Healthcare Services Group (NASDAQ:HCSG) executives said the company closed fiscal 2025 with results that exceeded its initial expectations for revenue, earnings, and cash flow, citing what management described as solid industry fundamentals and disciplined execution against strategic priorities.
Management highlights 2025 performance and industry backdrop
President and CEO Ted Wahl said the company delivered more than 7% year-over-year revenue growth in 2025 and generated “significant” free cash flow, while keeping cost of services and SG&A within targeted ranges. Wahl also pointed to the company’s campus division as a notable growth driver, saying it surpassed $100 million in revenue during the year.
Fourth-quarter results: revenue growth, margin performance, and tax items
Chief Communications Officer Matt McKee reported fourth-quarter revenue of $466.7 million, up 6.6% from the prior year. Segment results were:
- Environmental services: $210.8 million of revenue with a 12.6% segment margin
- Dietary services: $255.9 million of revenue with a 7.2% segment margin
Cost of services was $394.6 million, or 84.6% of revenue. McKee said cost of services benefited from strong service execution, efficiencies in workers’ compensation and general liability, and lower bad debt expense. SG&A was $46.2 million; after adjusting for a $0.4 million increase in deferred compensation, SG&A was $45.8 million, or 9.8% of revenue.
Net income was $31.2 million and diluted earnings per share were $0.44. McKee said results included an $8.3 million, or $0.12 per share, tax benefit related to the treatment of certain employee retention credit (ERC) receipts recognized in the third quarter. The effective tax rate for the quarter was a 9.4% benefit, while the effective tax rate for the full year was a 13% expense. Management said it expects an approximately 25% effective tax rate in 2026.
Cash flow from operations was $17.4 million in the quarter. After adjusting for a $19 million decrease in the payroll accrual, McKee said cash flow from operations was $36.4 million.
2026 outlook: mid-single-digit growth, cost targets, and quarter-to-quarter cadence
Management reiterated expectations for mid-single-digit revenue growth in 2026. McKee outlined an expected revenue cadence, with first-quarter revenue anticipated in the $460 million to $465 million range, a step up in the second quarter, and sequential growth in the second half of the year versus the first half.
In terms of profitability targets, McKee said the company’s 2026 goal is to manage cost of services in the 86% range. For SG&A, he said management is targeting 9.5% to 10.5% in 2026 based on prior investments, with a longer-term goal of 8.5% to 9.5%.
In the Q&A session, executives said cost of services performance was driven primarily by service execution and related trends in customer experience, systems adherence, regulatory compliance, and budget discipline. They also noted that workers’ comp and general liability efficiencies and lower bad debt expense contributed, while cautioning that some items can vary quarter to quarter.
Contract enhancements, service-day billing dynamics, and liquidity
Chief Financial Officer Vikas Singh said the company has “deliberately and systematically” upgraded contracts over the past few years to improve pricing mechanics and cash flow. He described changes including faster and more certain cost pass-throughs, increased payment frequency relative to monthly collections, and a shift from fixed monthly billings to billings based on the number of service days—an area he said was a focus over the last 12 months.
Singh said these steps have improved margin visibility and strengthened collection trends, contributing to lower days sales outstanding (DSOs). He also said the service-day billing approach makes revenue more sensitive to the number of days in a quarter, creating a more pronounced dynamic between the fourth quarter and first quarter than in prior periods. Singh noted that fourth-quarter 2025 had 92 service days, while first-quarter 2026 has 90 days, and said that applying the difference to the fourth-quarter revenue base would equate to more than $10 million. He added that the company’s first-quarter revenue range implies performance above what the day-count difference alone would suggest, and that the service-day impact is not expected to be a factor in remaining quarters due to a more even distribution of days.
On liquidity, Singh said the company ended 2025 with $203.9 million in cash and marketable securities, and a $300 million revolving credit facility that was undrawn, with utilization limited to letters of credit. He said the cash position benefited from top-line growth, robust collections, reduced receivables, and ERC receipts received during the year. However, Singh noted the company did not receive or recognize any ERC proceeds in the fourth quarter and said there is “no certainty” regarding future receipts.
Capital allocation: completed buyback and new repurchase plans
Wahl and Singh emphasized capital allocation priorities that include organic growth investment, acquisitions, and share repurchases. Wahl said the company completed its $50 million, 12-month share repurchase plan five months ahead of schedule and intends to repurchase $75 million of common stock over the next 12 months.
Singh said fourth-quarter buybacks totaled $19.6 million and that full-year 2025 repurchases were $61.6 million. He also said that in February 2026 the board authorized the repurchase of up to 10 million shares, alongside the plan to repurchase $75 million of common stock over the next 12 months.
In response to analyst questions about balancing buybacks and M&A, management said the company’s liquidity position—more than $200 million in cash and securities and an undrawn credit facility—positions it to pursue organic growth, acquisitions, and repurchases without one priority “compromising” another.
Wahl closed by noting 2026 will mark the company’s 50th anniversary, and said management believes the company’s business fundamentals, contract visibility, training platforms, and balance sheet position it to capitalize on longer-term demand trends in the markets it serves.
About Healthcare Services Group (NASDAQ:HCSG)
Healthcare Services Group, Inc (NASDAQ: HCSG) is a leading provider of support services to healthcare facilities across the United States. The company specializes in environmental services, including housekeeping and sanitation, as well as linen and laundry management. In addition, Healthcare Services Group offers dietary and nutrition services, catering to hospitals, skilled nursing facilities, assisted living communities and other long-term care providers.
Founded as a family-owned business in the late 1970s, the company completed its initial public offering in 1997.
