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 assumptions 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 these circumstances.

As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances. Healthcare Services Group, Inc.'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, including the SEC's ongoing investigation.

There can be no assurance that the SEC or any regulatory body will make no further regulatory inquiries or pursue further action that could result in significant costs and expenses including potential sanctions or penalties as well as distraction to management.

The ongoing SEC investigation and/or any related litigation could adversely affect or cause variability in our financial results. We are under no obligation and expressly disclaim any obligation to update or alter the forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise.

Ladies and gentlemen, thank you for standing by, and welcome to the Healthcare Services Group, Inc. 2020 Fourth Quarter Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please be advised that today’s conference is being recorded.

[Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Ted Wahl, President and CEO. Thank you. Please go ahead, sir..

Okay. Thank you, Misty, and good morning, everyone. Matt McKee and I appreciate you joining us today. When I look back over the past year, I'm so grateful for how industry leaders, clients and frontline healthcare workers, especially our HCSG heroes, have led and served through one of the most trying periods for our industry and country.

In special recognition of HCSG's frontline leaders for their extraordinary leadership, courage, and grid over the past year, we were beyond excited to award $1,000 leadership recognition bonuses to our great account managers, dietitians, and district managers. This special recognition was so well deserved, and again, thank you team for going beyond.

I'd also like to thank you fellow shareholders for your ongoing support, trust, and confidence in the HCSG team during these unprecedented times. Our strong fourth quarter results are a testament to the passion and perseverance of our team members and our ability to execute in even the most challenging environment.

As we continue to control the elements of our business that are within our control exceedingly well. We will remain laser focused on our operational imperative of customer satisfaction systems adherence, regulatory compliance, and budget discipline as the pathway to delivering strong operational and financial results in the year ahead.

With the vaccine rollout currently under way, we're hopeful that the worst of the clinical nightmare in the industry is behind us. That said, we know 2021 will still have a share of pandemic-related challenges as the industry gradually shifts from crisis mode to a state of recovery.

And while COVID remains a near-term headwind on revenue, our commitment to internal investment and returning capital to shareholders underscores our positive longer-term growth outlook and creates value for all stakeholders.

Before we move on to the discussion on the Q4 results, I'd like to briefly touch on the SEC update we provided in this morning's release. As we highlighted, the company and the SEC have recently commenced discussions regarding a potential resolution to the investigation.

We're pleased that this matter has moved into this phase and hope to continue to work with the SEC to reach a final resolution.

As I'm sure you can all appreciate beyond what we've previously disclosed and including this morning's release, we continue to be limited in what we can say about this matter, especially while resolution discussions are ongoing. So with those introductory comments, I'll turn the call over to Matt for a more detailed discussion on the quarter..

Thanks, Ted, and good morning, everybody. Revenue for the quarter was $423.2 million, with housekeeping & laundry and dining & nutrition segment revenues of $219.9 million and $203.3 million, respectively.

Revenue included $5.1 million of COVID-related supplemental billings, primarily related to employee pay premiums, which were initiated by and passed through to our customers. Net income for the quarter came in at $27.7 million and earnings was $0.37 per share. Direct cost of services was $352.2 million or 83.2%.

And direct cost included a $14 million benefit related to favorable workers' compensation loss development trends, as the company continues to successfully execute on its strategy of managing claim frequency, scope, and severity. Direct costs also included $7 million of leadership recognition bonuses that Ted had mentioned in his remarks.

And the company's goal remains to manage direct cost at or below 86%. Housekeeping & laundry and dining & nutrition segment margins were 9.9% and 7.7%, respectively. SG&A was reported at $42 million, or 9.9%, but after adjusting for the $5.2 million increase in deferred compensation, actual SG&A was $36.7 million, or 8.7%.

The company expects near-term SG&A around 8.5%, excluding any COVID or SEC-related costs, with the primary leverage existing in top-line growth. And longer-term, the company's target remains 7.5% for SG&A.

