Earnings call transcript: Healthcare Services Q2 2025 misses EPS, beats revenue

Healthcare Services Group (HCSG) reported a mixed bag of results for the second quarter of 2025. The company posted a net loss of $32.4 million, translating to an EPS of -$0.44, significantly missing the forecasted EPS of $0.20. On the brighter side, revenue reached $458.5 million, surpassing expectations by 1.71%. Despite the earnings miss, the stock saw a modest premarket increase of 0.38%, closing at $13.10. According to InvestingPro data, the company maintains a strong financial health score, with more cash than debt on its balance sheet and a market capitalization of $951.59 million.

Key Takeaways

• Healthcare Services reported a significant EPS shortfall, missing forecasts by 320%.
• Revenue exceeded expectations, showing a year-over-year increase of 7.6%.
• The company raised its cash flow from operations forecast for 2025 to $70-$85 million.
• Strong customer retention rates and a positive industry outlook were highlighted.
• The stock showed a slight premarket increase, despite the earnings miss.

Company Performance

Healthcare Services Group demonstrated robust revenue growth, with a 7.6% increase year-over-year, driven by strong performances in both Environmental and Dietary Services. Despite this, the company faced challenges, posting a net loss of $32.4 million, largely impacting its EPS. InvestingPro analysis reveals the company’s weak gross profit margins of 13.31%, though it maintains strong liquidity with a current ratio of 2.89. Subscribers can access 6 additional exclusive ProTips and comprehensive financial metrics for deeper insights.

Financial Highlights

• Revenue: $458.5 million, up 7.6% year-over-year.
• Net Loss: $32.4 million, resulting in an EPS of -$0.44.
• Cash Flow from Operations: $28.8 million, with an adjusted value of $8.5 million after payroll accrual.

Earnings vs. Forecast

Healthcare Services Group’s EPS of -$0.44 fell short of the forecasted $0.20, marking a 320% negative surprise. However, revenue surpassed expectations, with a positive surprise of 1.71%.

Market Reaction

Despite the EPS miss, the stock rose slightly in premarket trading, increasing by 0.38% to $13.10. This suggests that investors might be focusing on the revenue beat and positive cash flow outlook. InvestingPro’s Fair Value analysis indicates that HCSG is currently undervalued, with the stock showing relatively low volatility (Beta: 0.56). Discover more undervalued opportunities at Investing.com’s Most Undervalued Stocks.

Outlook & Guidance

The company provided a Q3 revenue guidance of $455-$465 million and reiterated mid-single-digit growth expectations for 2025. Additionally, plans to repurchase $50 million of common stock over the next 12 months were announced.

Executive Commentary

CEO Ted Wall emphasized the positive industry fundamentals and the company’s strong positioning to capitalize on emerging opportunities. "Industry fundamentals continue to gain strength, highlighted by the multi-decade demographic tailwind," Wall stated.

Risks and Challenges

• Significant EPS miss raises concerns about profitability and operational efficiency.
• Potential impacts from the Genesis Healthcare bankruptcy could affect future results.
• Managing cost of services and SG&A within targeted ranges remains a key challenge.

Q&A

During the Q&A session, analysts inquired about the impact of Genesis Healthcare’s bankruptcy and state-level reimbursement concerns. The company reassured investors of a stable reimbursement environment and a positive outlook on legislative provisions.

Full transcript - Healthcare Services Group Inc (HCSG) Q2 2025:

Conference Operator: Thank you for standing by, and welcome to the Healthcare Services Group, Inc. Second Quarter twenty twenty five Earnings Conference Call. The matters discussed on today’s conference call include forward looking statements about the business prospects of Healthcare Services Group Inc. For Healthcare Services Group Inc. Most recent forward looking statement notice, please refer to the press release issued this morning, which can be found on our website, www.hcsg.com.

Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties and important factors, including those discussed in the Risk Factors, MD and A, and other sections of the annual report on Form 10 ks of Healthcare Services Group, Inc. Other SEC filings and as indicated in our most recent forward looking statements notice. Additionally, management will be discussing certain non GAAP financial measures. A reconciliation of these items to U. S.

GAAP can be found in this morning’s press release. After the speakers’ remarks, there will be a question and answer session. I’d now like to turn the call over to Ted Wall, President and CEO. You may begin.

Ted Wall, President and CEO, Healthcare Services Group: Good morning, everyone, and welcome to HCSG’s second quarter twenty twenty five earnings call. With me today are Matt McKee, our Chief Communications Officer and Vikas Singh, our Chief Financial Officer. Earlier this morning, we released our second quarter results and plan on filing our 10 Q by the end of the week. Today, in my opening remarks, I’ll discuss our Q2 highlights, share our perspective on the overall business environment, discuss our strategic priorities, and provide details on our $50,000,000 share repurchase plan. Matt will then provide a more detailed discussion on our Q2 results, and then Vikas will provide an update on our balance sheet and capital allocation progression.

We will then open up the call for Q and A. But first, I’d like to comment on the previously announced Genesis Healthcare restructuring. Genesis filed for Chapter 11 bankruptcy on July 9. Following the petition date, we have continued our contractual relationship with the Genesis facilities without disruption in services or payments. And while we’re disappointed in the impact that this event had on our second quarter results, we believe its root causes are specific to Genesys and its past circumstances and decisions and is not a reflection on the current state of the industry.

There’s been a great deal of external attention paid to Genesis through the years and rightfully so. They are an important customer of ours, and we’ve had a long standing partnership. That said, we believe this event will result in stronger, healthier client facilities, provide balance sheet clarity for our stakeholders, and remove an overhang that has weighed on our stock for years. And now I’d like to move on to discuss results that are more indicative of our underlying business fundamentals and the exciting opportunities that lie ahead. Second quarter growth exceeded our expectations.

Q two was our fifth consecutive sequential revenue increase and our highest rate of growth since q one twenty eighteen. New client wins and high retention drove our organic growth, and we have carried that positive momentum into the back half of the year. Despite the Genesis news and the resulting impact on our q two reported results, our 2025 growth plans and cash flow outlook remain strong. We are reiterating our 2025 mid single digit growth expectations and raising our 2025 cash flow from operations forecast, excluding the change in payroll accrual, from 60,000,000 to 70,000,000 to 85,000,000 I’d now like to share our perspective on the overall business environment. Industry fundamentals continue to gain strength, highlighted by the multi decade demographic tailwind that is now beginning to work its way into the long term and post acute care system.

The most recent industry operating trends remain positive as well, highlighted by steady occupancy, increasing workforce availability, and a stable reimbursement environment. The One Big Beautiful Bill Act has generated intense political debate and speculation as interest groups on all sides seek to control the narrative. We view this as a predictable response to such significant legislation and anticipate the level of commentary will remain elevated through the midterms. On balance, and specifically as it relates to the industry, we hold a constructive view of the ABBA. Beneficial provisions include the ten year moratorium on the minimum staffing mandate in addition to the already successful legal actions, the industry exemption from provider tax reductions, and the $50,000,000,000 investment in rural markets.

In the near term, these measures promote even further strength and stability in the industry, and in our view, more than offset any potential longer term questions about other Medicaid provisions, which may or may not be phased in at some point in the future over several years, and even if phased in, are unlikely to directly or meaningfully impact long term and post acute care facilities. Looking ahead, we are optimistic that the administration and congress will continue to prioritize the changing and expanding needs of our nation’s most vulnerable and the providers who care for them each and every day. As we enter q three and the rest of the year, our top three strategic priorities remain. Driving growth by developing management candidates, converting sales pipeline opportunities and retaining our existing facility business managing cost through field based operational execution and prudent spend management at the enterprise level and optimizing cash flow with increased customer payment frequency, enhanced contract terms, and disciplined working capital management. We are confident that continuing to execute on our strategic priorities supported by our strong business fundamentals will position us to accelerate growth, enhance profitability, and maximize cash flow through the 2025 and beyond.

Finally, in conjunction with our earnings release, we announced plans to further accelerate the pace of our share buybacks and, over the next twelve months, intend to repurchase $50,000,000 of common stock under our February 2023 share repurchase authorization. Over the course of the last several years, we have continuously strengthened our balance sheet and expect strong cash flow generation over the next twelve months and beyond. We have demonstrated a prudent and balanced approach to capital allocation, including, first and foremost, investing in our growth initiatives. The current valuation of our stock relative to our long term growth potential offers a unique opportunity with the buyback to return significant capital to shareholders. So with those introductory comments, I’ll turn the call over to Matt for a more detailed discussion on the quarter.

Matt McKee, Chief Communications Officer, Healthcare Services Group: Thanks, Ted, and good morning, everyone. Revenue was reported at $458,500,000 an increase of 7.6% over the prior year. Segment revenues for Environmental and Dietary Services were reported at $205,800,000 and $252,700,000 respectively. We estimate Q3 revenue in the range of $455 to $465,000,000 and reiterate our 2025 mid single digit growth expectations. Cost of services was reported at $455,500,000 or 99.4% and includes the impact of the $61,200,000 or 13.4% non cash charge related to the previously announced Genesis restructuring.

Our goal is to manage the 2025 cost of services in the 86% range. Reported SG and A was $49,200,000 but after adjusting for the $4,700,000 decrease in deferred compensation, actual SG and A was 44,500,000 or 9.7%. The company expects to manage SG and A in the 9.5% to 10.5% range in the near term based on investments that we’ve made and spoken about in previous quarters with the longer term goal of managing those costs into the 8.5% to 9.5% range. Segment margins for Environmental Services were reported at 0.8% and include the impact of a $20,300,000 or 9.9% non cash charge related to the previously announced Genesis restructuring. Segment margins for dietary services were reported at negative 10.1% and include the impact of a $40,900,000 or 16.2% non cash charge related to the previously announced Genesis restructuring.

Net loss and diluted loss per share were reported at $32,400,000 and $0.44 per share. This includes the impact of a $0.65 non cash charge or $61,200,000 pretax, tax affected at 22.7% related to the previously announced Genesis restructuring. As previously announced, we estimate a third quarter $04 per share non cash charge related to the Genesis restructuring. Cash flow from operations was reported at $28,800,000 After adjusting for the $20,300,000 increase in the payroll accrual, cash flow from operations was $8,500,000 We’re raising our 2025 cash flow from operations forecast, excluding the change in payroll accrual, from 60,000,000 to $75,000,000 to 70,000,000 to $85,000,000 I’d now like to turn the call over to Vikas for a discussion on our liquidity, balance sheet and capital allocation progression.

Vikas Singh, Chief Financial Officer, Healthcare Services Group: Thank you, Matt, and good morning, everyone. Our balance sheet strength and liquidity position have been driven by sustained collection trends and results in the current quarter as well as the last few quarters. We ended the second quarter with cash and marketable securities of $164,100,000 This includes $7,900,000 of ERC receipts in the second quarter. At the present time, there is no income statement impact from ERC as these credits are being recorded on our balance sheet only. Our credit facility was undrawn at quarter end with utilization limited to LCs only.

On the capital allocation front, our priorities are to direct investments towards organic growth, acquisitions and opportunistic share repurchases. Overall, our balance sheet and liquidity are well positioned to facilitate and support our growth journey through organic and inorganic initiatives. As for activity during the second quarter, we repurchased $7,600,000 of our common stock this quarter. This takes our year to date buybacks to $14,600,000 And while there were no completed acquisitions in the quarter, we continue to actively evaluate opportunities. Finally, as Ted highlighted in his remarks, in conjunction with our earnings release, we announced plans to further accelerate the pace of our share buybacks.

And over the next twelve months, we intend to repurchase 50,000,000 of our common stock under our February 2023 share repurchase authorization. We expect these repurchases to be made on the open market, which may include a 10b5-one plan as well as through privately negotiated transactions. With that, we will conclude our opening remarks and open up the call for Q and A.

Conference Operator: Thank you. We will now begin the question and answer Your first question comes from the line of A. J. Rice from UBS. Your line is open.

A.J. Rice, Analyst, UBS: Hi, everyone. Maybe just a few quick ones here. Just to make sure I understand on the Genesis situation between the big charge you took this quarter and the little follow on you’re pointing to for the third quarter, Well, you have effectively written off all of your exposure to Genesis at that point. And I assume, your positioning is pretty strong within the, capital structure there. Do you have any sense about recoveries or where the process is and how quick there might be resolution on the outstanding receivables?

Ted Wall, President and CEO, Healthcare Services Group: Good morning, A. J. And yes to your first question that after the third quarter which will include some of the pre petition amounts that fell into that quarter, it will effectively be reserved in its entirety. I think specifically to the as far as the process is concerned and potential recoveries, it’s still very early. So we do not have much to report on in terms of developments other than the standard affidavits and motions one would typically see at this stage of the process.

What I would add is that we are expert in navigating the process, and our partnership within the four walls of the client communities we service with Genesys are as strong as they’ve ever been. As you know, chapter 11 recoveries tend to vary case by case, and, you know, we’re obviously going to leverage that strong role, that you referenced and prioritize recovery. But, again, it’s still too early in the process to speculate on what that may be.

A.J. Rice, Analyst, UBS: Okay. And then I just wanted to think about where you’re at with respect to growth. You’ve got, on the one hand, retention and attrition that you have to deal with every year, albeit modest, hopefully. Are you back to sort of a normalized rate there? Can you just comment on that?

And comment on how much new business adds you’ve had and maybe sort of

Andy Wittmann, Analyst, Baird: how that stays as you look at the back half of the year?

Ted Wall, President and CEO, Healthcare Services Group: Sure. And I know I referred to this in my opening remarks, but when you think about Q2, it was our fifth consecutive sequential revenue increase and our highest rate of growth we’ve had since the first quarter of twenty eighteen. And that’s really driven as you alluded to the successful execution on our organic growth strategy, developing management candidates, converting the sales pipeline opportunities and as you highlighted retaining the existing business. The majority of the Q1 to Q2 sequential top line increase was really driven by new business wins that this quarter, this past quarter were more heavily weighted towards the front end of Q2 along with 90% plus customer retention rates that we feel very positive about being able to maintain those trends going forward. And just for the benefit of everyone that’s on this call, 90% client retention has been foundational to the company since in the since its inception.

You know, there was some choppiness over the past few years on, you know, on the in the post COVID re re kind of structuring and resetting of the industry and, you know, very high very unusual amount of of ownership changes coming into place, some of whom we weren’t comfortable partnering with. So we had a disproportionately high number of exits relative to what we’ve seen historically. But when we look out, certainly for the back half of the year and even beyond that A. J. Over the next three to five years, we absolutely expect 90 plus percent retention rates to be what the company experiences and what one could expect out of us going forward.

Specifically, I guess from a top line perspective with the back half of the year $4.55 to $4.65 is what we’re expecting. And then we would expect the second half of the year revenues to grow sequentially compared to the first half of the year revenues.

A.J. Rice, Analyst, UBS: Okay. Maybe just lastly on the any update on food inflation? I know there’s a lot of noise out there about tariffs and everything else. What are you seeing? And I assume you’re getting that all passed through with your contract structure, but any update on that?

Matt McKee, Chief Communications Officer, Healthcare Services Group: Yeah. That’s correct, AJ. I’m I’m glad you pointed that out because even in a volatile scenario or a volatile market, we do have the rights to pass through those increases to our clients. Now of course, we’re always aiming to mitigate specific menu items or food line items that are disproportionately showing signs of inflation and we have that flexibility to do so with our network of clinical dietitians working in concert with the food service directors at the facilities themselves as far as menu management. So we’re able to mitigate that certainly from both an operational and a financial perspective.

But to just bring it back to a higher level, CPI for all items in the quarter was 60 basis points, was actually the same as what we saw in Q1. Food at home inflation specifically, it’s really and you sort of called this out A. J, but it’s continued to bounce around month to month. It was down quarter to quarter. Q2 showed 20 basis points of inflation which compared to 1% inflation that we saw in Q1 and 50 basis points of inflation that we saw in Q4.

Interestingly, the month of April showed 40 basis points of deflation, but then May and June were both coming in at about 30 basis points of inflation and that’s for food at home. So certainly something we’ll continue to monitor. We’ll manage and mitigate those cost increases as well as we possibly can for the benefit of our clients at the facility level. And then ultimately in as much as we are seeing cost increases, we’ve got the contractual rights to pass those increases through.

A.J. Rice, Analyst, UBS: Okay, great. Thanks so much.

Conference Operator: Your next question comes from the line of Tao Qiu from Macquarie. Your line is open.

Tao Qiu, Analyst, Macquarie: Hey, good morning, everyone. The first question I want to ask about guidance. So for the first half, you achieved 6.6% revenue growth. And based on the 3Q revenue guidance, it seems that the momentum will continue north of 7% at the midpoint. Any reason you reiterated that mid single digit guidance, which is clearly below the current trend line?

Any downside risk we should contemplate in our estimates?

Ted Wall, President and CEO, Healthcare Services Group: It’s a great it’s a great question, Tal. And our goal is to provide as accurate a ranges as possible given the variable variables, most notably the timing of new business ads, which can be fluid quarter to quarter, knowing there’s always going to be a subset, I’ll call it intra quarter opportunities that could be either pushed out or pulled forward. You think about in the context of even Q3, the difference between starting an opportunity on September 1 as opposed to October 1 may be insignificant on a year over year basis, but could be meaningful to a given quarter depending on the size or scale of the new business opportunity, which is why we’re reiterating that mid single digit guidance whereas with those brackets we’re providing the 4.55% to 4.65% that’s really sharing management’s visibility and our thinking on what we expect in the specific quarter. I think to the heart of your question, we know where we’re trending. There’s no reason why we wouldn’t expect to continue to trend in that direction.

And I would just say we’re looking at we look at things in twelve month increments, not quarter to quarter. So we’re, for the moment, sticking with the mid single digits, but your point’s well taken. We’re certainly trending to the high single digits and potentially beyond that.

Tao Qiu, Analyst, Macquarie: Understood. And the second question is about Genesis and more broadly your collection strategy. I think one of the reasons you cited for leveraging those receivables is better recovery expectation in a situation like this. So could you help us understand whether you expect any difference in the recovery through this process? And

A.J. Rice, Analyst, UBS: what do

Tao Qiu, Analyst, Macquarie: you what how does this process inform your future collection strategies that you guys have?

Ted Wall, President and CEO, Healthcare Services Group: Right. Yeah. I I think from a collection strategy, we continue to focus on increasing payment frequency. You alluded to promissory notes, but utilizing proactively utilizing promissory notes because of the fact that they’re they memorialize the indebtedness, they’re interest bearing, and they come with guarantees, personal corporate. At times, we’re even successful in gaining or garnering a security interest, which may be junior to a senior secured lender, but it still provides us a seat at that secured lender table.

And then, obviously, remaining disciplined in our decision making is to tie that bonds the entirety of the strategy. I think specific as Genesis, and I mentioned it, you know, as a as a response to AJ’s question, it’s just too early to tell, Tau, in terms of potential recoveries. It it really you know, chapter elevens tend to vary case by case. You know, we’re hopeful, and we’re certainly going to leverage our position within the within the context of the process. And as a key stakeholder, certainly a priority vendor, we expect to have a long standing partnership with the client facilities on a go forward basis post reorg.

But at this stage, specific to recovery, it’s just too early to comment or to really provide anything meaningful.

Tao Qiu, Analyst, Macquarie: We’ll wait the update there. Just curious, lastly, on the macro front. I think, Ted, you mentioned a lot of the positive, you know, discussions coming out of the the budget bill and, you know, and the and the policies from Washington. Just curious, you know, I think the states are setting, you know, health care budgets for 2026 and beyond. We have seen some cuts or at least moderated growth going forward.

I know this is still early, but any particular geographies that worries you longer term?

Ted Wall, President and CEO, Healthcare Services Group: No. And we certainly keep tabs on the reporting that you do. And, you know, we have our own regulatory and reimbursement experts here, Tal, that, you know, on a on a weekly basis are active and engaged in analyzing, assessing that. They’re corroborating with customers, third party experts, industry lobbyists. We’re seeing the same things.

I I’d say in some, it’s more of a moderation of some of the Medicaid growth. But at the end of the day, from our perspective, the industry fundamentals are continuing to gain strength. And, you you know, I I talk about and I alluded to the demographic tailwind that’s now you see the tip of that spear working its way into the long term and post acute care system. But we still see the primary driver is that continued interplay between staffing availability and census is going to be the key to any facility’s success. Because more than any other factor, labor availability is the key to occupancy growth, and occupancy growth in any type of Medicare or Medicaid environment we view as the key to consistent financial outcomes.

And I the most recent occupancy data continues to be very positive. No external data sources as well as our own, you know, 80% plus trends across all geographies, urban, suburban, rural, facility types, long term, short stay, etcetera. So that’s our that continues to be our view. And when you layer in, you know, our more constructive view of ABBA, especially the near term provisions, coupled with what you highlighted, maybe a given state may see some pressure around the edges, but we’re still seeing at the state level, you know, continued increases. So that’s our view.

Vikas Singh, Chief Financial Officer, Healthcare Services Group: Thanks for the color. Congrats on the color.

Conference Operator: Thank you, Tal. Your next question comes from the line of Andy Wittmann from Baird. Your line is open.

Andy Wittmann, Analyst, Baird: Great. Thanks for taking my question, guys. I guess just kind of to build on the last question and the last answer there. The a lot of the offsets in the beautiful bill, we’re we’re looking at those states that expanded Medicaid coverage, I guess, way back in Obamacare. And those are the states where, I guess, it looks like there’s going to be a reduction in their ability to to to do the health care taxes and as a way to fund Medicaid.

So, Ted, I just thought maybe there’s also, I think, an element of this where there during COVID, there was an there was an increase kind of a more incentive for more states to expand Medicaid that that’s gonna get pulled back. Now the phase and timing for all these things is is not all immediate, but I just thought maybe given that this past, you could talk about those those those states where it was expanded specifically coming under a little different funding thing and and how this may or could I know it’s not today, but how how this you affect how how this could affect your your customers?

Ted Wall, President and CEO, Healthcare Services Group: Well, look. I think we called out the big ticket items that are going to have the near term, we believe, positive effect, the ten year moratorium on minimum staffing, the industry exemption from provider tax reductions, Andy, is is notable, highly notable considering how other providers along the health care continuum were impacted And the $50,000,000,000 investment in the rural markets, we think they are the three keystones in the near term that are going to promote further strength and stability. Some of the other provisions, a few that you alluded to, you really need to conduct full assessments and see what what providers they may affect, whether whether the, provision even that’s being affected has even been implemented yet. So we have, and I mentioned it or alluded to it with Tal, our regulatory and and reimbursement experts for the one big beautiful bill conducted a full assessment of the 21 Medicaid subchapters that are referenced in ABBA, analyze the potential impact on provider types, effective dates, phase in periods, even implementation guidance. They then took that that work and independently corroborated it with our customers, with third party industry experts, with lobbyists.

That’s really what informs our more constructive view on the legislation, specifically as it relates to the industry. That said, and really to the heart of your question, we we recognize appreciate that the political football of Medicare and Medicaid is always in play. And we’re going to remain engaged and nimble so we can react appropriately if needed, as needed. Yep.

Andy Wittmann, Analyst, Baird: Okay. That makes sense. And then I don’t know, Matt, just clarification here. I guess in your announcements with Genesys, you know, recently, you thought it was gonna be a 62¢ charge. It came in at 65 for the quarter.

It sounds like the the the 4¢ that was mentioned then is is is still coming in 3 q. So a little bit higher here. Was that was that just an increase in the assessment of of the Genesis, or was there something else in there, different customer that affected here the quarter with coming in a little bit bigger charge than was initially expected?

Matt McKee, Chief Communications Officer, Healthcare Services Group: Yeah. Really, Andy, was just tax rate related for Q2. And then just from a timing with respect to pre petition monies, there was a drag between second quarter and ultimately third quarter, which is why you’ll see that modest estimated $04 per charge that will impact Q3.

Andy Wittmann, Analyst, Baird: Okay. That makes sense. Those are all my questions for today. Thanks guys.

Conference Operator: Your next question comes from the line of Ryan Daniels from William Blair. Your line is open.

Matthew Mardula, Analyst, William Blair: Hey, good morning, everyone. This is Matthew Mardula on for Ryan Daniels. Thanks for taking the question. And I’m curious on how has the cross selling of Dining Services into Environmental Services been? And can you provide maybe an update on your outlook for it in the second half?

And just any insight into a long term would be great.

Matt McKee, Chief Communications Officer, Healthcare Services Group: Yes. Good morning, Matthew. As far as the segment breakdown, our new business pipeline is split fairly evenly between EVS and dietary and that’s a good thing from our perspective because our general preference is still to initiate services with environmental services and then to view dining as a cross sell opportunity. It allows us to have a front row seat in the facility to really observe and make an expert assessment in their current dining operations such that the point in time when we determine it makes sense to then provide a proposal and initiate discussions about converting dining services, we can really come with that much of a better informed proposal and recommendation to really enhance the value proposition that we’re providing for that particular client. From a top line perspective, obviously, on a same store basis, that dining contract typically has about a 2x impact on revenue.

So we want to be able to continue to grow the pipeline of new business opportunities in EVS to be able to ultimately continue that cross sell. But as we sit here, we’re still barely 50% penetrated in providing dining services within the existing environmental services customer base. So the demand is unbelievably high. So plenty of opportunities for us to continue to pull through that dining cross sell, but likewise have an eye out towards the future and recognizing greenfield sales pipeline opportunities for EVS as well.

Matthew Mardula, Analyst, William Blair: Great. Thank you for that. And then regarding the educational segment, I know that it’s still a small percentage of revenue. But with school starting again, how are you viewing it for the second half of the year?

Matt McKee, Chief Communications Officer, Healthcare Services Group: Yeah. It’s amazing. We’ve been at it for over three years now and the ongoing returns have been remarkably positive. There are many similarities that we’ve discussed previously between our core market and this still emerging market in that they’re both highly fragmented largely insourced and our value proposition very much resonates. So we talked about previously some of the seasonality that exists both operationally and from a sales perspective in the education space.

And we’re coming to what is the end of what’s generally considered the sales season right now for obvious reasons in anticipation of the upcoming academic year. And we’ve had some really nice wins and continue to put up some nice growth rates. So from a revenue perspective, it’s still less than 5% of total company revenues, but certainly an opportunity that we remain committed to moving forward. So positive early returns, strong commitment to the opportunity moving forward and really a nice complement to the twenty twenty five growth strategy and perhaps something more meaningful beyond that.

Matthew Mardula, Analyst, William Blair: Great. Thank you so much.

Conference Operator: And we have reached the end of our question and answer session. I will now turn the call back over to Ted Wall for closing remarks.

Ted Wall, President and CEO, Healthcare Services Group: Okay. Great. Thank you, Rob. As we enter the second half of twenty twenty five, the company’s underlying fundamentals are stronger than ever. Our leadership and management team, our enhanced value proposition, our business model and the visibility we have into that model, our training and learning platforms, our KPIs and key business trends and our strong balance sheet.

And with the industry at the beginning of a multi decade demographic tailwind, we are incredibly well positioned to capitalize opportunities that lie ahead and deliver meaningful long term shareholder value. So on behalf of Matt, Vikas and all of us at Healthcare Services Group, thank you, Rob, for hosting the call today, and thank you again to everyone for joining.

Conference Operator: This concludes today’s conference call. You may now disconnect.

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