HEALTHCARE SERVICES GROUP INC [HCSG] Filings

10-Q 1 hcsg-20240630.htm 10-Q hcsg-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 0-12015

HEALTHCARE SERVICES GROUP, INC.

(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, Pennsylvania

(Address of principal executive office)

19020

(Zip Code)

Registrant’s telephone number, including area code:

(215) 639-4274

Former name, former address and former ﬁscal year, if changed since last report:

Not Applicable

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	HCSG	Nasdaq Global Select Market

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 filer

Accelerated filer

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Non-accelerated filer

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Smaller reporting company

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Emerging growth company

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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, $0.01 par value: 73,383,184 shares outstanding as of July 24, 2024.

Healthcare Services Group, Inc.

Quarterly Report on Form 10-Q

For the Period Ended June 30, 2024

TABLE OF CONTENTS


		Page
PART I
Item 1.	Financial Statements (Unaudited)	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39

PART II
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42

SIGNATURES		43

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report and documents incorporated by reference into it may contain forward-looking statements within the meaning of federal securities laws, 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,” “estimates,” “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 to the healthcare industry and primarily providers of long-term care; the impact of and future effects of the COVID-19 pandemic or other potential pandemics; having a significant portion of our consolidated revenues contributed by one customer during the six months ended June 30, 2024; credit and collection risks associated with the healthcare industry; the impact of bank failures; our claims experience related to workers’ compensation and general liability insurance (including any litigation claims, enforcement actions, regulatory actions and investigations arising from personal injury and loss of life related to COVID-19); 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; and the risk factors described in Part I of our Form 10-K for the fiscal year ended December 31, 2023 under “Government Regulation of Customers,” “Service Agreements and Collections,” and “Competition” and under Item 1A. “Risk Factors” in such Form 10-K.

These factors, in addition to delays in payments from customers and/or customers in bankruptcy, 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 by continued inflation particularly if increases in the costs of labor and labor-related costs, materials, supplies and equipment used in performing services (including the impact of potential tariffs and COVID-19) cannot be passed on to our customers.

In addition, we believe that to improve our financial performance we must continue to obtain service agreements with new customers, retain and provide new services to existing customers, achieve modest price increases on current service agreements with existing customers and/or 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. There can be no assurance that we will be successful in that regard.

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Healthcare Services Group, Inc.

Consolidated Balance Sheets

(in thousands, except per share amounts)


	June 30, 2024		December 31, 2023
ASSETS:	(unaudited)
Current assets:
Cash and cash equivalents	$	26,430	$	54,330
Restricted cash equivalents	3,117		—
Marketable securities, at fair value	79,134		93,131
Restricted marketable securities, at fair value	22,022		—
Accounts and notes receivable, less allowance for doubtful accounts of $112,133 and $87,250 as of June 30, 2024 and December 31, 2023, respectively	398,884		383,509
Inventories and supplies	17,857		18,479
Prepaid expenses and other assets	25,768		22,247
Total current assets	573,212		571,696
Property and equipment, net	29,840		28,774
Goodwill	75,529		75,529
Other intangible assets, less accumulated amortization of $37,899 and $36,557 as of June 30, 2024 and December 31, 2023, respectively	10,785		12,127
Notes receivable — long–term portion, less allowance for doubtful accounts of $3,152 and $4,449 as of June 30, 2024 and December 31, 2023, respectively	20,871		24,832
Deferred compensation funding, at fair value	46,043		40,812
Deferred tax assets	38,917		35,226
Other long-term assets	4,505		1,656
Total assets	$	799,702	$	790,652

LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Accounts payable	$	72,220	$	83,224
Accrued payroll and related taxes	57,014		56,142
Other accrued expenses and current liabilities	22,987		21,179
Borrowings under line of credit	30,000		25,000
Income taxes payable	4,279		7,201
Deferred compensation liability — short-term	1,390		1,501
Accrued insurance claims	21,593		22,681
Total current liabilities	209,483		216,928
Accrued insurance claims — long-term	61,209		61,697
Deferred compensation liability — long-term	46,201		41,186


Lease liability — long-term	10,662		11,235
Other long-term liabilities	724		2,990
Commitments and contingencies (Note 15)
STOCKHOLDERS’ EQUITY:
Common stock, $0.01 par value; 200,000 shares authorized; 76,533 and 76,329 shares issued, and 73,383 and 73,341 shares outstanding as of June 30, 2024 and December 31, 2023, respectively	765		763
Additional paid-in capital	314,146		310,436
Retained earnings	198,595		185,010
Accumulated other comprehensive loss, net of taxes	(2,617)		(1,844)
Common stock in treasury, at cost, 3,150 and 2,988 shares as of June 30, 2024 and December 31, 2023, respectively	(39,466)		(37,749)
Total stockholders’ equity	$	471,423	$	456,616
Total liabilities and stockholders’ equity	$	799,702	$	790,652

See accompanying notes to consolidated financial statements.

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Healthcare Services Group, Inc.

Consolidated Statements of Comprehensive (Loss) Income

(in thousands, except per share amounts) (Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenues	$	426,288	$	418,931	$	849,721	$	836,161
Operating costs and expenses:
Costs of services provided	384,742		368,204		743,653		730,583
Selling, general and administrative expense	44,437		41,429		91,348		81,476
Other income (expense):
Investment and other income, net	2,621		3,551		8,320		6,653
Interest expense	(1,716)		(1,915)		(3,712)		(3,666)
(Loss) income before taxes	(1,986)		10,934		19,328		27,089

Income tax (benefit) provision	(198)		2,680		5,807		7,164
Net (loss) income	$	(1,788)	$	8,254	$	13,521	$	19,925

Per share data:
Basic (loss) earnings per common share	$	(0.02)	$	0.11	$	0.18	$	0.27
Diluted (loss) earnings per common share	$	(0.02)	$	0.11	$	0.18	$	0.27


Weighted average number of common shares outstanding:
Basic	73,853		74,478		73,889		74,488
Diluted	73,853		74,567		74,048		74,543

Comprehensive (loss) income:
Net (loss) income	$	(1,788)	$	8,254	$	13,521	$	19,925
Other comprehensive (loss) income
Unrealized (loss) gain on available-for-sale marketable securities, net of taxes	(445)		(860)		(773)		347
Total comprehensive (loss) income	$	(2,233)	$	7,394	$	12,748	$	20,272

See accompanying notes to consolidated financial statements.