Investment and other income for the quarter was reported at $5.8 million, but after adjusting for the $5.2 million change in deferred compensation, actual investment income was around $600,000. We reported an effective tax rate of 20.4% for the fourth quarter and 23.6% for the full-year 2020.

We expected 2021 tax rate of 24% to 26%, including the Worker Opportunity Tax Credit. Cash flow from operations was $75.7 million. This includes a $45.2 million increase in accrued payroll, and included in that number is $14.3 million increase in the deferred payroll taxes that we received under the CARES Act.

And because we called out the timing of the payroll and the impact of the payroll accrual last year, we would point out that the 2021 payroll accruals should have a similar cadence to what we saw last year. Q1 will have the lowest payroll accrual of four days; Q2 will be 11 days; Q3, five days; and Q4, 13 days.

And Q4 will also be impacted by half or $24 million or so of that CARES Act deferred payroll tax repayment, half of which will be due at the end of 2021, the other half of which will be due at the end of 2022, and those accruals compared to the 3, 10, 4, and 12 days that we had in 2020 during the corresponding quarterly periods.

But, of course, the payroll accrual only relates to timing and the impact ultimately washes out throughout the full-year. DSO for the quarter was 55 days, down 3 days from the previous quarter.

And we're pleased with the ongoing strength of our balance sheet and the ability to support the business while continuing to return capital to our shareholders. We announced that the Board of Directors approved an increase in the dividend to $0.20625 per share, payable on March 26 of this year.

Cash flows and cash balances supported and with the dividend tax rate in place for this foreseeable future, the cash dividend program continues to be the most tax efficient way to get free cash flow and ultimately maximize return to our shareholders.

This will mark the 71st consecutive cash dividend payment since the program was instituted in 2003 and the 70th consecutive quarterly increase, now 18-year period that's included four 3-for-2 stock splits. We recognize the dividend is important to our shareholders and we've increased it in-line with our performance track record.

Additionally, the company remains authorized to purchase 1.7 million shares of our common stock pursuant to the previous Board of Directors' authorization and expect to repurchase up to 1 million shares over the next 12 months. So, with those opening remarks, we'd now like to open up the call for questions..

[Operator Instructions] And your first question comes from A.J. Rice with Credit Suisse..

Hi, everybody. Maybe, Ted, first get you to comment a little further on what you're seeing in your customer base? I know, the industry was hit with occupancy pressures in the summer, in the fall up the pandemic.

Have you seen that rebound much in your customer base, or is that still in front of the industry? Just sort of an assessment on where your underlying customer base stands at this point?.

Yeah. A.J., and certainly during Q4, we saw, I think, the industry, at large, fell another 5 points or so depending on what study or analysis you want to latch on to, but we've seen that in our customer base as well. And there continues to be geographical dispersion and variability in terms of what states, what areas are impacted most.

The Northeast, New York in particular, on a relative basis to the rest of the country having the strongest occupancy, I think, that was reported still under 80%, but in the high 70%. And then, we have other states like Texas that are in the mid-to-high 50%.

So, federal support is going to be critical, and as we've talked about before on this call, to be able to bridge the gap between where the industry is today. And then, recovery, which – recovery will happen, but it's not going to be a rapid recovery. We think of it is happening over the next 6, 12, 18 months incrementally.

And during 2022, I think, we'll be in a good spot, a much better spot as an industry. But federal support, as well as ongoing state support, is going to be critical to bridge that gap..

Okay. Thanks. On the workers' comp accrual in the quarter, I think, you got about $14 million of benefit you're calling out there that impacted the gross profit line.

How should we think about that and going forward into 2021? Is that a year-end review that resulted in that? What is, sort of the implications of that for 2021? Will there be a sustained improved accrual on workers' comp throughout the year in 2021?.

Yeah. Hard to sort of predict the go-forward impact. If you recall, A.J., we conduct an annual actuarial review, which serves two purposes. It reviews the development of ongoing prior year claims to monitor the appropriateness of our current reserves. And then, based on how our claims are developing, it also establishes the go-forward reserve rate.

