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Operator
Good afternoon, ladies and gentlemen, and welcome to the Healthcare Services Group, Inc., Conference Call. This call is being recorded. The discussion to be held and any schedules incorporated by reference into it may contain forward-looking statements within the meaning of Section 27a of the Securities Act of 1933, as amended, and Section 21e of the Securities Exchange Act of 1934, as amended, which are not historical facts but are rather based on current expectations, estimates, and projections about our business and industry are beliefs and assumptions.
Words such as "belief," "anticipates," "plans," "expects," " will," "goal" and similar expressions are intended to identify forward-looking statements. The inclusion of forward-looking statements should not be regarded as a representation by us that any of our plans will be achieved. We undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Such forward-looking information is also subject to various risks and uncertainties. Such risks and uncertainties include but are not limited to risks arising from our providing services exclusively to the health care industry, primarily providers of long-term care; credit and collection risks associated with this industry; one client accounting for approximately 9% of revenues in the year ended December 31, 2011; our claims experience related to worker's compensation and general liability insurance; the effects of changes in or interpretations of laws on regulations governing the industry; our workforce and services provided including state and local regulations pertaining to the taxability of our services. And the risk factors described in our Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2010, in Part 1 thereof under "Government Regulation of Clients"; competition and service agreements collection, and under item I-A "Risk Factors."
Many of our clients' revenues are highly contingent on Medicare and Medicaid reimbursement funding rates, which Congress and related agencies have affected through the enactment of a number of major laws and regulations during the past decade including the March 2010 enactment of the Patient Protection and Affordable Care Act and Health Care Education Reconciliation Act of 2010.
Most recently, on July 29, 2011, the United States Center for Medicare Services issued final rulings, which, among other things, will reduce Medicare payments to nursing centers by 11.1% and change the reimbursement for the provisions of group rehabilitation therapy services to Medicare beneficiaries. Currently, the US Congress is considering further changes for revising legislation relating to health care in the United States, which, among other initiatives, may impose cost containment measures impacting our clients. These laws and proposed laws and forthcoming regulations have significantly altered or their attempt to alter overall government reimbursement funding rates and mechanisms.
The overall effect of these laws and trends in long-term care industry has affected and could adversely affect the liquidity of our clients resulting in their inability to make payments to us on agreed-upon payment terms. These factors, in addition to delays in payments from clients have resulted in and continue to result in significant additional bad debts in their near future.
Additionally, our operating results would be adversely affected if unexpected increases in the cost of labor and labor-related costs, materials, supplies, and equipment used in performing services could not be passed on to our clients.
In addition, we believe that to improve our financial performance, we must continue to obtain service agreements of new clients, provide new services to existing clients, achieve modest price increases on current service agreements with existing clients, and maintain internal cost reduction strategies at our various operational levels.
Furthermore, we believe that our ability to sustain the internal development of managerial personnel is important future operating results and successfully executing projected growth strategies.
I would now like to turn the call over to Mr. Daniel McCartney, Chief Executive Officer. Please go ahead.
Daniel McCartney - Chairman & CEO
Okay. Good afternoon, everybody, and thank everybody for joining us. But we released our fourth quarter and year-end results today after the close, and we'll be filing our 10-K during the week of February 20th.
But for the fourth quarter, our revenue was up 24% to $250 million. Housekeeping and Laundry grew at about 14%, and Food Service better than 50% for the quarter.
As we talked about a little bit in our third quarter call and update, going into the fourth quarter we expected to accelerate the expansion of Dining Services, really due to the investment we made in middle management people, both regional and district management positions over the past few years. And, as we stated in the third quarter call, they got to the point where we felt more confident and more consistent on our performance that we could now flesh out some of the under-utilized areas. And that's allowed us to accelerate how quickly we could expand. In addition, the Housekeeping and Laundry Services continued to grow at that 10% to 15% corporate target for the quarter as well.
And for the year, our revenue increased by 15% to $889 million with Housekeeping and Laundry up 10% for the year, and Food Service up 31% for the year. Both quarterly and annual revenues were all new Company records.
Our net income increased by 16% for the fourth quarter to $10.5 million, or $0.16 a share compared to $0.14 in 2010 adjusted for the 3-for-2 stock split in the fourth quarter of 2010. And for the 12-month period, our net income was up 11% to $38 million, or $0.56 a share and, again, all results were new Company highs for the quarter and for the year.
Our direct costs were above 86% for the quarter due to the amount of new business we started, as it usually takes us 60 or 90 days to implement the operational changes and get the jobs running on budget with staffing and startup costs and purchases, but we expect to be operating and the operating improvements to be in line, on schedule, and we'll continue to work to get our direct costs below 86% and work our way back down to 85%.