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Healthcare Services Group, Inc.

Consolidated Statements of Cash Flows

(in thousands) (Unaudited)


	Six Months Ended June 30,
	2024		2023
Cash flows used in operating activities
Net income	$	13,521	$	19,925
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	7,210		7,315
Bad debt provision	36,643		18,170
Deferred income taxes	(3,485)		42
Share-based compensation expense	4,597		4,409
Amortization of premium on marketable securities	795		1,073
Unrealized gain on deferred compensation fund investments	(5,388)		(3,790)
Changes in other long-term liabilities	(334)		(249)
Net loss on disposals of property and equipment	405		387
Changes in operating assets and liabilities:
Accounts and notes receivable	(48,056)		(59,585)
Inventories and supplies	623		1,188
Prepaid expenses and other assets	(3,491)		7,824
Deferred compensation funding	157		262
Accounts payable and other accrued expenses	(15,695)		(9,337)
Accrued payroll, accrued and withheld payroll taxes	1,862		(461)
Income taxes payable	(2,921)		(4,859)
Accrued insurance claims	(1,576)		5,104
Deferred compensation liability	5,419		3,695
Net cash used in operating activities	(9,714)		(8,887)
Cash flows used in investing activities:
Disposals of property and equipment	150		85
Additions to property and equipment	(3,510)		(2,097)
Acquisition of equity method investment	(2,750)		—
Purchases of marketable securities	(37,880)		—
Sales of marketable securities	27,951		1,375
Net cash used in investing activities	(16,039)		(637)
Cash flows from financing activities:
Purchases of treasury stock	(3,000)		(2,223)
Proceeds from short-term borrowings	5,000		15,000
Payments of statutory withholding on net issuance of restricted stock units	(1,030)		(870)

Net cash from financing activities	970		11,907
Net (decrease) increase in cash, cash equivalents and restricted cash equivalents	(24,783)		2,383
Cash, cash equivalents and restricted cash equivalents at beginning of the period	54,330		26,279
Cash, cash equivalents and restricted cash equivalents at end of the period	$	29,547	$	28,662

See accompanying notes to consolidated financial statements.

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Healthcare Services Group, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands) (Unaudited)


	For the six months ended June 30, 2024
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss, net of taxes		Retained Earnings		Treasury Stock		Stockholders’ Equity
	Shares	Amount
Balance, December 31, 2023	76,329	$	763	$	310,436	$	(1,844)	$	185,010	$	(37,749)	$	456,616
Net income	—	—		—		—		15,309		—		15,309
Unrealized loss on available-for-sale marketable securities, net of taxes	—	—		—		(328)		—		—		(328)
Shares issued in connection with equity incentive plans, net of taxes	204	2		(1,032)		—		—		—		(1,030)
Share-based compensation expense	—	—		2,444		—		—		—		2,444
Shares issued for Deferred Compensation Plan, net	—	—		448		—		—		71		519
Shares issued for Employee Stock Purchase Plan	—	—		(216)		—		—		1,205		989
Other	—	—		—		—		62		—		62
Balance, March 31, 2024	76,533	$	765	$	312,080	$	(2,172)	$	200,381	$	(36,473)	$	474,581
Net loss	—	—		—		—		(1,788)		—		(1,788)
Unrealized loss on available-for-sale marketable securities, net of taxes	—	—		—		(445)		—		—		(445)
Share-based compensation expense	—	—		2,075		—		—		—		2,075
Purchases of treasury stock	—	—		—		—		—		(3,000)		(3,000)
Shares issued for Deferred Compensation Plan, net	—	—		(9)		—		—		7		(2)
Other	—	—		—		—		2		—		2
Balance, June 30, 2024	76,533	$	765	$	314,146	$	(2,617)	$	198,595	$	(39,466)	$	471,423

See accompanying notes to consolidated financial statements.

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	For the six months ended June 30, 2023
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss, net of taxes		Retained Earnings		Treasury Stock		Stockholders’ Equity
	Shares	Amount
Balance, December 31, 2022	76,161	$	762	$	302,304	$	(3,477)	$	146,602	$	(27,912)	$	418,279
Net income	—	—		—		—		11,671		—		11,671
Unrealized gain on available-for-sale marketable securities, net of taxes	—	—		—		1,207		—		—		1,207
Shares issued in connection with equity incentive plans, net of taxes	167	1		(871)		—		—		—		(870)
Share-based compensation expense	—	—		1,973		—		—		—		1,973
Purchases of treasury stock	—	—		—		—		—		(2,223)		(2,223)
Shares issued for Deferred Compensation Plan, net	—	—		307		—		—		168		475
Shares issued for Employee Stock Purchase Plan	—	—		(139)		—		—		1,274		1,135
Other	1	—		8		—		11		—		19
Balance, March 31, 2023	76,329	$	763	$	303,582	$	(2,270)	$	158,284	$	(28,693)	$	431,666
Net income	—	—		—		—		8,254		—		8,254
Unrealized loss on available-for-sale marketable securities, net of taxes	—	—		—		(860)		—		—		(860)
Share-based compensation expense	—	—		2,278		—		—		—		2,278
Treasury shares issued for Deferred Compensation Plan, net	—	—		(7)		—		—		2		(5)
Other	—	—		—		—		6		—		6
Balance, June 30, 2023	76,329	$	763	$	305,853	$	(3,130)	$	166,544	$	(28,691)	$	441,339

See accompanying notes to consolidated financial statements.