And we do reserve – make our reserves as a percentage of payroll. So, obviously, based on positive developments that we've seen in closing our prior year claims, the actuarial assessment revealed that we had about $14 million more reserve than what we will ultimately likely need. So, that's an adjustment that we make every year in the fourth quarter.

So, the actual effect hits the fourth quarter results, but the adjustment is actually the result of developments for claims in previous periods, and typically, previous years due to the long tail of some of the work comp claims that we see.

So, our goal, of course, and the actuarial goal is to refine the percentage of revenue that we're preserving every year, so that you're as close as accurate as possible. But work comp claims, obviously, have lifecycle of their own and develop in different pathways.

And, of course, we've made significant investments in improving our work comp experience as it relates to the frequency, scope and severity of all of those claims. So, it’s that hard work that continues to yield results and benefit the company.

So, we will make adjustments based on that actuarial review to the percentage of payroll that we've reserved going forward. The hope is, of course, to nail that as accurately as possible.

But only with next year's actuarial review, in hindsight, we'll be able to ascertain whether we have reserved appropriately or if there is insufficient funds or if there would be excess as we've seen over the past three years..

Okay. And maybe one last question here. In the second half of last year, we talked about the fact that, obviously, customers were dealing with the COVID issues and census hit and so forth, and weren't really ready to make decisions to take on new outsourcing such as what you offer.

And then, you also had indicated that you will sort of assessing the customers and how they were going to come out the other end of it and were also a little circumspect on taking on new business.

Can you just sort of update on your thinking there? And will we see any move to add new customers as we progress through 2021, also thinking about that?.

As we progress through 2021, yes. And we are starting to gain, especially with the vaccine rollout well under way, some incremental visibility into that, which is a positive. Cautiously optimistic that Q4 occupancy was the bottom or at least close to the bottom. I think that is a prevailing view within the industry.

And when you think about it – just to unpack even your question a little bit, I guess, in the context of occupancy, as it relates to us in this unprecedented environment, revenue is really a lagging indicator in that.

As these significant census declines have occurred, we've been very collaborative with our customers, reducing our cost and then passing on those savings that were identified through billing reductions, which is part of the partnership and how we think about the relationship with our customers.

So, in light of that with sector occupancy rates falling, as I alluded to earlier A.J., another 5 points or so, we think of Q4 without getting into new business at the moment, we think about our Q1 revenues to be in that $400 million to $405 million range, maybe flattish heading into Q2, before we start to see then timing of the vaccine rollout and then census recovery potentially modest rebounds in that back half of the year.

Both with the existing business, which would be census-driven. And then getting to the heart of your question, prospective new business. You know currently, we are still being disciplined and cautious in terms of kind of organic growth Greenfield opportunity ads, but even with that they are still facility access challenges, right.

I mean, even operators who are interested and highly desired to have an outsourcing partner like us are reluctant to make changes in this environment. But that's how we're thinking certainly about first half of the year, second half of the year.

And I think when we're together in April, and obviously throughout the quarter, we're going to continue to gain incremental visibility, and I think, we'll be able to speak more definitively as to how we're thinking about the rest of the year..

Okay. Thanks a lot..

Thank you, A.J..

And your next question is from Sean Dodge with RBC Capital Markets..

Thanks, good morning. Maybe going back to the workers' comp benefit, Matt, as you pointed out this is the third year in a row you've been able to drive some pretty meaningful improvement in your losses there. I know you've been very proactive developing programs that focus on worker safety.

I guess, help us understand what else you're doing to drive kind of this lower trend, and maybe, how much runway do you think you want to continue to drive value out of that?.

Yeah. It's really – it's been a mindset shift that was initiated, which was going on eight years ago now, which was really an attempt to actively manage and mitigate our risk management programs, which had historically simply [resided] within the walls of the client facility and left into the hands of the clients' risk management program.

So, we've actively managed and implemented risk safety measures, things that may sound silly to sort of say out loud, but things like slip resistant shoes that we're giving to our employees. Of course, in a business like ours, a lot of the injuries that we see are slip and fall or soft tissue type injury.