The SG&A costs were reported at 7.4% for the fourth quarter, but due to the expensing of the gain in our deferred comp programs for the management people and the accounts held by our management people and for them, of $880,000. The real or adjusted SG&A expense was about 35 basis points lower, or 7.2% in the range of the 7%, 7.25% range that we targeted for SG&A cost. The SG&A cost, as discussed in the past, due to changes in states like Ohio, Michigan, and Texas to a gross receipts tax -- those costs are now reflected in the SG&A component but lowers our tax provision.
But the expanded resources and investment we made in the benefits and payroll department has allowed us to meet the new hiring and recordkeeping requirements be more efficient in the employee benefits and insurance areas, and to benefit from certain job tax credit programs that are available both managing our existing client base and the expansion. So we still expect our direct costs to get below 86%, work our way down to 85%, and to be able to get the SG&A consistently in the 7%, 7.25% range.
Our tax provision was about 34%, 35%.
I guess on the balance sheet we ended the quarter with over $70 million in cash and securities, current ratio better than 5-to-1. Receivables remained in good shape, well below the 60-day target, and our Board of Directors approved an increase in the dividend to $016.125 a share, split adjusted, to be paid in the first quarter on March 16. Cash flow and cash balances for the quarter more than support it, and as we expected, the earnings per share just about caught up with our dividend payout. And since the tax law is still in place, at least for 2012, we still feel it's a tax-efficient way to get the free cash flow and value back to the shareholders. It's the 34th consecutive quarterly increase in the dividend since we instituted it in 2003 when the tax law first changed, and that's after four 3-for-2 stock splits.
So, with that abbreviated summary, I'll open it up for questions.
Operator
(Operator Instructions) Ryan Daniels, William Blair.
Kristina Blaschek - Analyst
Hi, Dan. It's Kristina for Ryan today. I guess to start, can we get a little bit more color on the 50% growth in the Food Services segment in this quarter? Was there anything one-time in nature, or did you sign up a large chain during the period?
Daniel McCartney - Chairman & CEO
Well, it was really a lot of the efforts that were done in the past. As I've said in the past, there's always been more pentup demand within the existing client base than we were really in a position to take full advantage of up until the past few quarters. But it was really a slow progression over the past few years and getting the controls and the Food Service middle management people to where we felt we could expand to the levels based on our model in Housekeeping and Laundry.
So if a district in our model should oversee eight to 12 properties in Food Service for a great amount of time, they were overseeing maybe seven or eight properties. And if a region should oversee four to six districts -- in Food Service they were averaging three to four. And over the past year, year and a half, each of the areas or divisions started to get better, and we started accelerating in the Northeast first and then the Southeast a little bit. But as I mentioned in the third quarter review and call, we felt going into the fourth quarter, we're in a position now nationally that we were operating more consistently, the margins continued to improve, the client satisfaction measurements we use were consistent enough that we felt we could accelerate the expansion.
So I'd say the reason we were able to grow it that much more dramatically than in the past was the development of those middle management people. And, most importantly, because it was spread out throughout the country. We couldn't have added that many new facilities in Food Service if it was concentrated, for example, in the Northeast Division. But the fact that all 10 divisions were in a position to add more Food Service, and a lot of the corporate clients that had shown interest in us expanding in Food Service over the past, had multi-state operations. So even though the relationship was with us a long time, we're in a position now throughout the country to add their Food Service accounts as well.
So -- it wasn't really one or two clients. It was across the board, and it really wasn't in any one particular division -- it was across the board. But there was enough pentup demand with the existing clients, we were just able to take more advantage of it.
Kristina Blaschek - Analyst
Okay, that's great color. I guess I was just surprised that you guys were so comfortable being able to expand the business so significantly this quarter. As a follow-up to your comments, so is the -- with the development of the middle management on the Food Services side -- so would you say, from a district and regional level, what would you say the managers there can now manage from a property level? Are they at that point?
Daniel McCartney - Chairman & CEO
We feel comfortable they're up to the task of managing. But it still requires a day-to-day execution no differently -- and control -- no differently than Housekeeping and Laundry. Every facility is its own profit center; every district is its own franchise; or 10 to 12 facility unit; every region is its own operating entity; and we have to manage the Food Service districts and regions no differently than in the past we've managed the Housekeeping and Laundry. And the fact that they're now up to the right complement of properties is where we had hoped to be and expected to be over the past few years when, probably more than you guys would like. or ad nauseum, I was describing that we had to get the management people in place to where they were capable first before we could take full advantage of the opportunities that were in front of us in Food.
Kristina Blaschek - Analyst
Okay, great, that's great color. And I had one additional question. I guess -- can you talk a little bit more about your thoughts on the current tax credits and how you might deal with that if they disappear? I know, more specifically --
Daniel McCartney - Chairman & CEO
I think -- and it would lessen the requirements in the corporate office, and it would be more than offset by the SG&A expense that we incurred to keep the recordkeeping up to where they were required for us to get the benefit of those tax credits.