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Healthcare Services Group, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

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 predominantly to clients within 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 customers receive government reimbursements related to Medicare and Medicaid. Therefore, the Company’s customers 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 customers. In such agreements, the Company is responsible for the day-to-day management of its employees located at the customers’ facilities, as well as for the provision of certain supplies. The Company also provides services on the basis of management-only agreements for a limited number of customers. In a management-only agreement, the Company provides management and supervisory services while the customer facility retains payroll responsibility for the non-supervisory staff. The agreements with customers 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.

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 customers’ housekeeping departments, which are principally responsible for the cleaning, disinfecting and sanitizing of resident rooms and common areas of a customer’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 customer facility.

Dietary consists of managing the customers’ 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, 2023 has been derived from the audited financial statements for the year ended December 31, 2023. 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, 2023. The results of operations for the three and six months ended June 30, 2024 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, 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.

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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.

Cash and Cash Equivalents and Restricted 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. Restricted cash equivalents represent highly liquid investments held in a trust account as collateral for certain insurance coverages the Company obtained from a third-party insurance carrier.

The following table provides a reconciliation of cash and cash equivalents and restricted cash equivalents reported within the Consolidated Balance Sheets to the amount reported in the Consolidated Statements of Cash Flows.


	June 30, 2024		June 30, 2023
	(in thousands)
Cash and cash equivalents	$	26,430	$	28,662
Restricted cash equivalents1	3,117		—
Total cash and cash equivalents and restricted cash equivalents	$	29,547	$	28,662

1.On February 2, 2024, the Company entered into a Collateral Trust Agreement with the Company’s third-party insurer and a trustee whereby investments or money market funds are held in a trust account to benefit the insurer and are restricted for that purpose. Restricted cash equivalents represent funds invested in money market accounts as of June 30, 2024. The trust account was set up in conjunction with a reduction in the Company’s letter of credit collateral obligation for insurance obligations.

Accounts and Notes Receivable

Accounts and notes receivable consist of Housekeeping and Dietary segment trade receivables from contracts with customers. The Company’s payment terms with customers for services provided are defined within each customer’s service agreement. Accounts receivable are considered short term assets as the Company does not grant payment terms greater than one year. 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 future expected credit loss. 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 and 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. The Company’s payment terms with customers on promissory notes can vary based on several factors and the circumstances of each promissory note, however most promissory notes mature over 1 to 4 years. Similar to accounts receivable, each reporting period the Company evaluates the collectability of outstanding notes receivable balances and records an allowance for doubtful accounts representing an estimate of future expected credit losses.

Allowance for Doubtful Accounts

Management utilizes financial modeling to determine an allowance that reflects its best estimate of the lifetime expected credit losses on accounts and notes receivable which is recorded to offset the receivables. Modeling is prepared after considering historical experience, current conditions and reasonable and supportable economic forecasts to estimate lifetime expected credit losses. Accounts and notes receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded as a reduction of bad debt expense when received.

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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 on a first-in, first-out (“FIFO”) basis, and reduced as deemed necessary to approximate the lower of cost or net realizable value. Linen supplies are amortized on a straight-line basis over their estimated useful life of 24 months.

Revenue Recognition

The Company recognizes revenue from contracts 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 amount of revenue recognized by the Company is based on the expected value of consideration to which the Company is entitled in exchange for providing the contracted goods and services and when it is probable that the Company will collect substantially all of such consideration.

Leases

The Company records assets and liabilities on the Consolidated Balance Sheets to recognize the rights and obligations arising from leasing arrangements with contractual terms greater than 12 months. 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 direction of use of the asset and the Company obtains substantially all of the economic benefits from the right of use.

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 consolidated financial statements based on a recognition and measurement process.

(Loss) Earnings per Common Share

Basic (loss) 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 (loss) 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 awards. Diluted loss per common share excludes dilutive potential common shares from the calculation, as their inclusion would be anti-dilutive.

Share-Based Compensation

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

Goodwill and Other Intangible Assets

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. Other intangible assets are amortized on a straight-line basis over their respective useful lives.

No impairment loss was recognized on the Company’s goodwill or other intangible assets during the six months ended June 30, 2024 or 2023.

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Authorized Shares of Common Stock

On June 18, 2024, the Company amended its Restated Articles of Incorporation to increase the number of authorized shares of common stock available for issuance from 100 million to 200 million, which was previously approved by a majority of the Company’s shareholders.

Investments in Equity Securities

The Company accounts for investments in equity securities using the equity method when the Company determines that it can exercise significant influence over the investee. The Company accounts for investments in equity securities at fair value when the Company determines that it cannot exercise significant influence over the investee. During the six months ended June 30, 2024, the Company invested $2.8 million for a 25% ownership share in a health care technology company which specializes in the long-term and acute care markets which was accounted for as an equity method investment. Investments in equity securities are recorded within “Other long-term assets” in the Company’s Consolidated Balance Sheets. The Company’s proportionate share of earnings or losses of the investee are recorded within “Investment and other income, net” on the Company's Consolidated Statements of Comprehensive (Loss) Income. The Company elects to record its proportionate share of earnings or losses in equity method investments using a three-month lag based on the most recently available financial statements.

Concentrations of Credit Risk

The Company’s financial instruments that are subject to credit risk are cash and cash equivalents, restricted cash equivalents, marketable securities, restricted marketable securities, deferred compensation funding and accounts and notes receivable. At June 30, 2024, the majority of the Company’s cash and cash equivalents, restricted cash equivalents, marketable securities and restricted marketable securities were held in two large financial institutions located in the United States. At December 31, 2023, the majority were held in one large financial institution located in the United States. The Company’s marketable securities and restricted marketable securities are fixed income investments which are highly liquid and can be readily purchased or sold through established markets. The Company’s deferred compensation funding consists of fund and money market investments all of which are highly liquid and held in a trust account.

