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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q

(Mark One)
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                 to                    

Commission file number: 0-12015

HEALTHCARE SERVICES GROUP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania23-2018365
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)

3220 Tillman Drive, Suite 300, Bensalem, Pennsylvania
(Address of principal executive office)

19020
(Zip Code)

Registrant’s telephone number, including area code:
(215) 639-4274

Former name, former address and former fiscal year, if changed since last report:
Not Applicable

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.01 par valueHCSGNASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  þ    No  ¨




Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerþAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes    No  þ

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. Common Stock, $.01 par value: 74,416,000 shares outstanding as of April 23, 2020.



Healthcare Services Group, Inc.
Quarterly Report on Form 10-Q
For the Period Ended March 31, 2020

TABLE OF CONTENTS

Page




Table of Contents
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report and documents 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 rather are based on current expectations, estimates and projections about our business and industry, and our beliefs and assumptions. Words such as “believes,” “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 healthcare industry, primarily providers of long-term care; the impact of and future effects of the COVID-19 pandemic or other potential pandemics; having a significant portion of our consolidated revenues contributed by one customer during the three months ended March 31, 2020; credit and collection risks associated with the healthcare industry; our claims experience related to workers’ compensation and general liability insurance; the effects of changes in, or interpretations of laws and regulations governing the healthcare industry, our workforce and services provided, including state and local regulations pertaining to the taxability of our services and other labor-related matters such as minimum wage increases; the Company’s expectations with respect to selling, general, and administrative expense; continued realization of tax benefits arising from our corporate reorganization and self-funded health insurance program; the impact of the Securities and Exchange Commission investigation and related class action lawsuit; risks associated with the reorganization of our corporate structure; and the risk factors described in Part I of our Form 10-K for the fiscal year ended December 31, 2019 and the risk factors described in Part I of our Form 10-K for the fiscal year ended December 31, 2019 under “Government Regulation of Clients,” “Service Agreements and Collections,” and “Competition,” and under Item IA. “Risk Factors” in such Form 10-K and this Form 10-Q.

These factors, in addition to delays in payments from clients and/or clients in bankruptcy, have resulted in, and could continue to result in, significant additional bad debts in the near future. Additionally, our operating results would be adversely affected if unexpected increases in the costs of labor and labor-related costs, materials, supplies and equipment used in performing services (including the impact of potential tariffs and COVID-19) 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 with new clients, retain and provide new services to existing clients, achieve modest price increases on current service agreements with existing clients and/or 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 the successful execution of our projected growth strategies.


Table of Contents
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Healthcare Services Group, Inc.
Consolidated Balance Sheets
(in thousands, except per share amounts)
(Unaudited)
March 31,
2020
December 31,
2019
ASSETS:
Current assets:
Cash and cash equivalents$64,498  $27,329  
Marketable securities, at fair value90,497  90,711  
Accounts and notes receivable, less allowance for doubtful accounts of $87,453 and $45,726 as of March 31, 2020 and December 31, 2019, respectively
303,804  340,930  
Inventories and supplies36,938  36,517  
Prepaid expenses and other assets24,819  20,245  
Total current assets520,556  515,732  
Property and equipment, net29,010  28,820  
Goodwill51,084  51,084  
Other intangible assets, less accumulated amortization of $20,342 and $19,300 as of March 31, 2020 and December 31, 2019, respectively
21,311  22,353  
Notes receivable — long–term portion, less allowance for doubtful accounts of $4,827 and $6,667 as of March 31, 2020 and December 31, 2019, respectively
49,466  46,992  
Deferred compensation funding, at fair value30,008  37,247  
Deferred income taxes30,642  20,364  
Total assets$732,077  $722,592  
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Accounts payable$60,794  $54,418  
Accrued payroll, accrued and withheld payroll taxes29,763  36,413  
Other accrued expenses11,443  16,489  
Borrowings under line of credit50,000  10,000  
Income taxes payable10,555  8,075  
Accrued insurance claims23,729  23,256  
Total current liabilities186,284  148,651  
Accrued insurance claims — long-term portion65,272  64,366  
Deferred compensation liability30,098  37,621  
Lease liability — long-term portion12,244  11,649  
Commitments and contingencies (Note 15)
STOCKHOLDERS’ EQUITY:
Common stock, $0.01 par value; 100,000 shares authorized; 75,725 and 75,557 shares issued, and 74,416 and 74,149 shares outstanding as of March 31, 2020 and December 31, 2019, respectively
757  756  
Additional paid-in capital275,447  270,614  
Retained earnings168,404  195,455  
Accumulated other comprehensive income, net of taxes2,386  2,919  
Common stock in treasury, at cost, 1,309 and 1,408 shares as of March 31, 2020 and December 31, 2019, respectively
(8,815) (9,439) 
Total stockholders’ equity438,179  460,305  
Total liabilities and stockholders’ equity$732,077  $722,592  

