Healthcare Services Group NASDAQ: HCSG reported second-quarter 2026 revenue of $470.8 million, with management citing disciplined execution, steady industry fundamentals and continued demand for outsourced services in long-term and post-acute care.
Chief Executive Officer Ted Wahl said the company generated net income of $22.7 million, or $0.32 per diluted share, for the three months ended June 30. Cash flow from operations totaled $21.9 million, or $27.9 million excluding a $6 million decrease in payroll accrual.
“I am pleased with our second quarter results, which underscore the strength of our business model and the continued disciplined execution across our operations,” Wahl said.
Segment Results and Cost Performance
Chief Communications Officer Matt McKee said Environmental Services revenue was $213.2 million, with segment margin of 13.3%. Dietary Services revenue was $257.6 million, with segment margin of 7.5%.
Cost of services was $396 million, or 84.1% of revenue. McKee said the line benefited from strong service execution and lower bad debt expense. He said the company’s goal remains managing cost of services in the 86% range.
Selling, general and administrative expenses were $52.6 million. Excluding a $6.9 million increase in deferred compensation, SG&A was $45.7 million, or 9.7% of revenue. McKee said Healthcare Services Group aims to manage SG&A in the 9.5% to 10.5% range in the near term, with a longer-term goal of 8.5% to 9.5%.
Other income was $8.8 million, or $1.9 million after adjusting for the deferred compensation increase. The company reported an effective tax rate of 26.8% and expects its 2026 effective tax rate to be approximately 25%.
Management Reaffirms Growth Outlook
Healthcare Services Group reaffirmed its 2026 outlook for mid-single-digit revenue growth. McKee said third-quarter revenue is expected to be in the range of $475 million to $485 million.
Wahl said the company’s growth priorities for the third quarter include developing management candidates, converting sales pipeline opportunities, retaining existing facility business and pursuing strategic acquisition and investment opportunities.
In response to a question from UBS analyst A.J. Rice about the expected ramp in the second half of the year, Wahl said demand for the company’s services “remains as strong as ever” and described the sales pipeline as “robust and growing.” He said the timing of growth depends on Healthcare Services Group’s management capacity and client start-date preferences.
Wahl said the company continues to retain more than 90% of its base business. He added that the new business pipeline is “split fairly evenly” between Environmental Services and Dietary Services, although dietary accounts typically contribute about twice the revenue of Environmental Services accounts on a same-store basis.
Wahl also noted that Healthcare Services Group is about 50% penetrated in Dietary Services within its Environmental Services customer base, calling the cross-sell opportunity “the ultimate low-hanging fruit from a growth perspective.”
Industry Backdrop and Inflation
Wahl said industry fundamentals continue to strengthen, supported by demographic trends as baby boomers age into the primary utilization cohort for long-term and post-acute care. He also cited steady occupancy, a workforce that has recovered to its pre-pandemic baseline and a stable reimbursement environment.
Management said it is monitoring volatility in energy and supply markets tied to geopolitical conflicts. Wahl said the company’s purchasing and procurement teams are surveying the supply chain and working with longstanding vendor partners to manage risk.
McKee said food-at-home inflation increased to 1% in the second quarter, marking the first sequential quarter-over-quarter increase after three consecutive quarterly step-downs. On wages, he said the labor market is continuing to stabilize and improve, supporting hiring and retention. He added that the company has contractual rights to pass through food and wage inflation increases to clients.
Cash, Buybacks and M&A
Chief Financial Officer Vikas Singh said Healthcare Services Group ended the quarter with $200.9 million in cash and marketable securities. Its $300 million revolving credit facility was undrawn, with utilization limited to letters of credit.
Singh said the company continues to allocate capital across organic growth, mergers and acquisitions, and share repurchases. Healthcare Services Group closed a small strategic acquisition within its campus business during the second quarter.
The company repurchased $20.9 million of common stock in the second quarter, bringing year-to-date repurchases to $44.9 million. Singh said Healthcare Services Group has 8.3 million shares remaining under its repurchase authorization. In February, the company announced plans to target $75 million of common stock repurchases over 12 months.
Asked about the M&A environment by William Blair’s Matthew Mardula, Singh said the company’s pipeline is more robust than it was six, 12 or 18 months ago. He said the recent campus acquisition was small and strategically focused, with an insignificant revenue contribution in the quarter and subsequent periods.
Other Topics From the Q&A
Singh said bad debt expense was $4.3 million in the quarter, compared with $3.8 million in the previous quarter. He said bad debt has been below 1% of revenue for the past two quarters, compared with a historical average of 1% to 1.5%, helped by collections initiatives and contract enhancements.
Singh also discussed workers’ compensation and general liability reserve benefits. He said the company recorded a $1.3 million benefit in the second quarter, down from more than $4.5 million in the first quarter. He said the benefit is expected to trend toward zero over time as actuarial reserves reach a steadier state.
On Genesis, Wahl said Healthcare Services Group continues to provide services to Genesis facilities without disruption in operations, outcomes or payments. He said the sale of Genesis to 101 West State Street was approved by the bankruptcy court in January and appears on track to close in late third quarter or early fourth quarter.
Wahl closed the call by saying the company is entering the second half of 2026, its 50th anniversary year, with “underlying fundamentals” that are “more robust than ever.”
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.
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