The Company’s customers are concentrated in the healthcare industry and are primarily providers of long-term care. The revenues of many of the Company’s customers 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 Company’s customers participate. As a result, the Company may not realize the full effects such programs may have on the Company’s customers until such new legislation or changes in existing regulations are fully implemented and governmental agencies issue applicable regulations or guidance.

Significant Customer

For the three months ended June 30, 2024 and 2023, Genesis Healthcare, Inc. (“Genesis”) accounted for $37.9 million, or 8.9%, and $47.6 million, or 11.4%, of the Company’s consolidated revenues, respectively. For the six months ended June 30, 2024 and 2023, Genesis accounted for $76.7 million, or 9.0%, and $95.7 million, or 11.4%, of the Company's consolidated revenues, respectively. Although the Company expects to continue its relationship with Genesis, there can be no assurance thereof. Revenues generated from Genesis were included in both operating segments previously mentioned. Any extended discontinuance of revenues, or significant reduction, from this customer could, if not replaced, have a material impact on our operations. In addition, if Genesis fails to abide by current payment terms, it could increase our accounts and notes receivable, net balance and have a material adverse effect on our financial condition, results of operations, and cash flows. No other single customer or customer group represented more than 10% of our consolidated revenues for the three and six months ended June 30, 2024 and 2023.

Employee Retention Credit

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). One provision within the CARES Act provided an Employee Retention Credit (“ERC”), which allows for employers to claim a refundable tax credit against the employer share of Social Security tax equal to 50% of the qualified wages paid to employees from March 13, 2020 through December 31, 2020. The ERC was subsequently expanded in 2021 for employers to claim a refundable tax credit for 70% of the qualified wages paid to employees from January 1, 2021 through September 30, 2021.

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The Company accounted for the ERC by analogy to International Accounting Standard (“IAS”) 20, Accounting for Government Grants and Disclosure of Government Assistance. During the quarter ended June 30, 2023, the Company filed a claim for the ERC for qualified wages paid in 2020 and 2021 and through July 26, 2024 has yet to receive any refunds or receive any correspondence from the IRS regarding the ERC filing. The Company believes that there is not reasonable assurance that any receipt of credits will be obtained and therefore has not recognized any amounts related to the ERC in the accompanying consolidated financial statements. Should reasonable assurance over receipt of and compliance with terms of the ERC credits be obtained in future periods, the Company would recognize such amounts as an offset to expense within “Costs of services provided” on the Consolidated Statements of Comprehensive (Loss) Income. In the event the Company obtains a refund in future periods, such refunds would be subject to IRS audit under the applicable statute of limitations.

Reclassifications

Prior period line items in the Consolidated Statements of Stockholders’ Equity have been revised to conform with current period presentation.

Note 2 — Revision of Prior Period Financial Statements

As previously disclosed in Note 2 to the Company’s consolidated financial statements as of and for the year ended December 31, 2023, the Company identified a prior period accounting error related to the Company’s estimate for accrued payroll, and specifically accrued vacation that was concluded to not be material to the Company’s previously reported consolidated financial statements or unaudited interim condensed consolidated financial statements. The Company assessed the quantitative and qualitative factors associated with the foregoing error in accordance with SEC Staff Accounting Bulletin (“SAB”) No. 99 and 108, Materiality, codified in Accounting Standards Codification (“ASC”) 250, Presentation of Financial Statements, and concluded that the error was not material to any of the Company’s previously reported annual or interim consolidated financial statements. Notwithstanding this conclusion, the Company corrected the error by revising the consolidated 2023 accompanying consolidated interim financial statements to give effect to the correction of the error.

The effect of the correction of the error noted above on the Company’s Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended June 30, 2023 is as follows:


	Three Months Ended June 30, 2023						Six Months Ended June 30, 2023
	As reported		Adjustment		Revised		As reported		Adjustment		Revised
	(in thousands, except per share amounts)
Costs of services provided	$	367,728	$	476	$	368,204	$	728,706	$	1,877	$	730,583
Income before taxes	$	11,410	$	(476)	$	10,934	$	28,966	$	(1,877)	$	27,089
Income tax provision	$	2,812	$	(132)	$	2,680	$	7,684	$	(520)	$	7,164
Net income	$	8,598	$	(344)	$	8,254	$	21,282	$	(1,357)	$	19,925
Basic earnings per common share	$	0.12	$	(0.01)	$	0.11	$	0.29	$	(0.02)	$	0.27
Diluted earnings per common share	$	0.12	$	(0.01)	$	0.11	$	0.29	$	(0.02)	$	0.27

In addition to the effect of the correction noted above, the error also reduced retained earnings by $7.9 million as of December 31, 2022, as presented in the Consolidated Statements of Stockholders’ Equity. The effect of the correction of the error noted above had no impact on the Company’s previously reported consolidated statements of cash flows for the six months ended June 30, 2023, except for adjustments to individual line items as described in the tables above.

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Note 3—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

Housekeeping accounted for $381.6 million and $384.3 million of the Company’s consolidated revenues for the six months ended June 30, 2024 and 2023, respectively, which represented approximately 44.9% and 46.0% of the Company’s revenues in each respective period. Housekeeping services include managing customers’ housekeeping departments, which are principally responsible for the cleaning, disinfecting and sanitizing of resident rooms and common areas of the customers’ facilities, as well as the laundering and processing of the bed linens, uniforms, resident personal clothing and other assorted linen items utilized at the customers’ facilities. Upon beginning service with a customer facility, the Company will 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 customer requests. Such management personnel also oversee the execution of various cost and quality control procedures including continuous training and employee evaluation.

Dietary

Dietary services accounted for $468.2 million and $451.8 million of the Company’s consolidated revenues for the six months ended June 30, 2024 and 2023, respectively, which represented approximately 55.1% and 54.0% of the Company’s revenues in each respective period. Dietary services consist of managing customers’ 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 provided by a District Manager specializing in dietary services. The Company also offers clinical consulting services to facilities which if contracted is a service bundled within the monthly service provided to customers. Upon beginning service with a customer facility, the Company will 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 customer requests. Such management personnel also oversee the execution of various cost and quality control procedures including continuous training and employee evaluation.