So, slip resistant shoes, back braces for appropriate employees, and just implementing safety measures supplemented with on-site training, so that we are – sure that our employees are trained appropriately to complete the task at the facility level. So, that's happening out in the field.

On the back-end, we've, obviously, engaged third-party administrator, in addition, to a nurse case management organization with the goal being to really actively manage a return-to-work program.

The shift that we've experienced in moving a larger portion of our claims from indemnity claims to medical only has had a significant impact in the benefit that we see in the active return to work program.

Of course, done so under the careful guidance of medical professionals and done so within what's appropriate from a safety perspective has been significantly beneficial to the organization.

So, the output that we talk about, this $14 million benefit is strictly the actuarial sort of scorecard that really grades the benefits that we've seen through those programmatic enhancements that we've worked so hard to develop and ultimately implement and execute.

So, there is – obviously, the goal remains a 100% safety for our employees and we'll continue to work with both our clients and our managers and employees at the line staff level to educate, to support, and to provide the appropriate training and materials to help them do their job in the safest possible manner.

And then, on the back-end from an administrative and programmatic perspective, manage those claims and get our folks back to work as safely and as soon as it's possible. So I'd say, Sean, it's going to be a year-to-year ongoing assessment, but given the relative infancy of these programs, we would expect that on a go-forward basis.

The adjustments ideally get smaller and smaller as there is a longer tail of actuarial record based on those improvements that we've implemented. Now, having said all of that you insert a year like 2020 where obviously the frequency, the scope and severity of our claims that we experienced got completely turned upside down, right.

Of course, we had a number of COVID-related claims that we have never experienced previously. Interestingly, we saw a significant decline in our non-COVID work comp claims. So, the good thing is that from a developmental perspective, the claims that we did incur in 2020 resolved much, much quicker than our typical claims.

But, I guess, I raised that point just that on a go-forward basis, obviously, 2020 experience and certainly expectation that there'll be some ongoing drag of similar experience into 2021 will be incorporated into those actuarial formulas and assessments. So, we'll keep you apprised of that.

But as to the foundations and fundamentals of our work comp and really worker safety programs, we do strive for ongoing improvement. That's for sure..

Okay. Interesting. Thank you. And then, on revenue, housekeeping was pretty flat sequentially, dining was down a little.

Can you give us a sense of where you exited the quarter on a run rate basis? Were there any meaningful facility adjustments reductions or anything that took place later in the quarter we should be accounting for?.

Yeah. I mean, the revenue number for the quarter, we had about $5 million or so of COVID-related hero pay for our associate level, line staff employees as well, just to point that out, but very modest adds, very a good retention rates in the quarter.

So, when you think about heading into Q1 and really the first half of the year, I'd mentioned it in my discussion with A.J. earlier, but thinking $400 million to $405 million as the Q1 revenue expectation, Sean, and that's, again, driven by largely the occupancy-related adjustments that we made in Q4 that would fall into Q1.

That would account for the difference between – primarily between what we've reported in Q4 and what we're expecting in Q1.

And then, expecting that to be flattish quarter-to-quarter between one and two, based on the visibility we have now, but we'll provide more updates when we're together in April, because we are starting to gain – every week that goes by, especially with the vaccine rollout, we're gaining incremental visibility, which is a good thing in terms of our growth – not just our the occupancy and the impact that has on revenue, but also most importantly, as we think about it, our organic growth outlook, which we're still deeply committed to and excited to get rolling again.

So, that's how we're thinking about, certainly, the first half of the year. And then, the second half of the year, I think, we'll be able to speak more definitively to in the coming months, again, as we gain that additional visibility..

Okay, great. Thanks, again..

Thank you..

And your next question is from Ryan Daniels with William Blair..

Hey, guys. Nick Spiekhout for Ryan. Thanks for taking my question. So, I guess, this quarter, again, it looks like food service margins remained a little bit elevated. I know, last quarter you said one quarter doesn't make a trend, but we've seen kind of a couple of quarters in a row now with those bit elevated.