You have to monitor, if they're here on year, the longevity credits and different recordkeeping that we had to make sure we could take advantage of it. But if the credits were no longer available, we'd go back to the way we administered the payroll two years ago prior to these credits being a factor.
Operator
Michael Gallo, C.L. King.
Michael Gallo - Analyst
Hey, Dan, congratulations on just spectacular revenue growth. The question -- as you kind of go through that it seems like you're now comfortable continuing to add, really, both on the Food Service side or really at the high end of Housekeeping side, is there any reason that we shouldn't continue to kind of build off this level, going forward? I mean, obviously, on a sequential basis, I think -- I can't remember a quarter that you added close to what you added. Did you feel comfortable with the amount that you added in terms of your ability to digest that level? Or should we expect you'll slow it up a little bit as you bring the business online in the next quarter or two?
Daniel McCartney - Chairman & CEO
I think the growth levels ultimately, if the benefit is weaned off of this expansion in the fourth quarter, we'll still target internally, maybe in 2013, the 10% to 15% top line is still where we're managing. The biggest difference in this case was the pentup management capabilities that we've been expensing the past few years that enable us to expand Food Service more rapidly.
Now, as we digest that over the next few quarters, I think our growth rate will level off into 10% to 15% range, although clearly it's going to be substantially more than that as long as we execute properly in 2012.
Michael Gallo - Analyst
Yes, but it seems like just what you've added, it seems like you should be able to stay in a much higher growth rate than that just maintaining what you have.
(music)
Operator
Mr. McCartney?
Michael Gallo - Analyst
Oh, I'm sorry, I got cut off there.
Daniel McCartney - Chairman & CEO
But as I say, we'll be at the higher end and exceed our --
Michael Gallo - Analyst
Yeah, it could just be that what you've added, you'll probably be above that for at least the next couple of quarters even if you slow it down somewhat.
Daniel McCartney - Chairman & CEO
And keep the client retention where it should be, which gets back to execution. But, yes, we'll be in an accelerated level for all of 2012.
Michael Gallo - Analyst
And, Dan, any early read on just what kind of tax rate we should use for 2012?
Daniel McCartney - Chairman & CEO
I still think 33% to 35% -- in that range. It depends -- the variables are how long the people -- what the turnover rate is, because now we're getting the benefit of some longevity. People that have been in the tax credit now that met the one year seniority threshold. So I'd say in the 35%, 34% range, maybe a little bit better.
Operator
Rob Mains, Morgan Keegan.
Rob Mains - Analyst
Dan, just to follow up on the questions on the pace of Food Services growth. In the past, you've talked about being range-bound in the number of contracts you can add because of the management. And I understand that you're kind of filling out the infrastructure now. Where do you think you are in terms of that? Is that relative to -- if you look at where you are at the end of the quarter or going into the new year, of Food versus Housekeeping, kind of where do you see where you've still got excess management versus where are you at the point where you're facing the math of adding new managers that you do in the Housekeeping segment?
Daniel McCartney - Chairman & CEO
I think now we'll be facing the math of adding new managers. In some areas, there's still a little bit more capacity, but I would say that our forecast is that it's now going to be expanded into more businesses usual fashion. Like Housekeeping and Laundry, when we add more properties, we promote from within. The facility managers are striving training managers and district managers. When we need more regions, the district managers who have done the best job are promoted to be regional managers. And I think that will be more the case now in a business-as-usual fashion as the management infrastructure expands in Food Service without it having to be this shot-in-the-arm addition of new business type thing that's disproportionate because we don't have that excess surplus anymore, but we have the capacity and the management pipeline to continue to expand in a more uniform fashion like we did in Housekeeping and Laundry for years.
So I think the new business incrementally or sequentially will more mirror Housekeeping and Laundry's expansion rather than this, obviously, 50% expansion of Food Service, which couldn't be sustained.
Rob Mains - Analyst
Okay. And when you look at the type of margin pressures that you have when you had a lot of new customers -- is that greater on Food than it is on Housekeeping?
Daniel McCartney - Chairman & CEO
It's not. The difference in Food is we have inventory replacement for Food. The investment in Housekeeping supplies and equipment is relatively modest. So even though the clients anticipating us coming in may be -- are a little lighter in their inventory ordering on the month we're coming in. In Food Service, they are, too, but it's now 40% of the cost component, and we have to get the Food inventory up to the levels that we feel necessary to operate. So there's a greater investment in the purchases in Food than there is in Housekeeping and Laundry because it's a bigger piece. And then labor being less of a piece in Food -- 60% of the cost is labor-related, where it's 85% in Housekeeping and Laundry.