Revenue Recognition

The Company’s revenues are derived from contracts with customers. 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 is 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 contracts with its customers. Such 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. 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 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 customers’ 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 less than $0.1 million as of June 30, 2024 and December 31, 2023. All revenue amounts deferred as of December 31, 2023 were subsequently recognized as revenue during the six months ended June 30, 2024.

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The transaction price is the amount of consideration to which the Company is 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, quantities consumed or history of implicit price concessions. The Company recognizes revenue related to such estimates when the Company determines that it is probable there will not be a significant reversal in the amount of revenue recognized. In instances where variable consideration exists and management’s estimate of variable consideration changes in subsequent periods, resulting in a change in transaction price, the Company records an adjustment to revenue on a cumulative catch-up basis. The Company’s contracts generally do not contain significant financing components as payment terms 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 June 30, 2024, the value of the contract liabilities associated with customer prepayments was $1.3 million. As of December 31, 2023, the value of the contract liabilities associated with customer prepayments was $3.2 million. The Company recognized $1.9 million of revenue during the six months ended June 30, 2024 which was recorded as a contract liability on December 31, 2023.

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. Contracts may contain transaction prices that are fixed, variable or both. The Company’s contracts with customers typically provide for an initial term of one year, 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. The Company has elected to apply the practical expedient that permits exclusion of information about the remaining performance obligations with original expected durations of one year or less which applies to all of the Company’s remaining performance obligations as of June 30, 2024.

Note 4—Accounts and Notes Receivable

The Company’s accounts and notes receivable balances consisted of the following:


	June 30, 2024		December 31, 2023
	(in thousands)
Short-term
Accounts and notes receivable	$	511,017	$	470,759
Allowance for doubtful accounts	(112,133)		(87,250)
Total net short-term accounts and notes receivable	$	398,884	$	383,509
Long-term
Notes receivable	$	24,023	$	29,281
Allowance for doubtful accounts	(3,152)		(4,449)
Total net long-term notes receivable	$	20,871	$	24,832
Total net accounts and notes receivable	$	419,755	$	408,341

The Company makes credit decisions on a case-by-case basis after reviewing a number of qualitative and quantitative factors related to the specific customer as well as current industry variables that may impact that customer. There are a variety of factors that impact a customer’s ability to pay in accordance with the Company’s contracts. These factors include, but are not limited to, fluctuating census numbers, litigation costs and the customer’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 customer’s cash flows and its ability to make timely payments. However, the customer’s obligation to pay the Company in accordance with the contract is not contingent upon the customer’s cash flow. Notwithstanding the Company’s efforts to minimize its credit risk exposure, the aforementioned factors, as well as other factors that impact customer 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.

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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, modification or termination of customer relationships. The Company deploys significant resources and invests in tools and processes to optimize Management’s credit and collections efforts. When appropriate, the Company utilizes interest-bearing promissory notes to enhance the collectability of amounts due, by instituting definitive repayment plans and providing a means by which to further evidence the amounts owed. In addition, the Company may amend contracts from full service to management-only arrangements, or adjust contractual payment terms, to accommodate customers 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.

Note 5—Allowance for Doubtful Accounts

In making the Company’s credit evaluations, management considers the general collection risk associated with trends in the long-term care industry. The Company establishes credit limits through payment terms with customers, performs ongoing credit evaluations and monitors accounts on an aging schedule basis to minimize the risk of loss. Despite the Company’s efforts to minimize credit risk exposure, customers could be adversely affected if future industry trends, including those related to COVID-19, change in such a manner as to negatively impact their cash flows. As a result, the Company’s future collection experience could differ significantly from historical collection trends. If the Company’s customers experience a negative impact on their cash flows, it could have a material adverse effect on the Company’s results of operations and financial condition.

The Company evaluates its accounts and notes receivable for expected credit losses quarterly. Accounts receivable are evaluated based on internally developed credit quality indicators derived from the aging of receivables. Notes receivable are evaluated based on internally developed credit quality indicators derived from management’s assessment of collection risk. At the end of each period, the Company sets a reserve for expected credit losses on standard accounts and notes receivable based on the Company’s historical loss rates. Accounts and notes receivable with an elevated risk profile, which are from customers who have filed bankruptcy or are subject to collections activity, are aggregated and evaluated to determine the total reserve for the class of receivable. Additionally, for notes receivable, management evaluates standard receivables based on whether the customer is current (paying within 60 days of terms) or delinquent (paying outside of 60 days of terms). As of June 30, 2024, the delinquent notes receivable loss pool includes the balance of notes receivable due from Genesis.

ASC 326 permits entities to make an accounting policy election not to measure an estimate for credit losses on accrued interest if those entities write-off accrued interest deemed uncollectible in a timely manner. The Company follows an income recognition policy on all interest earned on notes receivable. Under such policy the Company accounts for all notes receivable on a non-accrual basis and defers the recognition of any interest income until receipt of cash payments. This policy was established based on the Company’s history of collections of interest on outstanding notes receivable, as we do not deem it probable that we will receive substantially all interest on outstanding notes receivable. Accordingly, the Company does not record a credit loss adjustment for accrued interest. Interest income from notes receivable for the three months ended June 30, 2024 and 2023 was $0.6 million and $0.7 million, respectively. Interest income from notes receivable for the six months ended June 30, 2024 and 2023 was $1.7 million and $1.3 million, respectively.

During June 2024, LaVie Care Centers, LLC (“LaVie"), a customer of the Company, filed for Chapter 11 bankruptcy protection in the Northern District of Georgia. The Company increased the allowance for doubtful accounts by $17.6 million related to outstanding LaVie invoices during the three months ended June 30, 2024. The Company continues to provide services to LaVie post-petition. Revenues that the Company has earned on post-petition services provided to LaVie are recognized upon cash receipt in accordance with ASC 606, as the Company determines that collectability of substantially all of the entitled consideration in exchange for services provided is not probable for customers with ongoing bankruptcy proceedings until such cash is received.