I just wonder if you can provide a little more color on that and kind of where the put and takes there, how you see that going into 2021?.

Yeah. I mean, I'd say, Nick, we certainly called out our laser focus on the customer service and customer experience, and part of that focus includes managing the services as efficiently as possible, especially in light of the census pressure that many of our clients continue to face as we've talked about a number of times already on this call.

The simplest way to think about it is, first and foremost, it's a powerful testament to our operations teams and really their unwavering commitment to that operational imperative, that Ted alluded to in his opening comments and that relates to customer satisfaction, systems adherence, regulatory compliance and budget to actual performance.

And I've described it this way before and I recognize that it's somewhat [unpoetic], but it's really a focus on managing our services based on bodies in beds, right. And really having a firm focus to flex our cost according to the scope of services needed at a particular facility, it's critical.

And in dining, there is more of a direct correlation clearly in the number of folks in a facility directly relates to the number of meals that you'll be providing.

So, I would say that it’s been, kind of out of necessity that our management folks at the field level have been forced to manage their dining purchasing and production according to the number of bodies in beds at a particular moment. And given the wild swings that we've seen in census, there is a hyper focus in execution.

So, you hate to think that it took a pandemic to really kind of force our folks to recalibrate their mindset to that level of focus and execution, but it's been beneficial and we're certainly looking to retain that mindset on a go-forward basis.

So, as census begins to build back in our facilities, we don't want kind of an automatic reversion to our purchasing and production from – back in the old day when we had a full house, we want to make sure that we continue to carry that mindset of managing the business based on bodies in beds and have that carry through in all of our purchasing and production decisions as well.

So, we're looking to maintain those margins, but undoubtedly, there will be fits and starts as census builds back up, and then likewise, as we get back into growth mode.

And you, Nick, are certainly familiar with this element of our business that as we onboard new business and inherit the inefficiencies of the operation that we are on-boarding, there is typically margin pressure, right. So, that'll be another, kind of factor that we'll have to consider that as we ramp back to growth mode.

In both housekeeping and dining, there will likely be some margin pressure. And that’ll – at least from our perspective that will be a good problem to have..

Perfect. Thanks. It's really helpful. And then, I guess, regarding the CFO's temporary leave, could you provide a little bit more color on maybe the reason there? Is that kind of part of the settlement involved with that or is it like completely separate secular? Thanks..

Yeah. I appreciate the question. But as I alluded to in my opening remarks, we're really limited in what we can share. And really out of respect for the process, I'm not going to comment any further, again, especially as these resolution discussions are ongoing.

What I can tell you, Nick is, we continue to cooperate, we have throughout the process, and we are pleased that it's moved into this phase, and we're hopeful we're going to reach a final resolution..

Okay, cool. That's fair. Thanks. That's it from me..

Your next question is from Bill Sutherland with The Benchmark Company..

Hey. Thanks. Good morning, guys.

I was curious on the backdrop for your clients, you talked about the occupancy, which fits with everything I've been seeing, have they had any shift in their payer mix over this past year as a function of what's going on?.

Yeah. And again, there is so much variability, Bill, in your question to be able to give a kind of a one size fits all answer. But, yeah, generally speaking, many operators have seen increases in Medicare, because of some of the administrative action that's been taken by CMS along the way. So, that shift has occurred.

When you think about the three-day bed-hold waiver and things like that, that has been in place. PDPM has had some impact as well, certainly, on Medicare rates, positive impacts.

Although from a cost standpoint, the operators haven't been able to fully realize the benefits of some of the cost efficiencies, because group and concurrent therapy clearly is not as common as it would otherwise be. So, there has been some shifts.

But again, you do have a tremendous variability, not just area to area, but operator to operator depending on their model that they [indiscernible] to..

Right.

And then I guess there has been a shift, obviously, from skilled beds to more long-term care beds, right?.

Yeah. I mean, that's another piece, it again depends on the provider and their focus..