So the additional people that we absorb when we take over a new facility, it takes us usually 60 days or so to get the labor force down to the levels we bid the job at -- 90 days at the outset. So there is more investment in Food because of the purchases being a bigger part of the cost components, and the labor-related reductions are pretty much the same as Housekeeping and Laundry but with a smaller component of cost.
Rob Mains - Analyst
Okay. So if you've got kind of higher expenses because of the supplies in dietary, that, I assume, kind of burns off faster because that's expensive pretty soon after assuming the contract?
Daniel McCartney - Chairman & CEO
That's right. Because then your inventory levels and your food purchases are more on an ongoing basis. You don't have that startup.
Rob Mains - Analyst
Fair enough. And then last question -- we look out at 2012 -- commentary on where you see food costs going and then also the type of wage increases that the nursing homes are giving their staff and therefore that you'll realize?
Daniel McCartney - Chairman & CEO
I think as far as the food purchases, I mean, commodity costs, in spite of a lot of the publicity, have not been as bad -- or the increases have not been as significant as they were maybe three years ago or so when it had an impact. And, frankly, we've been much better and more attractive and more educated purchasers have been able to offset some of the commodity cost increases by better national account status, better rebate programs. So it hasn't impacted us to the same degree our costs when you see the K. And for the quarter, our costs for food purchases were still below 40%, which has been a target that we've kept, and we've been able to sustain that. So we're pretty confident there's going to be no surprises there.
As far as the labor costs are concerned, I know, with the Medicare changes that took place in October there was a lot of overreaction and a lot of commentary, frankly, with our clients, too. You know, we're going to have wage freezes and -- because we try to mirror whatever the customer does that would impact us, too. But very few have really taken the significant steps that they originally talked about.
Frankly, I don't think it's possible. The jobs are not that attractive, and they have a wage freeze at these lower-level jobs, whether it's nurses aids or Housekeeping and Laundry just is not as easy as some rhetorically would say in October.
So I'd say maybe instead of 2.5%, 3%, which is what the inflationary increases have been in the past, they may be 2% or 2.5%, but I don't think it will be significant. And our employees will be treated the same as the employees, the blue collar workers at the facilities. So whatever the facility does, we'll try to mirror, but I don't think it will have any real impact in the labor area as well.
Rob Mains - Analyst
Okay, that's very helpful. Then just one clarification -- your food contracts, the national contracts, when do those renew?
Daniel McCartney - Chairman & CEO
We usually do them in October but, to tell you the truth, it's been an ongoing -- we've been in a better position, have more competition with different people soliciting us that has allowed us to not even have this annual lockup and been able to improve our position, especially, for example, in the fourth quarter when the Food Service expanded so rapidly. We became a 50% better customer to the national account Food Service distributors than we were in the third quarter. So we're in a better position to negotiate as well.
But, typically, we used to target that they would be done in October.
Operator
Ladies and gentlemen, that does conclude today's question-and-answer session. I'll turn the call back over to Mr. McCartney for any closing comments.
Daniel McCartney - Chairman & CEO
Okay. I know it was very rushed getting it done at the -- after the close today, so I appreciate everybody hanging in there with us. But going into the year, we expect to continue to expand our base in Housekeeping and Laundry. Certainly in this environment, the demand continues to be as great as it's ever been in the history -- the 35 years we've been doing this. We'll continue to target our growth rate that has to be balanced with the expansion of our ability to manage it effectively in Housekeeping and Laundry as well as Food. Our client retention and satisfaction levels in 2011 have been better than historic targets that we've kept -- much better than the 90%. So in spite of the expansion, the client satisfaction levels have been as good as ever as well. So that's as important to us as the expansion.
And we have to make certain that the recent new business operates on budget timely. We continue to expand and improve the Food Service margins as we grow the client base. But, again, at a controlled pace to make sure the promotional opportunities for the management people come first before we add the new properties.
We are more confident in the consistency of our district and regional managers in Dining Services, but we have to execute. All divisions continue to perform better and more consistently. We have to keep attention to the new business without forgetting the existing clients, but that's been our business for 35 years.
We'll look to get and keep the direct costs below 86%, and over the next few quarters work our way back down closer to 85%. With the changes in the state tax policies and the other changes -- the SG&A we expect to see in the 7% and 7.25% range, excluding any deferred comp impact. Our tax provision, as I said, will stay in maybe the 33%, 35% range depending on the seniority and longevity of some employees and how long the job credit programs last.
As far as an investment income, with interest rates what they are, who knows for certain. But our business is still strong. The demand for the services in Housekeeping and Laundry and Dining Services are more than we can really do. And, frankly, our management people in all divisions, especially in Dining Services, continue to develop and get better.
So, overall, these are pretty good times for us. Thank you for joining us and Happy New Year and onward and upward.
Operator
Once again, that does conclude today's conference call. We thank you for your participation.