Theodore Wahl - President and Chief Executive Officer Matthew McKee - Senior Vice President of Strategy.

Michael Gallo - CL King A.J. Rice - UBS Andy Wittmann - Robert W. Baird & Co. Sean Dodge - Jefferies Chad Vanacore - Stifel Ryan Daniels - William Blair.

Good day, ladies and gentlemen. And welcome to the Healthcare Services Group, Inc. 2016 fourth quarter conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions].

The matters discussed on today's conference call include forward-looking statements about the business prospects of Healthcare Services Group, Inc. within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are often preceded by words such as believes, expects, anticipates, plans, will, goal, may, intends, assumes or similar expressions. Forward-looking statements reflect management's current expectations as of the date of this conference call and involve certain risks and uncertainties.

The forward-looking statements are based on assumption that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances.

As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances. Healthcare Services Group's actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors and the forward-looking statements are not guarantees of performance.

Some of the factors that could cause future results to materially differ from recent results or those projected in forward-looking statements are included in our earnings press release issued prior to this call and in our filings with the Securities and Exchange Commission.

We are under no obligation and expressly disclaim any obligations to update or alter the forward-looking statements, whether as a result of such changes, new information, subsequent events or otherwise. I would now like to introduce your host for today's conference, Mr. Ted Wahl, President and CEO. You may begin..

Thank you, Sondra. And good morning, everyone. Matt McKee and I appreciate all of you joining us for today's conference call. We released our fourth quarter results yesterday after the close and plan on filing our 10-K the week of February 20. For the fourth quarter, revenues were up 9% to $399 million.

Housekeeping and laundry grew at 6%, dining and nutrition was up 14% for the quarter. Revenues for the year increased 9% to $1.56 billion. Earnings from operations increased to $31 million in Q4 and $122 million for the year after adjusting for the change in deferred comp.

Both revenues and earnings from ops for the quarter and year were company records. As we look towards 2017, the demand for our services is as strong as ever. The demand will present significant opportunities in the years ahead as we truly have positioned ourselves as a strategic partner of the provider community.

Our primary operational goal is to provide an extraordinary service and experience to our customers by executing on our systems implementation and adherence and people development strategies. These are the key ingredients that will ensure double-digit profitable growth over the long term.

With the Trump administration taking shape, our eighth administration since the company's founding, we do expect a more friendly tone and tenor towards the business community at large, although we’ve managed to thrive in all sorts of political environment.

That said, the change in administration may present an opportunity to refocus some of our best and brightest towards growing the company, creating opportunities for our employees and managing the business rather than navigating an increasingly complex and burdensome regulatory environment.

Additionally, the administration's pro-growth agenda, specifically its stated desire for corporate tax reform, could be a boost to fully taxed US-based service companies like ourselves. With that abbreviated overview, I'll turn the call over to Matt for a more detailed discussion on the quarter..

Thanks, Ted. Good morning, everyone. The net income for the quarter increased to $20.3 million or $0.28 per share and for the year was $77.4 million or $1.05 per share. Both net income and earnings per share for the quarter and year were company records. Direct cost of services for the quarter came in at 85.5%, which is below our target of 86%.

Going forward, our goal is to continue to manage direct costs under 86% on a consistent basis and, ultimately, work our way closer to 85% direct cost of services.

SG&A was reported at 6.8% for the quarter, but after adjusting for that $400,000 change in deferred comp investment accounts, [indiscernible] our management people, our actual SG&A was 6.7% for the quarter.

We would expect our normalized SG&A to continue to be at or below 7% going forward with ongoing opportunities to garner additional modest efficiencies. Investment income for the quarter was reported at about $100,000 before adjusting for the $400,000 change in deferred comp.

Our effective tax rate for the year was 36% and that’s inclusive of the worker opportunity tax credit, which has been extended through 2019. For 2017, excluding the potential for Trump tax cut that Ted alluded to in his opening remarks, we’d expect that our effective tax rate continues to be in and around the 36% range.