Okay. Yeah. That's all I have at this point. Thanks. Appreciate it. Great job, given the circumstances guys..

Thank you..

And your question is from Brian Tanquilut with Jefferies..

Hey, good morning, guys.

If you don't mind just giving us an update on the change last quarter that we saw in bad debt accruals? I mean, given Genesis, obviously is still out there vocal about the need for a government funding to sustain their operations, so how are we thinking about that?.

Yeah. We – the CECL methodology was implemented at the beginning of last year. So, obviously, that's really driving the vast majority of the accrual, the expense. But if you compare it to last quarter, I think, it was right around $3 million this quarter compared to $800,000 or so last quarter.

It's going to continue – there's going to be some quarters at it probably similar to this quarter, other quarters where it's at the lower end.

It really depends on what we're collecting, are we collecting what we bill, who will be collecting on, are some accounts – even if we collect, what we bill or we collect more than what we bill if accounts age that may trigger a higher expense, it's pretty mechanical. So, that's the results for the quarter, though, as it relates to bad debt expense..

Okay. And then, Matt, you were talking about workers' comp earlier to one of the questions.

So, as volumes recover at your clients' facility, do you guys think that workers' comp could pick back up as well?.

It's a tricky question to answer, Brian. I mean, it's certainly as census flexes back up and in as much as that results in us needing to add staff to any particular facility, the math would suggest that there is an increased incidence or likelihood of injuries or work comp claims, right.

But there has been maybe a little bit of a mindset shift in the industry, and how longer lasting that is, I would say, it certainly remains to be seen. But it is interesting that we've seen such a market decline in our typical work comp claims outside of COVID in 2020.

Now a cynic might say that our employees appreciate having a job and there's maybe no funny business going on, but there is certainly an element that you alluded to in that as we flex down our staffing as a result of census declines, just the math would clearly suggest that there is a lower incidents or likelihood of work comp and injury claims.

So, I think, a little bit of uncertainty there, but your logic certainly holds.

And as much as I alluded to our ongoing efforts to educate, provide a safe environment and to reduce those claims, and then, ultimately manage those claims once they submitted, there is certainly some degree of uncertainty as to what the workspace and the work environment within the nursing home will look like on a go-forward basis, at least in the nearest of near-term..

And the only other kind of wildcard I would introduce to the entire – it's not specific to workers' comp, but it's more of a general statement with the company and kind of our belief system and what the journey that we've undertaken over the past four years, starting with Purpose, Vision and Values, as we are all in on employee engagement and recognition.

And again, I don't have data to suggest and tie that us going all in on that piece and believing in that as an organization and shifting the mindset of the organization around that, not that we weren't before, but formalizing it and really having structure and commitment to it in a universal type of way, ties to reduced workers' comp claims.

But again, what I can tell you is that our workforce, our leaders are more engaged than they've ever been before in my years with the company. And it fills me with pride to be able to say that we have a team that is truly aligned on what we believe our value system and the vision of the company.

So again, how that translates into workers' comp and questions about if somebody is going to be more likely to maybe be committed to what they're doing and – whether it relates to absenteeism and/or no other aspects of their focus, but that is something I just – I wanted to make sure I shared because that something is happening within the company that's really positive.

And it doesn't always show up in the results, or even if it does, it's not something we carve out and highlight..

I appreciate it. And then, I guess, Ted, my last question for you, obviously, there is a big discussion on raising minimum wages. I know you have passed through arrangements with your clients.

But how are you thinking about any residual potential impact from that? Is there anything that might get stuck with you guys, or do you think that you can pass through all that if the $15 minimal wage happens?.

No, that pass through is fairly ironclad in our contractual agreements, Brian. So, that's not a concern, per se. The concern for us, if you'd even want to characterize it as a concern, would be just for the general financial health and well-being of our clients, right.

Because while it's true that very few employees in a nursing home environment are paid minimum wage, that's the frame of reference, right.

So, there's typically a premium paid to minimum wage to motivate people to come in to a nursing home and perform duties that are, obviously, not the most attractive or appealing relative to other job opportunities that are out there. So, that becomes the question, right.

If a particular operator always had to pay 12% premium to minimum wage to get people through the door, well, geez, if there is a $15 per hour minimum wage, do they still need to pay a 12% premium, or is it something less than that, right, how do they titrate that premium relative to minimum wage.

The other element is the employees with seniority relative to a new employee walking in the door, you may have a 20-year employee who is making $18 an hour. Well, if the new guy who walks in is going to be hired at $15 an hour, my $18 doesn't seem that great anymore, so I'm going to want to pay boost, right.

So, it's really those types of conversations and that level of analysis and adjustment that our clients will have to make. Ideally, there's a rock solid plan in place to supplement that with corresponding increases in reimbursement.

But that's where that the challenges really exist within the industry as not as much establishing that floor, but it's that titration of the premium relative to that new floor..

All right. Appreciate it. Thank you, guys..

Thanks, Brian..

And your next question comes from the line of Mitra Ramgopal from Sidoti & Company..

Yes. Hi, good morning. Thanks for taking the questions.

First, just on the revenue guidance for the first half of the year, it looks that's all really due to just the lower occupancy and not any, maybe, additional exiting of facilities or adjustment of contracts that we saw, maybe, a year and a half ago?.

Yeah. That means, there is always modifications. We're in a constant state of negotiation, 365 days a year, right, everybody is looking – we’re always looking to improve what we’re doing and the customer – as the saying goes, right, you’re only as good as your last performance. So, we live that each and every day.

So, we’re always evaluating the current state and projecting our future state, but no nothing significant, nothing notable that would be reflected in the numbers. Similarly, we didn't have significant or notable add. It's been pretty flat in terms of that dynamic in the business.

So, again, occupancy in this environment as it relates to revenue, really, again, underscores that revenue for us as a lagging indicator..

Okay. No, that's great. Thanks.

And then quickly just on DSOs, the improvements you're seeing, is that really more a reflection of your initiatives on the accelerated payment model, or anything else maybe in terms of funding that your clients are seeing?.

Yeah. Look, collections this quarter exceeded billings yet again. Seven of the past eight quarters, we've been able to do that. Strong cash position, weekly payment initiatives continue to be success – continue to be successful. Over 60% of our customers are paying us at a frequency of greater than monthly.

So, certainly that's been, I believe, the primary driver of it.

And then, I think, over the past few quarters strategically and collaboratively working with our customers for groups that we may be kind of accommodated at different points in the past as they've had some of the CARES Act money come in, we've been able to true-up some of the [indiscernible] that were being carried.

But great credit to really our entire team, our financial services leaders here in the office. But I can tell you the field based leaders are intimately involved in this as well. So, it certainly has been a team effort like everything else in the company..

And I think, Mitra, it's worth noting that, I think, even if it's on a subconscious level, there's an additive effect of really the ongoing enhancement relevance and importance of our value prop from an operational perspective, right.

If you think about being in the midst of a pandemic where rocked to the floor as never before is infection prevention and infection control working right alongside the nursing department, what is a more impactful way to mitigate infection prevention and ultimately enhance infection control than through their housekeeping services, right.

So, if you're a customer in this current environment, and even if you were struggling financially as a result of occupancy pressure, are you really going to play games with your housekeeping provider? No, it's probably not the right time to do that, right.

So, I would say that, and as much as there are decisions being made about the allocation of money relative to an operators' list of vendors, if we weren't in the top three before, we're certainly there now..

Okay. No, that's great. Thank you for taking the questions..

Thanks, Mitra..

There are no further questions at this time. I will now turn the call back over to Mr. Ted Wahl for closing remarks..

Great. Thank you, Misty. Looking ahead, we're going to continue to innovate in managing our business and remain flexible in responding to our client-partners' evolving service level, staffing, and supply chain needs. Above all, we remain committed to making decisions that best position the company to deliver shareholder value over the long-term.

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

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect..