Healthcare Services Group shares surge over 8% as Q3 results exceed expectations

BENSALEM, Penn. - On Wednesday, Healthcare Services Group (NASDAQ:HCSG) reported third-quarter earnings that significantly beat analyst expectations, driven by strong revenue growth and a substantial tax benefit.

The company’s shares surged 8.63% in pre-market trading after the release.

The company reported third-quarter adjusted earnings of $0.59 per share, far exceeding the analyst consensus of $0.21. Revenue came in at $464.3 million, above the analyst estimate of $460.36 million and representing an 8.5% increase YoY. The strong performance was bolstered by a $0.361 per share benefit primarily related to the Employee Retention Credit (ERC).

Healthcare Services Group’s core business showed solid operational performance with new client wins and high retention rates driving topline growth. The company generated $71.3 million in cash flow from operations, which included a $31.8 million benefit related to the ERC.

"We delivered strong third quarter results - marked by year-over-year and sequential increases in revenue, earnings, and cash flow - and we have carried that positive momentum into the fourth quarter," said Ted Wahl, Chief Executive Officer. "New client wins and high retention rates drove our topline growth, and our field-based teams’ operational excellence led to quality service outcomes and consistent margins."

The company reported segment revenues of $211.8 million for Environmental Services and $252.5 million for Dietary Services, with segment margins of 10.7% and 5.1% respectively. Cost of services was reported at 79.2% of revenue, below the company’s target range of 86%.

During the quarter, Healthcare Services Group repurchased $27.3 million of its common stock as part of its previously announced $50 million share repurchase plan, bringing year-to-date repurchases to $42 million.

The company ended the quarter with a strong balance sheet, reporting $207.5 million in cash and marketable securities and access to a $500 million credit facility.

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