We continue to manage the balance sheet conservatively; and at the end of the fourth quarter, had over $90 million of cash and marketable securities and a current ratio of better than 4 to 1. Our accounts receivable remain in good shape right around 60 days.

As announced last week, the Board of Directors approved an increase in the dividend to $0.18625 per share, split adjusted, and that’s payable on March 24.

The earnings and cash balances for the quarter supported and with the dividend tax rate in place for the foreseeable future, the cash dividend program continues to be the most tax efficient way to get the value and free cash flow back to our shareholders.

This will be the 55th consecutive cash dividend payment since the program was initiated in 2003 after the change in tax law and it’s now the 54th consecutive quarter that we’ve increased the dividend payment over the previous quarter. That’s now a 14-year period that includes four 3-for-2 stock splits.

So, with those opening remarks, we’d like to now open up the call for questions..

[Operator Instructions]. And our first question comes from the line of Michael Gallo with CL King. Your line is now open..

Hi. Good morning..

Good morning, Mike..

Ted, I wanted to delve into your opening comment on regulatory burden and the potential for that to perhaps lessen with the new administration. I was wondering if we could think about or if you could frame out what some of the bigger buckets of increased regulatory burden were over the last, call it, eight years.

And where do you see some potential opportunities or talk perhaps of policy changes that might perhaps make that a little less burdensome? And again, if you have any buckets or specifics where sort of that you can give examples, just so we could understand how to frame that going forward, that would be helpful. Thanks..

Yeah, Mike. I think as far the regulatory environment, it's not so much a change in the laws or even the rules that are on the books for us, but it's more a manner in which they're going to be, we believe, interpreted and enforced.

And to your point, it’s less of a quantifiable financial impact than it is opportunity cost of having really our best and brightest, our talent going down administrative rabbit holes, like Obamacare or the minimum salary threshold. That’s where the opportunity is.

It's really more an allocation of resources towards managing the business rather than paperwork and compliance audits, which for us don't really drive our growth and drive our opportunity that we’re creating for our employees.

The two items I mentioned, Obamacare and the minimum salary threshold, best intentions aside, whether they were pure of heart or political in nature, they were not well received by our employees..

In terms of just – as you sort of go forward, obviously, growth has been in the 9% area, which is, obviously, a very good organic growth rate, but given the potential to reallocate resources, do you see that returning to double digits or you expect us to kind of stay in that high single digit range.

And I mentioned it in the opening remarks, but really the demand for the services is as strong as ever.

And I would say, heading into the new year, really not so much as a tailwind from any allocation, reallocation of resources, but just from a management capacity perspective in the field, we feel comfortable that we’re going to continue to be in that double-digit range that we target.

But having said that, the rate limiting factor on our growth continues to be our ability to develop that next wave of management. And here we are, entering our 50th – our fifth decade, our 41st year and we still haven't found a management development shortcut in our promotion-from-within model, which we’re committed to..

Thanks very much..

Thank you, Mike..

And our next question comes from the line of A.J. Rice with UBS. Your line is now open..

Yes. Hello, everybody. Maybe just following up on that a little bit, obviously, there's been some sense of tightening a little bit in the labor force out there. Has that affected your applications? You mentioned that typically having the staff is the gating factor of the management talent.

What are you seeing in terms of applications and so forth?.

That’s right, A.J. It’s certainly from an employment perspective – when we talk about the gating factor being our ability to develop employees, that’s at the management level.

That’s start at the management trainee level and we’ve talked about that program in which we’re committed to that 90-day training program, the first 30 days of which is really the hands-on application and really performing the blue collar tasks that that manager will ultimately be managing and we do that for a number of different reasons, but that coupled with the really challenging environment in which these folks find themselves operating in that present position and looking forward to the promotional opportunities which reside at the district level and regional level and the divisional level in that same challenging environment.

It's not like once they achieve a certain level of – within our management continuum, they no longer are operating in the facility. So, those factors all combine to generate that two-thirds fallout rate where only a third of our management trainees make it through that training program.

