contracts with customers have an initial term of one year or less, with renewable one year service terms, cancellable by either party upon 30 to 90 days' notice after an initial period of 60 to 120 days. For the purpose of disclosing the transaction price allocated to remaining performance obligations, the Company elected to apply practical expedients available under the guidance in ASC 606 to exclude from the calculation future revenues related to contracts with variable consideration that are for a term of one year or less. As of March 31, 2019, the revenue expected to be recognized for the fixed transaction price associated with the remaining performance obligations under the Company’s existing contracts with a term greater than one year is $135.7 million for the remainder of 2019, $181.0 million for 2020, $181.0 million for 2021, $181.0 million for 2022, $181.0 million for 2023 and $30.2 million thereafter.


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Note 3—Accounts and Notes Receivable

The Company’s accounts and notes receivable balances consisted of the following as of March 31, 2019 and December 31, 2018:
March 31, 2019December 31, 2018
(in thousands)
Accounts and notes receivable$411,736 $389,047 
Allowance for doubtful accounts(58,630)(47,209)
Total net short-term accounts and notes receivable$353,106 $341,838 
Notes receivable$49,291 $53,043 
Allowance for doubtful accounts(10,000)(10,000)
Total net long-term notes receivable$39,291 $43,043 
Total net accounts and notes receivable$392,397 $384,881 

The Company makes credit decisions on a case-by-case basis after reviewing a number of qualitative and quantitative factors related to the specific client as well as current industry variables that may impact that client. There are a variety of factors that impact a client’s ability to pay in accordance with the Company’s service agreements. These factors include, but are not limited to, fluctuating census numbers, litigation costs and the client’s participation in programs funded by federal and state governmental agencies. Deviations in the timing or amounts of reimbursements under those programs can impact the client’s cash flows and their ability to make timely payments. However, the client's obligation to pay the Company in accordance with the service agreements are not contingent upon the client’s cash flows. Notwithstanding the Company’s efforts to minimize its credit risk exposure, the aforementioned factors, as well as other factors that impact client cash flows or ability to make timely payments, could have an indirect, yet material adverse effect on the Company’s results of operations and financial condition.

The Company’s net current accounts and notes receivable balance increased from December 31, 2018. Fluctuations in net accounts and notes receivable are generally attributable to a variety of factors including, but not limited to, the timing of cash receipts from customers and the inception, transition or termination of client relationships. The Company deploys significant resources and has invested in tools and processes to optimize Management’s credit and collections efforts. When appropriate, the Company utilizes interest-bearing promissory notes as an alternative to accounts receivable to enhance the collectability of amounts due, by instituting definitive repayment plans and providing a means by which to further evidence the amounts owed. As of March 31, 2019 and December 31, 2018, the Company had promissory notes outstanding $57.2 million and $63.3 million, respectively, net of reserves. In addition, the Company may assist clients who are adjusting to changes in their cash flows by amending the Company’s agreements from full-service to management-only arrangements, or by modifying contractual payment terms to accommodate clients who have in good faith established clearly-defined plans for addressing cash flow issues. These efforts are intended to minimize the Company’s collections risk while maintaining relationships with the clients.

Note 4—Allowance for Doubtful Accounts

The allowance for doubtful accounts is established when the Company determines that it is probable that receivables have been impaired and the Company can reasonably estimate the amount of the losses. The related provision for bad debts is charged to costs of services provided in the Company’s Consolidated Statements of Comprehensive Income. The allowance for doubtful accounts is evaluated based on the Company’s ongoing review of accounts and notes receivable and is inherently subjective as it requires estimates susceptible to significant revision as more information becomes available.

The Company has had varying collections experience with respect to its accounts and notes receivable. The Company has sometimes extended the period of payment for certain clients beyond contractual terms. In order to provide for such collection issues and the general risk associated with the granting of credit terms, the Company recorded bad debt provisions (in Allowance for Doubtful Accounts) of $18.5 million and $37.1 million for the three months ended March 31, 2019 and 2018, respectively. The increase in the allowance for the first quarter 2019 over the Company's normal bad debt provision is related primarily to the restructuring of a Northeast based operator. The decrease in the provision for bad debts period-over-period is primarily related to the provision recognized in the first quarter 2018 related to the corporate restructurings of two privately-held, multi-state operators.


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In making the credit evaluations, in addition to analyzing and anticipating, where possible, the specific cases described above, Management considers the general collection risk associated with trends in the long-term care industry. The Company establishes credit limits, performs ongoing credit evaluations and monitors accounts to minimize the risk of loss. Despite the Company’s efforts to minimize credit risk exposure, clients could be adversely affected if future industry trends change in such a manner as to negatively impact their cash flows. If the Company’s clients experience a negative impact on their cash flows, it could have a material adverse effect on the Company’s consolidated results of operations and financial condition.

Note 5—Changes in Accumulated Other Comprehensive Income by Component

Accumulated other comprehensive income consists of unrealized gains and losses from the Company’s available-for-sale marketable securities. The following table provides a summary of the changes in accumulated other comprehensive income for the three months ended March 31, 2019 and 2018:
Unrealized Gains and Losses on Available-for-Sale Securities1
Three Months Ended March 31,
2019 2018 
(in thousands) 
Accumulated other comprehensive income — beginning balance$158 $837 
Other comprehensive income (loss) before reclassifications1,419 (1,208)
(Gains) losses reclassified from other comprehensive income2
Net current period other comprehensive income (loss)3
1,416 (1,138)
Accumulated other comprehensive income (loss) — ending balance$1,574 $(301)
1.All amounts are net of tax
2.Realized gains and losses were recorded pre-tax under “Investment and other income” in our Consolidated Statements of Comprehensive Income. For the three months ended March 31, 2019, the Company recorded less than $0.1 million of realized gains from the sale of available-for-sale securities. For the three months ended March 31, 2018, the Company recorded $0.1 million of realized losses from the sale of available-for-sale securities. Refer to Note 9—Fair Value Measurements herein for further information.
3.For the three months ended March 31, 2019 and 2018, the changes in other comprehensive income (loss) were net of a tax expense of $0.4 million and a benefit of $0.3 million, respectively.

Amounts Reclassified from Accumulated Other Comprehensive Income
2019 2018 
(in thousands) 
Three Months Ended March 31,
Gains (losses) from the sale of available-for-sale securities$4 $(89)
Tax (expense) benefit(1)19 
Net gain (loss) reclassified from accumulated other comprehensive income (expense)$3 $(70)

Note 6—Property and Equipment

Property and equipment are recorded at cost. Depreciation is recorded over the estimated useful life of each class of depreciable asset, and is computed using the straight-line method. Leasehold improvements are amortized over the shorter of the estimated asset life or term of the lease. Repairs and maintenance costs are charged to expense as incurred.


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The following table sets forth the amounts of property and equipment by each class of depreciable asset as of March 31, 2019 and December 31, 2018:
March 31, 2019 1
December 31, 2018
(in thousands) 
Housekeeping and Dietary equipment$23,251 $22,596 
Computer hardware and software12,413 12,114 
Operating lease - right-of-use assets18,137 — 
Other 2
1,370 920 
Total property and equipment, at cost55,171 35,630 
Less accumulated depreciation25,094 22,730 
Total property and equipment, net$30,077 $12,900 
1.Upon the adoption of ASC 842 the Company recognized right of use assets pertaining to leases in Property and Equipment, net. Prior period amounts continue to be reported in accordance with previous guidance.
2.Includes furniture and fixtures, leasehold improvements and autos and trucks including auto leases.

Depreciation expense for the three months ended March 31, 2019 and 2018 was $2.4 million and $1.3 million, respectively. Of the depreciation expense recorded for the three months ended March 31, 2019, $1.2 million related to the depreciation of the Company's operating lease - right-of-use assets.   

Note 7—Leases

The Company recognizes right-of-use assets (“ROU Assets”) and lease liabilities (“Lease Liabilities”) for automobiles, office buildings, IT equipment, and small storage units for the temporary storage of operational equipment. The Company's leases have remaining lease terms ranging from less than 1 year to 10 years, and have extension options ranging from 1 year to 5 years. Most leases include the option to terminate the lease within 1 year.

Upon adopting ASC 842, the Company made accounting policy elections using practical expedients offered under the guidance to combine lease and non-lease components within leasing arrangements and to recognize the payments associated with short-term leases in earnings on a straight-line basis over the lease term, with the cost associated with variable lease payments recognized when incurred. These accounting policy elections impact the value of the Company’s ROU Assets and Lease Liabilities. The value of the Company’s ROU Assets is determined as the non-depreciated fair value of its leasing arrangements and is recorded to property and equipment, net on the Company's Consolidated Balance Sheet. The value of the Company’s Lease Liabilities is the present value of fixed lease payments not yet paid, discounted using either the rate implicit in the lease contract if that rate can be determined, or the Company’s incremental borrowing rate ("IBR") and is recorded in Other accrued expenses and Lease liabilities - long-term portion on the Company's Consolidated Balance Sheet. Any future lease payments that are not fixed based on the terms of the lease contract, or fluctuate based on a factor other than an index or rate, are considered variable lease payments and are not included in the value of the Company's ROU Assets or Lease Liabilities. The Company's IBR is determined as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

Components of lease expense as well as supplemental information required by ASC 842 are presented below for the three months ended March 31, 2019.


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Three Months Ended March 31, 2019
(in thousands)
Lease cost 1
Operating lease cost$1,214 
Short-term lease cost221 
Variable lease cost153 
Total lease cost$1,588 
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$1,307 
Weighted-average remaining lease term — operating leases6.9 years
Weighted-average discount rate — operating leases4.7 %

1.ASC 842 was adopted as of January 1, 2019. As such, prior period numbers remain unadjusted and in accordance with prior U.S. GAAP. Lease expense for the three months ended March 31, 2018 was $0.9 million.

During the three months ended March 31, 2019, the Company's ROU Assets and Lease Liabilities were both reduced by $0.1 million due to lease cancellations which are accounted for as noncash transactions.

The following is a schedule by calendar year of future minimum lease payments under operating leases that have remaining terms as of March 31, 2019: 

Period/YearOperating Leases
(in thousands)
April 1 to December 31, 2019$3,822 
Total minimum lease payments$20,121 

Note 8—Other Intangible Assets

The Company’s other intangible assets consist of customer relationships which were obtained through acquisitions and are recorded at their fair values at the date of acquisition. Intangible assets with determinable lives are amortized on a straight-line basis over their estimated useful lives. The customer relationships have a weighted-average amortization period of approximately 10 years.


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The following table sets forth the estimated amortization expense for intangibles subject to amortization for the remainder of 2019, the following five fiscal years and thereafter:

Period/YearTotal Amortization Expense
(in thousands) 
April 1 to December 31, 2019$3,124 
2020 $4,165 
2021 $4,165 
2022 $4,165 
2023 $3,168 

Amortization expense for the three months ended March 31, 2019 and 2018 was $1.0 million and $1.1 million, respectively.

Note 9—Fair Value Measurements

The Company’s current assets and current liabilities are financial instruments and most of these items (other than marketable securities and inventories) are recorded at cost in the Consolidated Balance Sheets. The estimated fair value of these financial instruments approximates their carrying value due to their short-term nature. The carrying value of the Company’s line of credit represents the outstanding amount of the borrowings, which approximates fair value. The Company’s financial assets that are measured at fair value on a recurring basis are its marketable securities and deferred compensation funding. The recorded values of all of the financial instruments approximate their current fair values because of their nature, stated interest rates and respective maturity dates or durations.

The Company’s marketable securities consist of tax-exempt municipal bonds, which are classified as available-for-sale and are reported at fair value. Unrealized gains and losses associated with these investments are included in other comprehensive income (net of tax) within the Consolidated Statements of Comprehensive Income. The fair value of these marketable securities is classified within Level 2 of the fair value hierarchy, as these securities are measured using quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable. Such valuations are determined by a third-party pricing service. For the three months ended March 31, 2019 and 2018, the Company recorded unrealized gains of $1.4 million and unrealized losses of $1.1 million on marketable securities, respectively.

For the three months ended March 31, 2019 and 2018, the Company received total proceeds, less the amount of interest received, of $3.5 million and $2.4 million, respectively, from sales of available-for-sale municipal bonds. For the three months ended March 31, 2019 and 2018, these sales resulted in realized gains of less than $0.1 million and realized losses of $0.1 million, respectively, which were recorded in “Other income, net – Investment and interest income” in the Consolidated Statements of Comprehensive Income. The basis for the sale of these securities was the specific identification of each bond sold during the period.


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The investments under the funded deferred compensation plan are accounted for as trading securities and unrealized gains or losses are included in earnings. The fair value of these investments are determined based on quoted market prices (Level 1). For the three months ended March 31, 2019 and 2018, the Company's recognized unrealized gains related to equity securities still held at the reporting date of $3.4 million and $0.3 million, respectively. 

The following tables provide fair value measurement information for the Company’s marketable securities and deferred compensation fund investments as of March 31, 2019 and December 31, 2018:

As of March 31, 2019
Fair Value Measurement Using:
Carrying AmountTotal Fair ValueQuoted Prices in Active Markets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
(in thousands)
Financial Assets:
Marketable securities
Municipal bonds — available-for-sale$78,508 $78,508 $ $78,508 $ 
Deferred compensation fund
Money Market 1
$1,793 $1,793 $ $1,793 $ 
Balanced and Lifestyle9,017 9,017 9,017   
Large Cap Growth9,776 9,776 9,776   
Small Cap Growth3,608 3,608 3,608   
Fixed Income3,568 3,568 3,568   
International1,678 1,678 1,678   
Mid Cap Growth2,372 2,372 2,372   
Deferred compensation fund$31,812 $31,812 $30,019 $1,793 $ 


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As of December 31, 2018
Fair Value Measurement Using:
Total Fair
Quoted Prices in Active Markets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
(in thousands)
Financial Assets:
Marketable securities
Municipal bonds — available-for-sale$76,362 $76,362 $ $76,362 $ 
Deferred compensation fund
Money Market 1
$2,529 $2,529 $ $2,529 $ 
Balanced and Lifestyle8,265 8,265 8,265   
Large Cap Growth8,195 8,195 8,195   
Small Cap Growth3,217 3,217 3,217   
Fixed Income3,432 3,432 3,432   
International1,485 1,485 1,485   
Mid Cap Growth1,990 1,990 1,990   
Deferred compensation fund$29,113 $29,113 $26,584 $2,529 $ 
1.The fair value of the money market fund is based on the net asset value (“NAV”) of the shares held by the plan at the end of the period. The money market fund includes short-term United States dollar denominated money market instruments and the NAV is determined by the custodian of the fund. The money market fund can be redeemed at its NAV at the measurement date as there are no significant restrictions on the ability to sell this investment.

Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair ValueOther-than-temporary Impairments
(in thousands)
March 31, 2019
Type of security:
Municipal bonds — available-for-sale$76,516 $2,092 $(100)$78,508 $ 
Total debt securities$76,516 $2,092 $(100)$78,508 $ 
December 31, 2018
Type of security: