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Operator
Good day, and welcome to the Healthcare Services Group report results for three months and year-ended December 31, 2012. Today's call is being recorded. The discussion to be held and any schedules incorporated by reference into it will 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. The Exchange Act, as amended, which are not historical facts but rather are based on current expectations, estimates, and projections about our Business and industry, our beliefs and assumptions.
Words such as believes, anticipates, plans, expects, will, goal, and similar expressions are intended to identify forward-looking statements. Any 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 as risks and uncertainties include, but are not limited to, risks arising from our providing services exclusively to the healthcare industry, primarily providers of long-term care, credit and collection risk associated with this industry from having several significant clients who each individually contribute at least 3% with one as high as 7% to our total consolidated revenues in the 12-month period ending December 31, 2012.
Our claims experience related to worker's compensation and general liability insurance, the effects of changes in our interpretation of laws and 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, 2011 in Part One thereof under government regulation of clients, competition and service agreements, collections, and under item 1A 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 March 2010 enactment of the Patient Protection and Affordable Care Act and the Healthcare and Education Reconciliation Act of 2010.
On July 29, 2011, the United States' Center for Medicare Services issued final rulings, which among other things, reduced Medicare payments to nursing centers by 11.1% and changed the reimbursement for the provision of group rehabilitation therapy services to Medicare beneficiaries. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which also address the provisions of the Budget Control Act of 2011. Under these provisions, the Act will reduce federal spending potentially beginning in March 2013, if Congress and the administration do not reach an agreement on means to reduce the national deficit by $1.2 trillion split evenly between domestic and defense spending. Currently, the US Congress is considering further changes or revising legislation relating to healthcare in the United States, which among other initiatives may impose costs containment measures, and [patching] our clients.
These laws and proposed laws and forthcoming regulation have significantly altered or threatened to significantly alter overall government reimbursement, funding rates, and mechanisms. The overall effect of these laws and trends in the 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 could continue to result in significant additional bad debt in the near future. Additionally, our operating results will be adversely affected and unexpected increases in the cost of labor and labor-related costs, materials, supplies, and equipment used in performing services could not be passed onto our clients.
In addition, we believe that to improve our financial performance, we must continue to obtain service agreements with new clients, provide new services to existing clients, achieve modest price increases on current service agreement 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 an important factor impacting future operating results and successfully executing projected growth strategies.
Now, at this time, I would like to introduce our speakers for today's call; Mr. Ted Wahl, President and Chief Operating Officer, and Mr. Daniel McCartney, Chairman and CEO. Please go ahead, Mr. McCartney.
- Chairman & CEO
Okay. Thank you, and thank you, everybody, for joining us today. Yesterday after the close, we released our fourth-quarter and year-end results, and we will be filing our 10-K during the week of the 23rd. When we go through the quarter, I'm going to turn it over to Ted. And Ted is going to talk a little bit about the fourth-quarter and year-end results. Ted?
- President & COO
Okay. Thank you, Dan. And really, before we get started and for the benefit of those of you that maybe aren't as familiar with the Company, it was during the fourth quarter of 2011 that we accelerated our expansion, increasing housekeeping and laundry revenues by 16% and dining and nutrition revenues at over 50%, which makes the Q4-Q4 comparisons the most difficult of the year. But we continue to grow the top line within our long-term targeted range of 10% to 15%.
Revenues for the quarter increased 11% to $277 million. And for the year, revenues were up over 21% to $1.077 billion. For the quarter, housekeeping and laundry grew at about 7%. And dining and nutrition was up over 20%. For the year, housekeeping and laundry increased 13%. And dining and nutrition grew at over 45%.
As we discussed on our previous calls, the accelerated expansion of dining and nutrition is due to the past investment made in the district and regional organizations. The continued development of our management people has allowed us and really should continue to allow us to add new dining and nutrition clients within the existing operational structure and to expand dining at a more rapid pace going forward. Our housekeeping and laundry revenues continued to grow within our targeted range for the year. Both quarterly and 12-month revenue numbers were Company records.
Net income for the quarter was up over 21% to $12.8 million or $0.19 a share, compared to $10.6 million or $0.16 a share in the fourth quarter of 2011. For the year, net income increased 16% to $44.2 million or $0.65 per share. Again, all Company records. Direct cost of services for the quarter came in at 86.2%, which is slightly above our target of 86%. The districts and regions continue to give proper attention to our existing clients and make progress with the new business we added during the year by implementing operational changes and getting the jobs on-budget in a timely manner. Going forward, our goal is to continue to manage direct cost of services at 86% on a consistent basis and work our way closer to 85% direct cost of services.
SG&A was reported at 6.9% for the quarter, just below our targeted range of 7% to 7.25%, with essentially no impact from the deferred compensation investment accounts held for and by our management people. As we discussed in past quarters, SG&A includes gross receipt taxes paid to states like Ohio, Michigan, and Texas, as well as the additional resources added from when we expanded our Human Resource and Risk Management departments. The departmental expansion has allowed us to be more efficient in the employee benefit and insurance areas, as well as comply with the new hire and personnel record-keeping requirements demanded by the regulatory environment. It has also positioned us to be the beneficiary of the recently-passed American Taxpayer Relief Act of 2012, which renews certain job tax credit programs, including the worker opportunity tax credit. In the year ahead, we would expect our SG&A to continue to be in that 7% to 7.25% range with the ongoing opportunity to garner some modest efficiencies.
Earnings from operations for the quarter increased 26% to $19.2 million. And investment income came in at $400,000, again, with no deferred compensation impact. For the year, after adjusting for deferred compensation, earnings from operations increased 22% to $69 million. Actual investment income was $1.2 million for the 12-month period. Our tax rate was 35% for the quarter and 37% for the year. And although the Taxpayer Relief Act was passed in January of 2013, the job tax credit programs that were included as part of the legislation were reauthorized retroactively to January of '12 and prospectively through December of '13. So we plan on recording the '12 portion of the [Watchee] benefit in the first quarter of '13 and expect our 2013 tax rate to approximate 35%, exclusive of the 2012 benefit.
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, no debt, and a current ratio of 4 to 1. Our accounts receivable has remained in good shape, well below our DSO target of 60 days. And finally, two weeks ago, the Board of Directors approved an increase in the dividend to $0.16625 cents per share split-adjusted, payable on March 15. The cash flow cash balances and earnings per share for the quarter more than support it. And with the dividend tax increase being less than anticipated and 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 the shareholders. It will be the 39th consecutive cash dividend payment since the program was instituted in 2003 after the change in tax law. It is the 38th consecutive quarter we increased the dividend payment over the previous quarter. That's a 10-year period that included for four three-for-two stock splits.
And with those opening remarks, Dan and I would like to open up the call for questions.
Operator
(Operator Instructions) Ryan Daniels.
- Analyst
Good morning, guys. Thanks for taking my question. And Dan, congratulations on breaking the billion mark for the first time in sales. Wanted to start out just on the SG&A front. Obviously it was a little bit below your target. I think the first time we've seen it that low in quite awhile. Is that just due to some deferred hiring or spending on the marketing side that you think will pick back up? Or do you think you can sustain a lower 7% level on a go-forward basis?
- Chairman & CEO
I think we can sustain that and do better. But I've said that for years. And that is why on the safe side, I always said if I was going to model it, we would target 7% and 7.25%.
But I think the expansion in the human resources and particularly when we took the payroll functions into the corporate office two or three years ago, not only improved our efficiencies and our record-keeping. But some of the technology upgrades have allowed us to not only take advantage of some of the opportunities that were available to us the past few years, but I think position us with the procedures and the resources to be able to absorb our expansion going forward for the next two to three years without adding the proportionate SG&A expense.
So our hope is, as Ted mentioned, some modest efficiencies going forward. Although, until we demonstrate we can do it consistently, we still think the safer range is 7% and 7.25% with no deferred comp. But we would expect to be a little more efficient and maybe have some margin improvement in the SG&A area, as well.
- Analyst
Okay. That's helpful. And then on the tax front, I think you mentioned it will be 35% for the full year. That is not including the retroactive portions? So Q1 will probably be low-30% range. Is that a good way to think about the first --
- Chairman & CEO
Yes. We haven't quantified what the exact impact will be. But it will be a one-time benefit retroactive for 2012's benefit. But it will be 35% on an equal basis for the year we expect. And there will be a one-time benefit that will be below that for the first quarter this year when we recognize the benefit.
- Analyst
Okay. Great. And then two more maybe bigger picture ones. Just if we think of healthcare reform, I'm curious, does that have any potential to help you in two regards? Number one, pushing the rates up that you charge, because you will have to provide insurance for any of your workers, kind of the over-50 employees. Does that trigger?
Number two, are you seeing more SNIFs, maybe looking to outsource this function to lower their full-time labor on the payroll? So is that opening up yet another growth opportunity or growth driver for you guys?
- Chairman & CEO
I think it is another factor. But really, the demand for the services in both housekeeping and laundry and food have never really been our issue. The constraint on how quickly we grow has really solely been determined by our ability to develop a network of management people that can absorb the growth. There is more demand, but there has been for this 37 years we've been doing it than we can really do.
I think it is safe to say as a metric, because our approach is to mirror the wage rates, benefits, recognize the seniority. The more expensive employees are when they're doing it in-house, the more favorable our reductions become when we propose new services. So I think it will help, and it will be another factor in their consideration. But it's not going to increase our ability to absorb new business when that is really determined by the management people.
- Analyst
Okay. Thanks again, guys.
Operator
A.J. Rice, UBS.
- Analyst
Thanks. Hi, everybody. Maybe just to follow up on that last question in a different way, I assume that across the country, the nursing homes have a lot of different benefit structures out there, and many of them maybe don't have adequate benefit structures to comply with the Obamacare mandates.
Can you tell us where they are at in understanding what they need to do and how far along they are at on that? And then maybe also, just make sure we understand exactly what the implication for you is if a nursing home that you're servicing decides that they haven't offered health insurance and now they have to? Or something like that?
- Chairman & CEO
Well, I think because we mirror the benefits at the facility pace, we've been talking to them about what their decision is going to be for their blue-collar workers, and we will follow suit. We will get the appropriate increase on the impact for our employees, because had we not been there, they would be experiencing the same increase.
And we will try to mirror the policies that they indicate, whether it's a union facility or a nonunion facility, whatever the benefit package is that the client has provided before, during, and after our tenure. That is what we try to mirror. And we need to get the appropriate pass-through increase to reflect that cost. And from the client standpoint, if the employees, whether we're paying them or they're paying them, they would be impacted very similarly.
- Analyst
Right. Is it sort of like the wage increase in that it actually has an incremental benefit and helps overall? Or is it strictly 100% pass-through where you don't really pick up any increment if they go to a higher benefit structure?
- Chairman & CEO
I would say it will be closer to just covering the cost, although we are going to attempt in the negotiations to also include it. But because we're going to do it with such visibility and the cost incurred by them will make them reluctant, I think it will be closer to just recovering what the additional expense will be.
- Analyst
Okay. And just for curiosity, just maybe broader picture, would you consider this? Is this a major issue for a lot of nursing homes? Or are most nursing homes at this point offering reasonable benefits to comply with the Obamacare?
- Chairman & CEO
I think most have had some provisions and certainly have had coverage, even if they were Mini-Med plans, that they will have to adjust to it. But they did not seem significantly concerned, from the national chains to the individual operators. I think, frankly, because the way they look at, it's going to be reflected in their cost reports. And going forward, they expect the government to pick up the increased labor and benefit cost like any other cost incurred in running the facilities that are still very dependent on Medicaid and Medicare.
- Analyst
(Technical difficulties) years, obviously a big change on healthcare is high-profile, because they were public. It was bought by Genesis toward the end of year. Maybe ask you about whether there has been -- I know you had some business with them. Has there been any impact on your Business because of that deal? And then just maybe broader comment on your retention rates. Are they stable?
- Chairman & CEO
Our retention rate has stayed, for the year and the quarter, above the 90% that we typically targeted. And even in Genesis and Sun, who were both clients before they merged, Sun more significantly than Genesis, but they are all individual contracts.
So, as we look at it, they are all AT Wall contracts, just like an individual facility. And the administrators and directors in nursing typically, with some operational or corporate approval, made the decision to engage us in the first place. And they all have 30-day cancellable contracts. So, as long as we are providing the services and in their best interest at the local level, we have always, historically, been able to maintain the relationship no matter what the corporate structure had changed to.
- Analyst
And then finally, my final question. I know last conference call, there was some discussion about evaluating the pace of the rollout of the Dietary business, and maybe in the first half of the year evaluating whether you'd bump up your growth target, maybe by the middle part of the year. Can you tell us, is that still something you're thinking about? And if so, what are some of the gaining factors that would make you decide either to keep it the same or increase it?
- Chairman & CEO
10% to 15% is still our growth target. And that is what we always have felt determined by our management depth is our sustainable growth rate. Food service was different, really starting, as Ted mentioned, in the fourth quarter 2011, because the investment we made in the management structure that was underutilized for the two or three years prior to that. When I mention, by the middle of this year, we're going to grow the food service in a more accelerated rate for the next few quarters without doing anything exciting.
But our concern is to balance, make sure we are managing the existing customers properly, keeping the client retention where it should be, and most importantly, executing consistently both financially and operationally. And then we felt by the middle of this summer, we would be able to say, okay, here is the sustainable growth rate for food service that we think at a higher rate we'll be able to operate and function properly. And that is what I was kind of hedging in the last call and some of the discussions.