But when we talk about management development, we also talk about developing managers above and beyond that level. Clearly, in our model, as we continue to grow, we need to develop, train and promote folks to become district managers and become regional managers. So, all of these training initiatives happen concurrently.

So, we’re obviously focused on bringing new folks into the company, but also developing our existing managers to be able to take on district and regional responsibilities as well.

So, to your question as far as our ability to develop those folks, again, regardless of the overall employment environment, we've not typically faced the challenge in getting resumes. That stands true today as well. We’re seeing plenty of candidates. We’re able to hire a sufficient number of candidates.

The challenge that we face is really in getting them through that training program and we've not been willing to compromise the structure and the requirements of the training program because having quality training managers – having quality and well-trained managers is, obviously, key to our whole model.

It’s crucial that we maintain a high degree of customer satisfaction, which ultimately contributes to the client retention levels that we've enjoyed. And as you know, that’s a crucial part of the mix going forward for us to be able to continue to grow the business..

Okay.

So, then, maybe I’ll just ask you about the financial health of the customer base, obviously, there are ongoing payment pressures that long-term care providers face, changing reimbursement growth in Medicare Advantage, et cetera, any update on what you’re seeing in the key metrics you’ve tracked to evaluate credit quality of your customer base and so forth?.

Well, for us, as it relates to our collection activity, no, from our perspective, the client assessment is always done on a facility by facility basis, not at the top side, and that's what we’re going to continue to do going forward.

But you're right, A.J., in terms of over the past few years, really with this shift towards value-based purchasing and more specifically bundling initiatives, rack audits, more recently the requirements of participation changing. The industry has certainly felt a heightened sense of regulatory and reimbursement uncertainty.

And even now, with the change in administration, there is added uncertainty around the potential elimination, perhaps the likely elimination of ACA and then Congress' interest in modernizing Medicare and perhaps even Medicaid block grants. So, there's a whole host of things happening.

The overall impact on us is really one of increasing demand for our services. It’s part of our value proposition. It’s really the operational, financial and administrative certainty that we provide on 20% facility’s cost structure.

So, again, that doesn't mean we can grow any faster because we’re still dependent upon our ability to develop management people, as Matt just walked through, but overall that dynamic, that uncertainty within the overall provider community is a positive for outsourcing companies of all kinds, including ours..

Okay. Maybe just I’ll throw one last one in and pass it on. But you had $90 million in cash, I think you were down a little bit sequentially. Maybe any comment on that.

And then, I think there's been discussions about potentially reviewing the step up, obviously, increased the dividend slightly every quarter, but maybe given the cash balances, given the coverage of the dividend, you might look at stepping that up.

What’s the latest thinking on that?.

Well, the changing cash really quarter-to-quarter, year-over-year is just driven by the timing of the payroll accrual. So, this past quarter, we had a higher payroll accrual and then for the same amount a lower cash balance. I think as far as the dividend, A.J., it is something the board evaluates on an ongoing basis.

Our plan in the near term, especially post-Captive reorg continues to be gaining operating experience and balancing the capitalization and funding requirements of the subsidiary with the working capital needs of the parent company, so we can best determine capital allocation going forward.

I think longer-term, just to harken back to the comments about potential for tax reform and then just in the underlying business, tax reform aside, the acceleration of earnings and cash flow, there certainly could be an opportunity for us to reconsider the current approach. But that’s the outlook for, I would say, the next 12 months..

Okay. All right, great. Thanks a lot..

Thanks, A.J..

And our next question comes from the line of Andy Wittmann with Robert W. Baird & Co. Your line is now open..

Great, thanks. Good morning, guys..

Good morning, Andy..

So, I guess, I heard you say that you think you can be in the double-digit range on the top line.

I guess what’s the implication on the margin line here, recognizing that you still have probably an underutilized management structure, particularly in the food business, to feel like you can eke out – with that topline, can you eke out some margin gains this year and what’s the appropriate range do you think we should be thinking about over this year or maybe even a multi-year period..

That’s certainly the goal from our perspective, Andy, is not only to grow the top line in that profitable double-digit range, but to be mindful to continue to more fully utilize the underutilized dining middle management structure, and that’s really the primary driver of the margin improvement that we expect to see in 2017 and even subsequent years.

So, as we continue to selectively expand the dining business, it depends upon geographically where that business falls.

If you think about the maturation of the dining segment, in the mid-Atlantic and the Northeast divisions, we have the model – the middle management model really mirroring that of housekeeping and laundry and ultimately having the margins mirror those of housekeeping and laundry where you have both, in housekeeping and in dining, district managers overseeing the 12 facilities that they should be in our model and ultimately regional managers in both housekeeping and dining overseeing six districts.

As you look out over the Midwest and the Far West, we still in dining have district managers only overseeing six or seven facilities and regional managers overseeing two or three districts. So, really the geography in which we add the new dining business will be especially impactful on that margin opportunity.

So, if we’re increasingly adding new facilities in the Midwest and the Far West, there’s obviously going to be a more accretive benefit as opposed to those in the mid-Atlantic or the Northeast divisions.

But, ultimately, we certainly feel confident that we can do both – that is, continue to drive top line growth back to the double-digit targets that we talked about, while maintaining profitable new business ads and ultimately increasing those margins, particularly in the dining segment..

Got it.

So, is the pipeline of opportunities that you're seeing, Midwest and West, those underutilized area, is that where you're seeing maybe average or above average growth to actually deliver that margin leverage or is there any geographic locus on where you’ll be expecting to add new business for it to be less accretive to the margins?.

We don't manage the growth from here at the corporate office, Andy. Really, that happens down at the district and the regional levels. So, as much as we have a finger on the pulse of where the new opportunities are likely to generate from, geographically, we’re not trying to pressure folks to add in any given geography.

It’s really up to them to assess their management development capacity, the management team that they have in the pipeline as to whether and when they're ready to layer in new business up. We expect the growth to really come from all across the US, through all of the different operating divisions.

But the only reason I raise that point is just from an accretive margin perspective. When we do add the business in those severely underutilized areas, that’s where we’ll see more of the margin benefit..

Right. I guess my follow-up question was just relating to the overtime rule or the minimum salary rule that you guys referred to earlier. Obviously, this is the factor that was in some investors’ minds middle of last year and the rule, obviously, got thrown out by the courts and unlikely to be implemented now.

I guess, can you just give us an update on the status of how this has or has not impacted your business and what it could mean for your margins as you move into 2017?.

For us, it’s had no impact other than over the past 18 months intensive collaboration and communication with our management people, our clients and internally, making sure we were prepared to switch the proverbial light switch off and then back on the day it were to happen. But we were out in front of this. And again, this is what we do, Andy.

We have 48,000 hourly employees. If this would have – this administrative change would have taken place with the minimum salary threshold, we would have had a couple of thousand more hourly employees. So, we didn't view it the way perhaps others did. We are in the business of managing hourly labor. This is an expertise.

We’ve demonstrated that for four decades. If it were to come back, we would be disappointed for the sheer fact that – and I alluded to it earlier, our management people, to a person, did not really appreciate the government intrusion on how they were paid.

Part of the discussions where we spent the most of our time was having those one-on-one – those collaboration sessions with our management people, reassuring them that they still are viewed in a similar way by the company and the fact that they're being required or potentially going to be required to clock in and clock out.

It’s not a reflection of what the company's view is, but rather a governmental mandate. So, I think everybody ultimately understood it. But, again, it took a lot of human capital, a lot of coordination that, from our perspective, would've been better spent driving growth and creating the opportunities for those very management people you referenced..

Got it. That's helpful. Thanks. I’ll leave it there..

Thank you, Andy..

And our next question comes from Sean Dodge with Jefferies. Your line is now open..

Good morning. You guys have talked in the past about – once you got that stood up and operating, there were potentially some kind of knock-on offerings you can broaden into.

Can you just give us a quick update on where you stand on some of those?.

Yeah.

There’s limited opportunities for some increased product offerings and essentially what that would look like is just some of the employee pay-all voluntary-type benefit programs that we may make available to our employees and we’ve not really fleshed any of those out specifically at this point, Sean, but we would view those as primarily an added benefit that we can offer to our employees and we’ll be able to offer those through the Captive..

It doesn’t sound like any of those are imminent at this point?.

Neither imminent nor especially material..

And, Ted, going back to your comment around the strong demand environment, returning to double-digit revenue growth. This year, you also saw your client retention rates improve.

Can you talk about the primary drivers behind the higher retention rates? And I presume we’d need to see those remain near current levels in order for you to achieve your double-digit target in 2017?.

Yeah. I’d just even drill into that question for a moment or that comment around the double-digit target. Really, it’s double-digit, plus or minus.

That's really the target, largely driven by our ability to develop management people, but there's a lot of – the reason for variability, why for us a mid-to-high single digit year may be a great year because we have high retention rates, we’re being selective in our expansion, and we’re retaining our customer versus – once we get over that double-digit range, we do come close to where we may outstrip our ability to manage the business.

So, it's keeping those two cycles in balance, creating the opportunity for our management people, but also ensuring that we’re, in a very astute way, maintaining our client satisfaction levels with our customers because that, in fact, is where the future growth opportunities come from.

So, again, double digits is conceptual, but it's more of a bottoms-up managerial exercise than it is us dictating that we need to grow at a certain level. The other part of your question regarding retention rate, it’s really where we’re most at risk and this continues to be the case, is when there's a change in decision-maker.

Typically, an administrator, director of nursing for some of the smaller groups if it's a principal or license ownership change, that's where we go through the rigors of reselling the business. They don't have the benefit of seeing the before and after picture. So, that in and of itself creates some level of retention risk.

But the reason why, over the past five years, we've seen a slow creep in our retention rate, closer to 95% versus the historical 90% levels, is really the result of the dining and nutrition cross-sell. So, as we cross-sell dining and nutrition services into our existing customer base, we just become stickier. It transforms the relationship.

It's a different type of decision to engage and then a different type of decision for the operator to retain. So, that's really why we expect continued retention increases in the months and years ahead. But we still have to put in the work at the local level and there's no secret to it.

Make sure our systems are installed, make sure we’re committed to and executing on our people development strategies, which ultimately are going to help boost those satisfaction levels which make the resale in the event of an ownership change more likely..

Got it. Thank you again, guys..

Thank you..

Thanks. Sean..

And our next question comes from the line of Chad Vanacore with Stifel. Your line is now open..

Hey, good morning, all..

Hey, Chad..

So, we haven’t talked on new contract originations. So, what do they look like in a quarter and how to do they – what was the mix of housekeeping versus dietary..

If you think about it, Chad, this is a really diverse influx of new business; really geographically, a nice blend. And to your question specifically, about a 50-50 mix between new housekeeping adds and cross-selling dining services to existing housekeeping clients. So, really, nothing of note there.

Really just a nice diverse blend, both geographically and service-wise with respect to the new business adds in the quarter. .

All right, Matt.

Can you talk about the pipeline for future business? How does it compare to historical and then what do you think that percentage of new customers versus existing customers we can expect?.

Yeah. I think as Ted alluded to, the pipeline remains as strong as it's ever been.

So, from our perspective, the two sort of unknowns are with respect to kind of timing and geography, right? We’re in discussions with clients on expansion of services or cross-selling additional services and they may be substantive discussions happening right now, but may not come to fruition with an actual start date until the second quarter or even the third quarter of this year.

So, projecting out the start from a timing perspective is something that is a moving target, if you will. And, geographically, the same dynamic applies where the growth does occur locally through that district and regional level. Those are the folks that have the relationships, as Ted alluded to.

There’s plenty of movement from a management and an ownership and operation capacity in the industry, and that's where nine out of ten of our new business opportunities generates.

So, really, it’s the local discussions that happen and we’re confident that we’ll, as Ted alluded to, ultimately, end up back in the double-digit profitable growth target range that we’ve sought out.

But with respect to the first and second quarters, specifically, of this year, we do expect strong growth and feel confident that that pipeline is really as healthy as it's ever been..

All right. And then, just thinking about your – you’ve successfully integrated that Captive insurance companies. It seems like you have currently around $6 million annual benefit from that.

Can we expect you to eke out any incremental savings in 2017?.

I think as far as any incremental savings, they’re going to be driven, I would phrase it as, phase two of our overall risk strategy where we've made the programmatic enhancements in terms of introducing nurse case management and our company-sponsored return to work program.

We've changed from a percentage of spent to fixed fee per-claim model and then more recently engaged that third-party administrator and then, Chad, part and parcel with that, a national physicians panel and revamped medical bill re-pricing. All of that has been layered it and it is baked into the cake once it was dropped into the Captive.

Going forward, this second part is really going to be selectively looking at certain markets to more aggressively reduce the number of claims. In California is the classic example for a lot of things, but this being one of them. It’s a state where we have roughly 10% of our business and over 20% of our workers’ comp experience.

So, trialing things like custom-crafted workplace safety programs or slip resistant shoes, back braces, and then also boots-on-the-ground personnel in the form of risk managers, that's where we'll see some of the potential benefits, but that's not a near-term 2017 opportunity as we see it. That’s more over the next three years.

But we do believe there’s significant opportunity there..

All right. And then just one last one for me.

Just thinking about the headwind in skilled nursing industry, have – either anecdotally or objectively, have you seen any pressures on their workforce or your workforce through them?.

Sorry. Could you clarify, Chad? I’m not sure, pressures to the workforce….

So, let’s say, any pressures on the operators that you could point to that either drives demand for your services or hurt the credit quality of your clients? And, I guess, more to the point would be, any trouble recruiting new talent given a tight labor market and expected wage inflation?.

I think Ted really addressed it earlier. Certainly, there continues to be pressure on the industry at large with respect to some of the specific pressures Ted mentioned. The bundling initiatives, rack audits, requirements for participation, and I think as Ted outlined, it just creates an ever-increasing environment of uncertainty.

And with that uncertainty, operators look for ways operationally, financially, administratively to contain costs and to provide some degree of certainty in their operation. And, clearly, outsourcing any and all of their secondary-type services provide that, we happen to, of course, be the beneficiary of that type of outsourcing.

So, we continue to see opportunities with respect to the pressure and, more specifically, the uncertainty that operators are facing and look to translate that into profitable growth opportunities.

As far as our ability to hire employees, we talked a bit earlier about the ability to develop – to identify higher train-and-develop management candidates and that really remains unchanged. That continues to be the gating factor on our ability to grow the business.

If you're looking to drill down more through the line staff employee level, really that varies by market, right. And the benefit that we have is that the client ultimately establishes the conditions of employment at the facility with respect to starting wages, benefit program, wage increases, et cetera.

So, as much as there is wage inflation in a given geography, minimum wage changes, et cetera, the client is ultimately the party who dictates those increases both from a timing and an amount perspective and we have rights through our pass-through clauses in our contracts to just be the beneficiary and, ultimately, receive that pass-through financially.

So, we really remain agnostic to it. Certainly, we’re wired in as much as it impacts our ability to recruit and hire new employees, but ultimately it’s the client through really a dialogue and a discourse that establishes what the conditions of employment are at the facility..

All right. Thanks for taking my questions..

Thanks, Chad..

Thanks, Chad..

And our next question comes from the line of Ryan Daniels with William Blair. Your line is now open..

Yeah. Good morning, guys. Thanks for the questions..

Ryan, how are you?.

Good, good. Thank you..

Quick question just on the revenue progression. If I look back over the last few years, it seems like Q4 to Q1 is always the biggest boost sequentially in the year in revenue.

And number one, is that a typical kind of year-end phenomenon where your clients are looking for cost savings in the out-year, so you see more of a conversion of those accounts at year-end? And then number two, you guys seem pretty confident about stronger growth, but if you look at the numbers, it almost requires about $25 million in incremental growth to get back to double-digit.

So, were there any bigger contracts that were signed this Q4 that give you that level of confidence about the growth? Thanks..

I think the second part of your question, I know we’re on this call and it's a quarterly earnings call, but the reality is we don't manage the business and we don't view the business on a quarter-to-quarter basis.

We’re really managing the business and no aspect is more important and critical to our business than the management development efforts, successfully developing the management people. So, it's really a set of – a year or a set of years that we’re evaluating our growth objectives over.

So, when we talk about double-digit growth, we’re not alluding to a specific quarter, Ryan.

It’s really over the course of the next 12 to 18 months, we feel comfortable, given our management capacity that we have today that we should continue to grow in and around that double-digit range, given the demand and again where we are from a management perspective.

As far as the bolus of new business that we've had in each of the past first quarters that you referenced, that was more coincidence or just timing than it was anything else. It's really – Matt mentioned it earlier, we’re working on opportunities today that we’re going to transition 6, 9, 12 months from now.

So, that's just timing and it's not any seasonality or any cyclicality even for that matter..

Okay, that’s helpful. And then, final question here.

Just when you're talking about the dividend increase, you mentioned the cash balance, the dividend and the Captive and funding that, can you remind us of the interplay there? Do you any restricted cash as you continue to grow the organization or get claims history and that would require you to be a little bit more cautious of keeping a higher cash balance versus taking up the dividend? Thanks..

Just because it is a newer endeavor for us as an organization, we are committed to gaining operating experience in it. So, at any given point in time, we would envision having $60 million to $80 million of cash dedicated to that entity. And although, technically from a GAAP perspective, it's not considered restricted cash.

Certainly, with the Department of Banking and Insurance in New Jersey who we worked with to develop the Captive insurance program, we have taken a more conservative approach and I think they appreciate that approach that we've taken. And that's we’re committed to going forward. But we’ve just begun this year.

We have begun trialing parent company borrowing from subsidiary at any given point in time. And that'll be something we continue to work through over the course of the next 12 months.

But it is – we've always managed the balance sheet conservatively, as you know, Ryan, and that’s something the board is committed to and really as a company we’re committed to moving forward..

Okay, great. Thank you..

Thank you, Ryan..

And I’m show no further question at this time and I would like to turn the call back over to Mr. Ted Wahl for any closing remarks..

Thank you, Sondra. As we start our fifth decade of business, the company's vision for the future is as clear as it's ever been. We will be the choice for all of the communities we touch each and every day, our employees, customers, residents and fellow shareholders.

The demand for the services is as strong as ever and the recently announced strategic clinical collaboration between Kindred and Genesis is yet another high-profile example of the provider community’s increasing desire to focus on core competencies.

This renewed focus on core competencies, especially in the era of value-based purchasing, will create opportunities for outsourcing companies of all kinds, including ours, that not only have the ability to contain cost, but also allow operators to focus on patient care and patient mix, which is really the lifeblood of their business rather than support services that tend to drain their already-limited resources.

As a strategic partner to the industry, we are well-positioned to take advantage of these opportunities as they present themselves, which is why people development, from the newest of employee to the most experienced of leader, will remain our highest priority in the year ahead.

As we look to continue our momentum in 2017, the demographic trends have been and continue to be in our favor. We’re in an unprecedented cost-containment environment that’s increased the demand for outsourcing services of all kinds, including ours.

We have the most talented and ambitious management team that we’ve had in the history of the organization and we have the financial wherewithal to grow the business as fast as our ability to manage it. Ours is an execution business and our ability to execute is what will drive our success in the months and years to come.

So, on behalf of Matt and really all of us at Healthcare Services Group, I wanted to thank Sondra for hosting the call today and thank you again to everyone for participating..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day..