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The following table presents the Company’s three tiers of notes receivable further disaggregated by year of origination as of June 30, 2024 and write-off activity for the six months ended June 30, 2024.


	Notes receivable
	Amortized cost basis by origination year
	2024		2023		2022		2021		2020		Prior		Total
	(in thousands)
Notes receivable
Standard notes receivable	$	7,733	$	8,515	$	19,482	$	—	$	—	$	—	$	35,730
Delinquent notes receivable	$	—	$	6,460	$	2,287	$	774	$	1,491	$	21,336	$	32,348
Elevated risk notes receivable	$	—	$	—	$	—	$	7,378	$	—	$	—	$	7,378

Current-period gross write-offs	$	—	$	—	$	41	$	—	$	—	$	28	$	69
Current-period recoveries	—		—		—		—		—		—		—
Current-period net write-offs	$	—	$	—	$	41	$	—	$	—	$	28	$	69

The following table provides information as to the status of payment on the Company’s notes receivable which were past due as of June 30, 2024.


	Age analysis of past-due notes receivable as of June 30, 2024
	0 - 90 Days		91 - 180 Days		Greater than 181 Days		Total
	(in thousands)
Notes receivable
Standard notes receivable	$	585	$	—	$	—	$	585
Delinquent notes receivable	$	1,797	$	9,759	$	16,887	$	28,443
Elevated risk notes receivable	$	569	$	569	$	2,087	$	3,225
	$	2,951	$	10,328	$	18,974	$	32,253

The following tables provide a summary of the changes in the Company’s allowance for doubtful accounts on a portfolio segment basis for the three months ended June 30, 2024 and 2023.


	Allowance for doubtful accounts
Portfolio Segment:	March 31, 2024		Write-Offs1		Bad Debt Expense		June 30, 2024
	(in thousands)
Accounts receivable	$	84,087	$	(11,955)	$	31,561	$	103,693

Notes receivable
Standard notes receivable	$	3,047	$	—	$	(60)	$	2,987
Delinquent notes receivable	3,698		(69)		221		3,850
Elevated risk notes receivable	4,755		—		—		4,755
Total notes receivable	$	11,500	$	(69)	$	161	$	11,592
Total accounts and notes receivable	$	95,587	$	(12,024)	$	31,722	$	115,285

1.Write-offs are shown net of recoveries. During the three months ended June 30, 2024, the Company collected less than $0.1 million of accounts and notes receivable which had previously been written-off as uncollectible.

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	Allowance for doubtful accounts
Portfolio segment:	March 31, 2023		Write-Offs1		Bad Debt Expense		June 30, 2023
	(in thousands)
Accounts receivable	$	68,407	$	(8,365)	$	10,378	$	70,420

Notes receivable
Standard notes receivable	$	6,425	$	(101)	$	684	$	7,008
Elevated risk notes receivable	2,035		(2)		201		2,234
Total notes receivable	$	8,460	$	(103)	$	885	$	9,242
Total accounts and notes receivable	$	76,867	$	(8,468)	$	11,263	$	79,662

1.Write-offs are shown net of recoveries. During the three months ended June 30, 2023, the Company collected less than $0.1 million of accounts and notes receivable which had previously been written-off as uncollectible.

The following tables provide a summary of the changes in the Company’s allowance for doubtful accounts on a portfolio segment basis for the six months ended June 30, 2024 and 2023. Delinquent notes receivable were not considered a separate portfolio segment at December 31, 2023. The amount presented in the table below for the allowance for doubtful accounts for delinquent notes receivable was included within the standard notes receivable portfolio at December 31, 2023.


	Allowance for doubtful accounts
Portfolio Segment:	December 31, 20231		Write-Offs2		Bad Debt Expense		June 30, 2024
	(in thousands)
Accounts receivable	$	80,819	$	(12,988)	$	35,862	$	103,693

Notes receivable
Standard notes receivable	$	3,510	$	—	$	(523)	$	2,987
Delinquent notes receivable	2,615		(69)		1,304		3,850
Elevated risk notes receivable	4,755		—		—		4,755
Total notes receivable	$	10,880	$	(69)	$	781	$	11,592
Total accounts and notes receivable	$	91,699	$	(13,057)	$	36,643	$	115,285

1.The December 31, 2023 balance includes transfers of $2.6 million from the standard notes receivable portfolio segment to the delinquent notes receivable portfolio segment.

2.Write-offs are shown net of recoveries. During the six months ended June 30, 2024, the Company collected $0.1 million of accounts and notes receivable which had previously been written-off as uncollectible.


	Allowance for doubtful accounts
Portfolio segment:	December 31, 2022		Write-Offs1		Bad Debt Expense		June 30, 2023
	(in thousands)
Accounts receivable	$	66,601	$	(11,818)	$	15,637	$	70,420

Notes receivable
Standard notes receivable	$	6,052	$	(101)	$	1,057	$	7,008
Elevated risk notes receivable	811		(53)		1,476		2,234
Total notes receivable	$	6,863	$	(154)	$	2,533	$	9,242
Total accounts and notes receivable	$	73,464	$	(11,972)	$	18,170	$	79,662

1.Write-offs are shown net of recoveries. During the six months ended June 30, 2023, the Company collected less than $0.1 million of accounts and notes receivable which had previously been written-off as uncollectible.

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Note 6—Changes in Accumulated Other Comprehensive Loss by Component

The Company’s accumulated other comprehensive loss consists of unrealized gains and losses from the Company’s available-for-sale marketable securities and restricted marketable securities. The following table provides a summary of the changes in accumulated other comprehensive loss for the six months ended June 30, 2024 and 2023:


	Unrealized Gains and Losses on Available-for-Sale Securities¹
	Six Months Ended June 30,
	2024		2023
	(in thousands)
Accumulated other comprehensive loss — beginning balance	$	(1,844)	$	(3,477)
Other comprehensive (loss) income before reclassifications	(1,040)		344
Income reclassified from other comprehensive loss²	267		3
Net current period other comprehensive (loss) income³	(773)		347
Accumulated other comprehensive loss — ending balance	$	(2,617)	$	(3,130)

1.All amounts are net of tax.

2.Realized gains and losses were recorded pre-tax within “Investment and other income, net” in the Consolidated Statements of Comprehensive (Loss) Income. For the six months ended June 30, 2024 and 2023, the Company recorded realized losses of $0.3 million and less than $0.1 million, respectively from the sale of available-for-sale securities. Refer to Note 10—Fair Value Measurements herein for further information.

3.For the six months ended June 30, 2024 and 2023, the changes in other comprehensive loss were net of a tax benefit of $0.1 million and an expense of $0.1 million, respectively.

The following table provides a rollforward of amounts reclassified from accumulated other comprehensive loss to realized losses for the three and six months ended June 30, 2024 and 2023:


	Amounts Reclassified from Accumulated Other Comprehensive Loss
	2024		2023
	(in thousands)
Three Months Ended June 30,
Losses from the sale of available-for-sale securities	$	(126)	$	(2)
Tax benefit	26		1
Net loss reclassified from accumulated other comprehensive loss	$	(100)	$	(1)
Six Months Ended June 30,
Losses from the sale of available-for-sale securities	$	(337)	$	(4)
Tax benefit	70		1
Net losses reclassified from accumulated other comprehensive loss	$	(267)	$	(3)

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Note 7—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.

The following table sets forth the amounts of property and equipment by each class of depreciable asset as of June 30, 2024 and December 31, 2023:


	June 30, 2024		December 31, 2023
	(in thousands)
Housekeeping and dietary equipment	$	17,015	$	15,764
Computer hardware and software	7,059		6,870
Operating lease — right-of-use assets	28,879		27,099
Other1	901		1,070
Total property and equipment, at cost	53,854		50,803
Less accumulated depreciation2	24,014		22,029
Total property and equipment, net	$	29,840	$	28,774

1.Includes furniture and fixtures, leasehold improvements and autos and trucks.

2.Includes $10.7 million and $9.4 million related to accumulated depreciation on Operating lease – right-of-use assets as of June 30, 2024 and December 31, 2023, respectively.

Depreciation expense for the three and six months ended June 30, 2024 was $3.0 million and $5.9 million, respectively. Depreciation expense for the three and six months ended June 30, 2023 was $2.4 million and $4.9 million, respectively. Of the depreciation expense recorded for the three and six months ended June 30, 2024, $1.9 million and $3.8 million, respectively, was related to the depreciation of the Company’s operating lease - right-of-use assets (“ROU Assets”). Of the depreciation expense recorded for the three and six months ended June 30, 2023, $1.6 million and $2.8 million, respectively, was related to the depreciation of the Company’s ROU Assets.

Note 8—Leases

The Company recognizes ROU assets and 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 5 years and have extension options ranging from 1 year to 5 years. Most leases include the option to terminate the lease within 1 year.

The Company uses practical expedients offered under ASC 842 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 in “Property and equipment, net” on the Company’s Consolidated Balance Sheets. The value of the Company’s lease liabilities is the present value of fixed lease payments not yet paid, which is 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 current liabilities” and “Lease liability — long-term” on the Company’s Consolidated Balance Sheets. 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 in an amount equal to the lease payments in a similar economic environment.

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 variable lease payments are mostly incurred from automobile leases and relate to miscellaneous transportation costs including repair costs, insurance, and terminal rental adjustment payments due at lease settlement. Such rental adjustment payments can result in a reduction to the Company’s total variable lease payments.

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Components of lease expense required by ASC 842 are presented below for the three and six months ended June 30, 2024 and 2023.


	Three Months Ended June 30,
	2024		2023
	(in thousands)
Lease cost
Operating lease cost	$	1,945	$	1,444
Short-term lease cost	323		422
Variable lease cost	551		633
Total lease cost	$	2,819	$	2,499


	Six Months Ended June 30,
	2024		2023
	(in thousands)
Lease cost
Operating lease cost	$	3,782	$	2,831
Short-term lease cost	494		654
Variable lease cost	841		1,083
Total lease cost	$	5,117	$	4,568

Supplemental information required by ASC 842 is presented below for the six months ended June 30, 2024 and 2023.


	Six Months Ended June 30,
	2024			2023
	(dollar amounts in thousands)
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	3,958		$	3,110
Weighted-average remaining lease term — operating leases	2.9 years			3.7 years
Weighted-average discount rate — operating leases	6.9		%	6.0		%

During the three and six months ended June 30, 2024, the Company’s ROU assets and lease liabilities were reduced by $0.3 million and $0.5 million, respectively, due to lease cancellations. During the three and six months ended June 30, 2023, the Company's ROU assets and lease liabilities were reduced by $0.4 million and $1.1 million, respectively, due to lease cancellations.

The following is a schedule by calendar year of future minimum lease payments under operating leases that have remaining terms as of June 30, 2024:


Period/Year	Operating Leases
	(in thousands)
July 1 to December 31, 2024	$	4,058
2025	7,964
2026	5,201
2027	1,797
2028	1,389
2029	116
Thereafter	—
Total minimum lease payments	$	20,525
Less: imputed interest	1,917
Present value of lease liabilities	$	18,608

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Note 9—Other Intangible Assets

The Company’s other intangible assets consist of customer relationships, trade names, patents and non-compete agreements 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 weighted-average amortization period of customer relationships, trade names, patents and non-compete agreements are approximately 10 years, 13 years, 8 years and 4 years, respectively.

The following table sets forth the estimated amortization expense for intangibles subject to amortization for the remainder of 2024, the following five fiscal years and thereafter:


Period/Year	Total Amortization Expense
	(in thousands)
July 1 to December 31, 2024	$	1,343
2025	$	2,685
2026	$	2,666
2027	$	1,196
2028	$	613
2029	$	508
Thereafter	$	1,774

Amortization expense for the three months ended June 30, 2024 and 2023 was $0.7 million and $1.2 million, respectively. Amortization expense for the six months ended June 30, 2024 and 2023 was $1.3 million and $2.4 million, respectively.

Note 10—Fair Value Measurements

The Company’s current assets and current liabilities are financial instruments and most of these items (other than marketable securities, restricted marketable securities, inventories and the short-term portion of deferred compensation funding) 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, restricted 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 are held by the Company’s captive insurance company to satisfy capital requirements of the state regulator related to captive insurance companies. Restricted marketable securities are held by the Company’s captive insurance company as collateral for certain insurance coverages. Such securities consist primarily of municipal bonds, U.S. treasury bonds and corporate bonds, which are classified as available-for-sale and are reported at fair value. Unrealized gains and losses associated with these investments are included within “Unrealized (loss) gain on available-for-sale marketable securities, net of taxes” in the Consolidated Statements of Comprehensive (Loss) Income. Marketable securities, including restricted marketable securities, are 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 and six months ended June 30, 2024, the Company recorded unrealized losses, net of taxes of $0.4 million and $0.8 million on marketable securities and restricted marketable securities, respectively. For the three and six months ended June 30, 2023, the Company recorded unrealized losses, net of taxes of $0.9 million and unrealized gains, net of taxes of $0.3 million on marketable securities, respectively.

As part of a 2021 acquisition of a prepackaged meal manufacturer, the Company agreed to pay royalties to the seller on all future product sales. The Company recorded a liability for the expected future payments within Other long-term liabilities in the Consolidated Balance Sheets. The fair value of this liability is measured using forecasted sales models (Level 3). For the three months ended June 30, 2024 and 2023, the Company recorded realized losses of $0.5 million and gains of $0.6 million, respectively, within “Costs of services provided” in the Consolidated Statements of Comprehensive (Loss) Income related to the subsequent measurement of the liability at each balance sheet date. For the six months ended June 30, 2024 and 2023, the Company recorded realized gains of $0.3 million and $0.2 million, respectively, within “Costs of services provided” in the Consolidated Statements of Comprehensive (Loss) Income related to the subsequent measurement of the liability at each period end.

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For the three months ended June 30, 2024 and 2023, the Company received total proceeds, less the amount of interest received, of $11.4 million and $1.2 million, respectively, from sales of available-for-sale securities. For the three months ended June 30, 2024 and 2023, these sales resulted in realized losses of $0.1 million and gains of less than $0.1 million, respectively, which were recorded within “Investment and other income, net” in the Consolidated Statements of Comprehensive (Loss) Income. For the six months ended June 30, 2024 and 2023, the Company received total proceeds, less the amount of interest received, of $28.0 million and $1.4 million, respectively, from sales of available-for-sale securities. For the six months ended June 30, 2024 and 2023, these sales resulted in realized losses of $0.3 million and losses of less than $0.1 million, respectively, which were recorded within “Investment and other income, net” in the Consolidated Statements of Comprehensive (Loss) Income. The basis for the sale of these securities was the specific identification of each bond sold during the period.

The investments under the funded deferred compensation plan are classified as trading securities and unrealized gains or losses are recorded within “Investment and other income, net” in the Consolidated Statements of Comprehensive (Loss) Income. The fair value of the investments are determined based on quoted market prices (Level 1) or the net asset value (“NAV”) of underlying share investments (Level 2). For the three months ended June 30, 2024 and 2023, the Company recognized unrealized gains of $1.3 million and gains of $2.3 million, respectively, related to equity securities held at the respective reporting dates. For the six months ended June 30, 2024 and 2023, the Company recognized unrealized gains of $5.4 million and $3.8 million, respectively, related to equity securities held at the respective reporting dates.

The following table summarizes the contractual maturities of debt securities held at June 30, 2024 and December 31, 2023, which are classified as “Marketable securities, at fair value” and “Restricted marketable securities, at fair value” in the Consolidated Balance Sheets:


	Debt Securities — Available-for-Sale
Contractual maturity:	June 30, 2024		December 31, 2023
	(in thousands)
Marketable securities, at fair value
Maturing in one year or less	$	1,007	$	6,324
Maturing in second year through fifth year	27,296		34,939
Maturing in sixth year through tenth year	32,934		39,309
Maturing after ten years	17,897		12,559
Total marketable securities, at fair value	$	79,134	$	93,131
Restricted marketable securities, at fair value
Maturing in one year or less	$	1,047	$	—
Maturing in second year through fifth year	7,058		—
Maturing in sixth year through tenth year	12,895		—
Maturing after ten years	1,022		—
Total restricted marketable securities, at fair value	$	22,022	$	—
Total debt securities — available-for-sale	$	101,156	$	93,131

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The following table shows the amortized cost, unrealized gains and losses, and estimated fair value of the Company’s debt securities as of June 30, 2024 and December 31, 2023:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Credit Impairment Losses1
	(in thousands)
June 30, 2024
Type of security:
Marketable securities
Municipal bonds — taxable	$	9,242	$	18	$	(752)	$	8,508	$	—
Municipal bonds — non-taxable	73,216		49		(2,639)		70,626		—
Total marketable securities	$	82,458	$	67	$	(3,391)	$	79,134	$	—
Restricted marketable securities
U.S. treasury bonds	$	6,888	$	13	$	—	$	6,901	$	—
U.S. government agency bonds	1,207		2		—		1,209		—
International fixed income bonds	625		—		(1)		624		—
Corporate bonds	5,134		5		(2)		5,137		—
Municipal bonds — taxable	8,156		16		(21)		8,151		—
Total restricted marketable securities	$	22,010	$	36	$	(24)	$	22,022	$	—
Total debt securities — available-for-sale	$	104,468	$	103	$	(