We just want to make sure we don't stub our toe with last year's accelerated expansion, that we haven't missed anything, the guys are functioning as well and better than we thought, that each quarter we get a little more consistent, a little better even some of the newer areas of the growth in food service.
But we just figure by the middle of the summer of 2013, we will be able to say, okay, here is our sustainable growth rate for food service with the management structure, and we feel more confident after 1.5 year of digesting their recent expansion.
- Analyst
Okay. All right, thanks a lot.
Operator
Michael Gallo, CL K.
- Analyst
Hi. Good morning, Dan. Couple of bigger picture questions. You are now, obviously, more than earning the dividend. You have got the cash balances building up towards $90 million. You obviously feel comfortable growing at a higher rate. Should we look to see an acceleration in the dividend growth rate? Or are there other uses of the cash that you see which, again, starting to build up on the balance sheet again?
- Chairman & CEO
Other than big management bonuses, we can't find a better use for the cash. The real important factor for us, as I mentioned on the last few calls, has always been the uncertainty of the tax law and how they're going to tax dividends, and the fact that it only went up to 20% rather than 15%. We see no reason to change our dividend policy.
The Board of Directors really looks at it every quarter. We thought the consistency of the increases was important. And certainly, as our earnings-per-share continue to grow as we expect them to, we will certainly review and consider maybe a more generous dividend, as well. But we review that quarter-to-quarter. And with the tax issue out of the way, it is certainly something we will consider.
- Analyst
Right. Okay, great. In terms of just the other uses of cash, I know occasionally you've done some tuck-in acquisitions over the years. Do you see anything out there from a pipeline perspective? Or is it not something we should expect to see in the near term?
- Chairman & CEO
I think that there aren't really that many acquisition opportunities that fit our niche, and we're not looking to diversify. So, whatever we project out is typically based on organic growth.
If we find an acquisition candidate that fits our criteria, both operationally, personnel-wise, and then of course financially, we certainly look at it. But we don't need acquisitions or expect to have acquisitions, although we always look if the opportunity is there.
- Analyst
Right. Okay, great. And then finally, just bigger picture question. I want to come back to the SG&A line. Again, south of 7% of sales this quarter. Again, excluding the deferred comp -- something that we haven't seen in some time, but not out of line with what we have seen historically.
So given the rate that you are adding top line, again, continuing at double-digit rates, given some of the costs you've already digested from building out the corporate office and bringing the payroll in-house, when I look at that absolute level of $19 million, maybe $20 million, why shouldn't we be able to get better leverage of that as we go forward and ultimately see that 7% range that you are targeting on the conservative side? Just continue to migrate down over time just as the revenue base grows?
Is there anything you see of the corporate variety that would give you hesitation? Because it seems like you've made a lot of the needed investments, at least from what we can see visibly over the last two or three years. Thank you.
- Chairman & CEO
Theoretically, you are right. So --
- President & COO
Mike, as you're asking that question, Dan is looking at me and cursing, saying I'm the one that forces him to invest in technology every quarter and promises him efficiencies down the line. But I think there are. And that is why we mentioned, in the opening remarks, there certainly are some opportunities for efficiency that we will be able to garner going forward. But, from an SG&A standpoint, when we look at '13, we would expect it to be in that 7% to 7.25% range. But, if we can manage it more closely under 7%, and we are confident we can maintain that, we will certainly communicate that to everyone.
- Chairman & CEO
And in all seriousness, I think a lot of the systems and controls that we put in place have really refined record-keeping, payroll certainly. Bringing it in-house an the technology upgrades required some upfront expense, but it is still primarily personnel as well. And that grows proportionately as we expand. So, we think -- until we demonstrated a few quarters, but theoretically, we think some modest efficiencies and improvements are certainly there for us to be had, in all seriousness.
- Analyst
No, I guess just to answer the question, not put words in your mouth, but there is nothing structurally that should prohibit getting that leverage, particularly at good levels of revenue growth. I know the IT guys can always find a way to spend a few incremental dollars. They should have made most of the investments at this point over the last years.
- Chairman & CEO
That's right. And the only thing that proportionally could increase would be clerical support staff as we expand districts and regions throughout the country. But that is much more modest than the upfront expense that we've invested in the last three years.
- Analyst
Thank you.
Operator
Chad Vanacore, Stifel Nicolaus.
- Analyst
It looks like you have had another good quarter with good strong demand for dietary services. Can you let us know what kind of proportion of new signings were with existing clients versus new clients?
- Chairman & CEO
I think almost all. It is not a requirement now, but a lot of our management people in the field had enough pent-up demand with the existing clients that is obviously where they have concentrated. Although we have gotten some momentum outside with clients that, frankly, were interested in food service and not as interested in housekeeping and laundry. But that is still the exception. I would say more than 95% of the expansion in food service for the year and the fourth quarter were with the existing client base.
- Analyst
Okay. And can you remind us about how many dietary clients you have?
- Chairman & CEO
It's about 700 out of the 3500 facilities we are servicing.
- Analyst
Okay. And then just switching gears to tax rates. Are there any changes in state taxes that you are aware of for 2013 that we should be aware of for modeling, and anybody moving from a gross receipts tax from the income tax or vice versa?
- President & COO
No. Right now, there are no states that we have identified that are planning on '13 other than it is an ongoing trend state-by-state that they are moving from an income tax base system to a gross receipts tax base system. So, as that happens, from a modeling perspective, the only adjustment would be the tax that otherwise would be in the income tax line is reported as reported in the SG&A line.
Which getting back to Mike's earlier questions, as far as SG&A, some of the inefficiencies that we had garnered over the past couple of years have been eaten up, however modest they've been, 20 or 30 basis points by Ohio, Michigan, and New Mexico, Texas gross receipts taxes. So it is an ongoing trend. And we would expect to see it, but there's no states in particular that we have identified.
- Analyst
All right. That is it for me. Thanks a lot.
Operator
Steven Charest, Divine Capital Markets.
- Analyst
Good morning, Dan and Ted. Good quarter. I have to apologize. I got caught in the queue and came in at the tail-end of the opening remarks. All my questions on this Q&A were covered there, but --
- Chairman & CEO
We are going to read the cautionary statements again.
- Analyst
Yes, sorry about that. All my SG&A questions have been covered by the other guys. But I was wondering if you provided a split on the revenues between housekeeping and dietary? And if you had estimate on the (multiple speakers).
- President & COO
-- of the revenue. And housekeeping and laundry was the balance.
- Chairman & CEO
Food service continues to be a significant part of the revenue base and growing a little bit faster than housekeeping and laundry. But food service is about 30% of our revenue for the quarter and for the year in 2012.
- Analyst
Okay, great. And do you have an estimate on the operating cash flow figure?
- Chairman & CEO
Yes, for the quarter, it should be about $25 million, $60 million for the year.
- Analyst
Great.
- Chairman & CEO
But that will be in the K for everybody to see when it's filed in a couple weeks.
- Analyst
Right. And we'll take it there. Thank you, again. Good quarter.
- Chairman & CEO
Terrific. Thanks, Steve.
Operator
It looks like we have no further questions at this time. Now I'll turn the conference back over to Dan for any additional or closing remarks.
- Chairman & CEO
Okay. Thank you. And thanks again, everybody, for joining us today. But going into 2013, we expect to continue to expand our client base and housekeeping and laundry within our historical targets. Even though it is our largest service group, in this environment, the demand for our services really has been as great as it's been for the 37 years we've been doing this. We will continue to control our growth and balance the expansion with our ability to manage it effectively.
It remains the most important criteria for us to balance client satisfaction measurements as we digest the increased amount of new business, not only this past year, but going forward and to continue to operate on budget. We will look to make certain the recent expansion continues to operate consistently and the new districts and regions continue to improve the margins and the operational performance. The food service margins, as we expand that in a controlled way, should continue to improve. And if we execute properly, we will ultimately mirror housekeeping and laundry's, but they should improve a couple of basis points quarter-to-quarter, which they did in 2012.
All divisions continue to perform better. And with the expansion, we just want to ensure consistency. And that is why we are a little bit hedging what the sustained growth rate in food-service can be, and figure we will have a good feel and be able to confidently commit to it by the summer of 2013.
We think we can get the direct costs down below 86%, and work our way closer to 85% over the next year or 1.5 years. Like Ted described, the SG&A,if we're going to model it, there are some efficiencies to be had, but 7%, 7.25% is still the safe target. Our tax provision is going to be 35% without the one-time catch-up or benefit that we are going to quantify and demonstrate in the first quarter of 2013 for the retroactive part of the worker opportunity tax credit. But we believe the recent growth in the operating on-budget, frankly, in this environment, the demand for the services for both services has never been greater.
We have never had better management people in the history of the Company. We have all the financial resources to grow as fast as our ability to manage it. So overall, these are pretty good times for us. So, thanks again. And onward and upward.
Operator
And ladies and gentlemen, that does conclude today's call. We thank you for your participation. Have a great day.