See accompanying notes to consolidated financial statements.
1

Table of Contents
Healthcare Services Group, Inc.
Consolidated Statements of Comprehensive Income
(in thousands, except per share amounts)
(Unaudited)

Three Months Ended March 31,
20202019
Revenues$449,150  $476,111  
Operating costs and expenses:
Costs of services provided387,156  427,265  
Selling, general and administrative expense30,017  41,101  
Other (expense) income:
Investment and other income, net(4,827) 5,203  
Interest expense(368) (1,056) 
Income before income taxes26,782  11,892  
Income tax provision6,592  2,736  
Net income$20,190  $9,156  
Per share data:
Basic earnings per common share$0.27  $0.12  
Diluted earnings per common share$0.27  $0.12  
Weighted average number of common shares outstanding:
Basic74,658  74,301  
Diluted74,767  74,719  
Comprehensive income:
Net income$20,190  $9,156  
Other comprehensive income:
Unrealized (loss) gain on available-for-sale marketable securities, net of taxes(533) 1,416  
Total comprehensive income$19,657  $10,572  




See accompanying notes to consolidated financial statements.
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Healthcare Services Group, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 Three Months Ended March 31,
 20202019
Cash flows from operating activities:
Net income$20,190  $9,156  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization3,556  3,489  
Bad debt provision2,060  18,470  
Share-based compensation expense1,973  1,838  
Amortization of premium on marketable securities450  382  
Unrealized loss (gain) on deferred compensation fund investments5,761  (3,445) 
Changes in operating assets and liabilities:
Accounts and notes receivable(9,645) (25,986) 
Inventories and supplies(421) 300  
Prepaid expenses and other assets(4,574) (323) 
Deferred compensation funding1,478  744  
Accounts payable and other accrued expenses(379) (5,322) 
Accrued payroll, accrued and withheld payroll taxes(4,626) 18,465  
Income taxes payable2,480  (5,730) 
Accrued insurance claims1,379  2,622  
Deferred compensation liability(6,994) 2,917  
Net cash provided by operating activities12,688  17,577  
Cash flows from investing activities:
Disposals of fixed assets129  64  
Additions to property and equipment(788) (1,336) 
Purchases of marketable securities(2,670) (4,277) 
Sales of marketable securities1,757  3,539  
Net cash used in investing activities(1,572) (2,010) 
Cash flows from financing activities:
Dividends paid(15,033) (14,588) 
Reissuance of treasury stock pursuant to Dividend Reinvestment Plan23  24  
Proceeds from the exercise of stock options1,724  1,913  
Proceeds from short-term borrowings40,000    
Payments of statutory withholding on net issuance of restricted stock units(661) (579) 
Net cash provided by (used in) financing activities26,053  (13,230) 
Net change in cash and cash equivalents37,169  2,337  
Cash and cash equivalents at beginning of the period27,329  26,025  
Cash and cash equivalents at end of the period$64,498  $28,362  


See accompanying notes to consolidated financial statements.
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Healthcare Services Group, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands)
(Unaudited)

For the three months ended March 31, 2020
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income, net of taxesRetained EarningsTreasury StockStockholders’ Equity
SharesAmount
Balance, December 31, 201975,557  $756  $270,614  $2,919  $195,455  $(9,439) $460,305  
Adjustment to adopt credit-loss guidance1
—  —  —  —  (32,099) —  (32,099) 
Balance, January 1, 202075,557  $756  $270,614  $2,919  $163,356  $(9,439) $428,206  
Comprehensive income:
Net income for the period—  —  —  —  20,190  —  20,190  
Unrealized loss on available-for-sale marketable securities, net of taxes—  —  —  (533) —  —  (533) 
Comprehensive income for the period$19,657  
Exercise of stock options and other share-based compensation, net of shares tendered for payment162  1  1,723  —  —  —  1,724  
Payment of statutory withholding on issuance of restricted stock and restricted stock units—  —  (661) —  —  —  (661) 
Share-based compensation expense — stock options, restricted stock and restricted stock units—  —  1,822  —  —  —  1,822  
Treasury shares issued for Deferred Compensation Plan funding and redemptions—  —  417  —  —  111  528  
Shares issued pursuant to Employee Stock Plan—  —  1,329  —  —  506  1,835  
Dividends paid and accrued, $0.20 per share
—  —  —  —  (15,142) —  (15,142) 
Shares issued pursuant to Dividend Reinvestment Plan—  —  16  —  —  7  23  
Other6  —  187  —  —  —  187  
Balance, March 31, 202075,725  $757  $275,447  $2,386  $168,404  $(8,815) $438,179  

1.See Note 4—Allowance for Doubtful Accounts regarding the new credit-loss guidance

See accompanying notes to consolidated financial statements.
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For the three months ended March 31, 2019
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income, net of taxesRetained EarningsTreasury StockStockholders’ Equity
SharesAmount
Balance, December 31, 201875,344  $753  $259,440  $158  $190,092  $(9,663) $440,780  
Comprehensive income:
Net income for the period—  —  —  —  9,156  —  9,156  
Unrealized gain on available-for-sale marketable securities, net of taxes—  —  —  1,416  —  —  1,416  
Comprehensive income for the period$10,572  
Exercise of stock options and other share-based compensation, net of shares tendered for payment115  2  1,911  —  —  —  1,913  
Payment of statutory withholding on issuance of restricted stock and restricted stock units—  —  (579) —  —  —  (579) 
Share-based compensation expense — stock options, restricted stock and restricted stock units—  —  1,656  —  —  —  1,656  
Treasury shares issued for Deferred Compensation Plan funding and redemptions—  —  535  —  —  1  536  
Shares issued pursuant to Employee Stock Plan—  —  1,781  —  —  349  2,130  
Dividends paid and accrued, $0.20 per share
—  —  —  —  (14,656) —  (14,656) 
Shares issued pursuant to Dividend Reinvestment Plan—  —  18  —  —  5  23  
Other6  —  174  —  —  —  174  
Balance, March 31, 201975,465  $755  $264,936  $1,574  $184,592  $(9,308) $442,549  

See accompanying notes to consolidated financial statements.
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Healthcare Services Group, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

Note 1—Description of Business and Significant Accounting Policies

Nature of Operations

Healthcare Services Group, Inc. (the “Company”) provides management, administrative and operating expertise and services to the housekeeping, laundry, linen, facility maintenance and dietary service departments of the healthcare industry, including nursing homes, retirement complexes, rehabilitation centers and hospitals located throughout the United States. Although the Company does not directly participate in any government reimbursement programs, the Company’s clients receive government reimbursements related to Medicare and Medicaid. Therefore, they are directly affected by any legislation relating to Medicare and Medicaid reimbursement programs.

The Company provides services primarily pursuant to full service agreements with its clients. In such agreements, the Company is responsible for the day-to-day management of employees located at the clients’ facilities. The Company also provides services on the basis of management-only agreements for a limited number of clients. The agreements with clients typically provide for a renewable one year service term, cancellable by either party upon 30 to 90 days’ notice after an initial period of 60 to 120 days.

The Company is organized into two reportable segments: housekeeping, laundry, linen and other services (“Housekeeping”), and dietary department services (“Dietary”).

Housekeeping consists of managing the clients’ housekeeping departments, which are principally responsible for the cleaning, disinfecting and sanitizing of resident rooms and common areas of a client’s facility, as well as the laundering and processing of the bed linens, uniforms, resident personal clothing and other assorted linen items utilized at a client facility.

Dietary consists of managing the clients’ dietary departments, which are principally responsible for food purchasing, meal preparation and dietitian professional services, which includes the development of menus that meet residents’ dietary needs.

Unaudited Interim Financial Data

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, these consolidated financial statements do not include all of the information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows. However, in the Company’s opinion, all adjustments which are of a normal recurring nature and are necessary for a fair presentation have been reflected in these consolidated financial statements. The balance sheet shown in this report as of December 31, 2019 has been derived from the audited financial statements for the year ended December 31, 2019. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for any future period.

Use of Estimates in Financial Statements

In preparing financial statements in conformity with U.S. GAAP, estimates and assumptions are made that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Significant estimates are used in determining, but are not limited to, the Company’s allowance for doubtful accounts, accrued insurance claims, valuations, deferred taxes and reviews for potential impairment. The estimates are based upon various factors including current and historical trends, as well as other pertinent industry and regulatory authority information, including the potential future effects of COVID-19. Management regularly evaluates this information to determine if it is necessary to update the basis for its estimates and to adjust for known changes.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Healthcare Services Group, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

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Cash and Cash Equivalents

Cash and cash equivalents are held in U.S. financial institutions or in custodial accounts with U.S. financial institutions. Cash equivalents are defined as short-term, highly liquid investments with a maturity of three months or less at time of purchase that are readily convertible into cash and have insignificant interest rate risk.

Accounts and Notes Receivable

Accounts and notes receivable consist of Housekeeping and Dietary segment trade receivables from contracts with customers. The Company’s payment terms with customers for services provided are defined within each customer’s service agreement. All accounts receivables are considered short term assets as the Company does not grant payment terms greater than one year. Accounts receivable initially are recorded at the transaction amount, and are recorded after the Company has an unconditional right to payment where only the passage of time is required before payment is received. Each reporting period, the Company evaluates the collectability of outstanding receivable balances and records an allowance for doubtful accounts representing an estimate of future expected credit loss. Additions to the allowance for doubtful accounts are made by recording a charge to bad debt expense reported in costs of services provided.

Notes receivable are initially recorded when accounts receivable are transferred into a promissory note and are recorded as an alternative to accounts receivable to memorialize an unqualified promise to pay a specific sum, typically with interest, in accordance with a defined payment schedule. The Company’s payment terms with customers on promissory notes can vary based on several factors and the circumstances of each promissory note, however typically promissory notes mature over a 1 to 3 year period. Similar to accounts receivable, each reporting period the Company evaluates the collectability of outstanding notes receivable balances and records an allowance for doubtful accounts representing an estimate of future expected credit loss.

Refer to Note 3—Accounts and Notes Receivable herein for further information.

Allowance for Doubtful Accounts

The guidance under the Financial Accounting Standards Board ("FASB") Accounting Standards Codification subtopic 326 Credit Losses - Measurement of Credit Losses on Financial Instruments ("ASC 326") became effective and was adopted by the Company prospectively as of January 1, 2020. In adopting ASC 326 the Company replaced its previous incurred loss impairment model for estimating credit losses on accounts and notes receivables for its reporting of quarterly and annual financial results with an expected loss model prepared in accordance with ASC 326. While the incurred loss impairment model had the Company recognize credit losses when it was probable that a loss had been incurred, ASC 326 requires the Company to estimate the lifetime expected credit losses on such instruments and to record an allowance to offset the receivables. ASC 326 requires the recognition of credit losses that are expected based on existing accounts and notes receivable as compared to the incurred loss approach. Accordingly, credit losses under ASC 326 generally are recognized earlier in the life cycle of a receivable than under the Company’s previous incurred loss model. Modeling must be prepared after considering historical experience, current conditions, and reasonable and supportable economic forecasts to estimate lifetime expected credit losses. Under the previous incurred loss impairment model, credit losses were recognized when Management determined that it was more likely than not that a loss had been incurred and such loss was estimable.

Refer to Note 4—Allowance for Doubtful Accounts herein for further information.

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The cumulative effect of initially applying the new ASC 326 guidance to the consolidated financial statements on January 1, 2020 was as follows:

Consolidated Statement of Financial PositionDecember 31, 2019Cumulative Impact from Adopting ASC 326 GuidanceJanuary 1, 2020
(in thousands)
Assets
Short-term accounts and notes receivable, less allowance for doubtful accounts$340,930  $(41,100) $299,830  
Notes receivable – long–term portion, less allowance for doubtful accounts$46,992  $(1,136) $45,856  
Allowance for doubtful accounts on short-term accounts and notes receivables$(45,726) $(41,100) $(86,826) 
Allowance for doubtful accounts on long-term notes receivables$(6,667) $(1,136) $(7,803) 
Deferred income taxes$20,364  $10,137  $30,501  
Stockholders’ equity
Retained earnings$195,455  $(32,099) $163,356  


Inventories and Supplies

Inventories and supplies include housekeeping, linen and laundry supplies, as well as food provisions and supplies. Non-linen inventories and supplies are stated on a first-in, first-out (FIFO) basis, and reduced as deemed necessary to approximate the lower of cost or net realizable value. Linen supplies are amortized on a straight-line basis over their estimated useful life of 24 months.

Revenue Recognition

The Company recognizes revenue from contracts with customers when or as the promised goods and services are provided to customers. Revenues are reported net of sales taxes that are collected from customers and remitted to taxing authorities.

The guidance under the FASB Accounting Standards Codification subtopic 606 Revenue from Contracts with Customers ("ASC 606") requires the Company to recognize revenue as the promised goods and services within the terms of the Company’s contracts are performed and satisfied. The amount of revenue recognized by the Company is based on the consideration to which the Company is entitled in exchange for providing the contracted goods and services. The adoption of this standard did not have a material impact on the Company’s accounting for revenue earned relating to the Housekeeping and Dietary segments. The Company also did not recognize an opening adjustment to retained earnings as a result of the adoption of the standard. Refer to Note 2—Revenue herein for further information.

Leases

The guidance under FASB Accounting Standards Codification subtopic ASC 842 Leases (“ASC 842”) became effective and was adopted by the Company as of January 1, 2019, by applying a modified retrospective transition approach which resulted in the capitalization of the Company’s existing operating leases as of January 1, 2019. As such, the Company records assets and liabilities on the balance sheet to recognize the rights and obligations arising from leasing arrangements with contractual terms greater than 12 months, as permitted by U.S. GAAP. A leasing arrangement includes any contract which entitles the Company to the right of use of an identified tangible asset where there are no restrictions as to the direct of use of the asset, and the Company obtains substantially all of the economic benefits from the right of use. As of March 31, 2020 and December 31, 2019, the Company was only the lessee of operating lease arrangements.
Refer to Note 7—Leases herein for further information.

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Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Under this method, income tax expense or benefits are recognized for the amount of taxes payable or refundable for the current period. The Company accrues for probable tax obligations as required, based on facts and circumstances in various regulatory environments. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. When appropriate, valuation allowances are recorded to reduce deferred tax assets to amounts for which realization is more likely than not.

Uncertain income tax positions taken or expected to be taken in tax returns are reflected within the Company’s financial statements based on a recognition and measurement process.

Earnings per Common Share

Basic earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is computed using the weighted-average number of common shares outstanding and dilutive common shares, such as those issuable upon exercise of stock options and upon the vesting of restricted stock and restricted stock units.

Share-Based Compensation

The Company estimates the fair value of share-based awards on the date of grant using the Black-Scholes valuation model for stock options and using the share price on the date of grant for restricted stock and restricted stock units. The value of the award is recognized ratably as an expense in the Company’s Consolidated Statements of Comprehensive Income over the requisite service periods, with adjustments made for forfeitures as they occur.

Identifiable Intangible Assets and Goodwill

Identifiable intangible assets are amortized on a straight-line basis over their respective lives. Goodwill represents the excess of cost over the fair value of net assets of acquired businesses. Management reviews the carrying value of goodwill annually during the fourth quarter to assess for impairment, or more often if events or circumstances indicate that the carrying value may exceed its estimated fair value.

During the first quarter of 2020, the Company reviewed the carrying value of goodwill due to the events and circumstances surrounding the COVID-19 pandemic. No impairment loss on the Company’s intangible assets or goodwill during the three months ended March 31, 2020 was recorded as a result of such review. There was no impairment loss recognized on the Company’s intangible assets or goodwill during the three months ended March 31, 2019.

Concentrations of Credit Risk

The Company’s financial instruments that are subject to credit risk are cash and cash equivalents, marketable securities, deferred compensation funding and accounts and notes receivable. At March 31, 2020 and December 31, 2019, substantially all of the Company’s cash and cash equivalents and marketable securities were held in one large financial institution located in the United States. The Company’s marketable securities are fixed income investments which are highly liquid and can be readily purchased or sold through established markets.

The Company’s clients are concentrated in the healthcare industry and are primarily providers of long-term care. The revenues of many of the Company’s clients are highly reliant on Medicare, Medicaid and third party payors’ reimbursement funding rates. New legislation or changes in existing regulations could directly impact the governmental reimbursement programs in which the clients participate. As a result, the Company may not realize the full effects of such programs until these laws are fully implemented and governmental agencies issue applicable regulations or guidance.

Note 2—Revenue

The Company presents its consolidated revenues disaggregated by reportable segment, as Management evaluates the nature, amount, timing and uncertainty of the Company’s revenues by segment. Refer to Note 13—Segment Information herein as well as the information below regarding the Company’s reportable segments.
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Housekeeping

Housekeeping accounted for $224.3 million and $233.1 million of the Company’s consolidated revenues for the three months ended March 31, 2020 and 2019, respectively, which represented approximately 49.9% and 49.0% of the Company’s revenues in each respective period. The Housekeeping services include managing clients’ housekeeping departments, which are principally responsible for the cleaning, disinfecting and sanitizing of resident rooms and common areas of the clients’ facilities, as well as the laundering and processing of the bed linens, uniforms, resident personal clothing and other assorted linen items utilized at the clients’ facilities. Upon beginning service with a client facility, the Company will typically hire and train the employees previously employed by such facility and assign an on-site manager to supervise and train the front-line personnel and coordinate housekeeping services with other facility support functions in accordance with client requests. Such management personnel also oversee the execution of various cost and quality-control procedures including continuous training and employee evaluation.

Dietary

Dietary services accounted for $224.9 million and $243.0 million of the Company’s consolidated revenues for the three months ended March 31, 2020 and 2019, respectively, which represented approximately 50.1% and 51.0% of the Company’s revenues in each respective period. Dietary services consist of managing clients’ dietary departments which are principally responsible for food purchasing, meal preparation and professional dietitian services, which include the development of menus that meet the dietary needs of residents. On-site management is responsible for all daily dietary department activities, with regular support provided by a District Manager specializing in dietary services. The Company also offers clinical consulting services to facilities which if contracted is a service bundled within the monthly service provided to clients. Upon beginning service with a client facility, the Company will typically hire and train the employees previously employed by such facility and assign an on-site manager to supervise and train the front-line personnel and coordinate dietitian services with other facility support functions in accordance with client requests. Such management personnel also oversee the execution of various cost and quality-control procedures including continuous training and employee evaluation.

Revenue Recognition

All of the Company’s revenues are derived from contracts with customers. The Company accounts for revenue from contracts with customers in accordance with ASC 606, and as such, the Company recognizes revenue to depict the transfer of promised goods and services to customers in amounts that reflect the consideration to which the Company is entitled in exchange for those goods and services. The Company’s costs of obtaining contracts are not material.

The Company performs services and provides goods in accordance with its contracts with its customers. Such contracts typically provide for a renewable one year service term, cancellable by either party upon 30 to 90 days’ notice, after an initial period of 60 to 120 days. A performance obligation is the unit of account under ASC 606 and is defined as a promise in a contract to transfer a distinct good or service to the customer. The Company’s Housekeeping and Dietary contracts relate to the provision of bundles of goods, services or both, which represent a series of distinct goods and services that are substantially the same and that have the same pattern of transfer to the customer. The Company accounts for the series as a single performance obligation satisfied over time, as the customer simultaneously receives and consumes the benefits of the goods and services provided. Revenue is recognized using the output method, which is based upon the delivery of goods and services to the clients’ facilities. In limited cases, the Company provides goods, services or both, before the execution of a written contract. In these cases, the Company defers the recognition of revenue until a contract is executed. The amount of such deferred revenue was not material as of March 31, 2020 and December 31, 2019. Additionally, substantially all such revenue amounts deferred as of December 31, 2019 were subsequently recognized as revenue during the three months ended March 31, 2020.

The transaction price is the amount of consideration to which the Company is entitled in exchange for transferring promised goods or services to its customers. The transaction price does not include taxes assessed or collected. The Company’s contracts detail the fees that the Company charges for the goods and services it provides. For certain contracts which contain a variable component to the transaction price, the Company is required to make estimates of the amount of consideration to which the Company will be entitled, based on variability in resident and patient populations serviced, product usage or quantities consumed. The Company recognizes revenue related to such estimates only when the Company determines that there will not be a significant reversal in the amount of revenue recognized. The Company’s contracts generally do not contain significant financing components, as payment terms are less than one year.

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The Company allocates the transaction price to each performance obligation, noting that the bundle of goods, services or goods and services provided under each Housekeeping and Dietary contract represents a single performance obligation that is satisfied over time. The Company recognizes the related revenue when it satisfies the performance obligation by transferring a bundle of promised goods, services or both to a customer. Such recognition is on a monthly or weekly basis, as goods are provided and services are performed. In some cases, the Company requires customers to pay in advance for goods and services to be provided. As of March 31, 2020 and December 31, 2019, the value of the contract liabilities associated with customer prepayments was not material. Additionally, substantially all such revenue amounts deferred as of December 31, 2019 were subsequently recognized as revenue during the three months ended March 31, 2020.

Transaction Price Allocated to Remaining Performance Obligations

The Company recognizes revenue as it satisfies the performance obligations associated with contracts with customers, which due to the nature of the goods and services provided by the Company, are satisfied over time. Contracts may contain transaction prices that are fixed, variable or both. The Company’s contracts with customers typically provide for an initial term of one year, with renewable one year service terms, cancellable by either party upon 30 to 90 days’ notice after an initial period of 60 to 120 days.

At March 31, 2020, the Company had $612.9 million related to performance obligations that were unsatisfied or partially unsatisfied for which the Company expects to recognize revenue. The Company expects to recognize revenue on approximately 25.6% of the remaining performance obligations over the next 12 months, with the balance to be recognized thereafter. These amounts exclude variable consideration primarily related to performance obligations that consists of a series of distinct service periods with revenues based on future performance that cannot be estimated at contract inception. The Company also has elected to apply the practical expedient that permits exclusion of information about the remaining performance obligations with original expected durations of one year or less.

Note 3—Accounts and Notes Receivable

The Company’s accounts and notes receivable balances consisted of the following as of March 31, 2020 and December 31, 2019:
March 31, 2020December 31, 2019
(in thousands)
Short-term
Accounts and notes receivable$391,257  $386,656  
Allowance for doubtful accounts1
(87,453) (45,726) 
Total net short-term accounts and notes receivable$303,804  $340,930  
Long-term
Notes receivable$54,293  $53,659  
Allowance for doubtful accounts1
(4,827) (6,667) 
Total net long-term notes receivable$49,466  $46,992  
Total net accounts and notes receivable$353,270  $387,922  
1.Effective January 1, 2020, the Company adopted ASC 326 and recorded a one-time adoption adjustment of $42.2 million

The Company makes credit decisions on a case-by-case basis after reviewing a number of qualitative and quantitative factors related to the specific client as well as current industry variables that may impact that client. There are a variety of factors that impact a client’s ability to pay in accordance with the Company’s contracts. These factors include, but are not limited to, fluctuating census numbers, litigation costs and the client’s participation in programs funded by federal and state governmental agencies. Deviations in the timing or amounts of reimbursements under those programs can impact the client’s cash flows and its ability to make timely payments. However, the client’s obligation to pay the Company in accordance with the contracts are not contingent upon the client’s cash flow. Notwithstanding the Company’s efforts to minimize its credit risk exposure, the aforementioned factors, as well as other factors that impact client cash flows or ability to make timely payments, could have an indirect, yet material adverse effect on the Company’s results of operations and financial condition.

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Fluctuations in net accounts and notes receivable are generally attributable to a variety of factors including, but not limited to, the timing of cash receipts from customers and the inception, transition, modification or termination of client relationships. The Company deploys significant resources and has invested in tools and processes to optimize Management’s credit and collections efforts. When appropriate, the Company utilizes interest-bearing promissory notes to enhance the collectability of amounts due, by instituting definitive repayment plans and providing a means by which to further evidence the amounts owed. In addition, the Company may amend contracts from full service to management-only arrangements, or adjust contractual payment terms, to accommodate clients who have in good faith established clearly-defined plans for addressing cash flow issues. These efforts are intended to minimize the Company’s collections risk.

Note 4 - Allowance for Doubtful Accounts

On January 1, 2020 (the "adoption date"), the Company replaced its previous incurred loss impairment model for estimating credit losses on accounts and notes receivables with an expected loss model prepared in accordance with ASC 326. While the incurred loss impairment model had the Company recognize credit losses when it was probable that a loss had been incurred, ASC 326 requires the Company to estimate future expected credit losses on such instruments before an impairment may occur. On the adoption date the Company recorded an initial increase of $42.2 million to the Company's allowance for doubtful accounts, with an offset recorded as an opening adjustment to retained earnings.

In making the Company’s credit evaluations, management considers the general collection risk associated with trends in the long-term care industry. The Company establishes credit limits through payment terms with customers, performs ongoing credit evaluations and monitors accounts on an aging schedule basis to minimize the risk of loss. Despite the Company’s efforts to minimize credit risk exposure, clients could be adversely affected if future industry trends, including those related to COVID-19, change in such a manner as to negatively impact their cash flows. The full effects of COVID-19 on the Company’s clients are highly uncertain and cannot be predicted. As a result, the Company’s future collection experience can differ significantly from historical collection trends. If the Company’s clients experience a negative impact on their cash flows, it could have a material adverse effect on the Company’s results of operations and financial condition.

The Company evaluates its accounts and notes receivable for expected credit losses quarterly. Accounts receivables are evaluated based on internally developed credit quality indicators derived from the aging of receivables. Notes receivable are evaluated based on internally developed credit quality indicators derived from Management’s assessment of collection risk. The Company manages note receivable portfolios using a two tiered approach by disaggregating standard notes receivables, which are promissory notes in good standing, from those who have been identified by Management as having an elevated credit risk profile due to a trigger event such as bankruptcy. At the end of each period the Company sets a reserve for expected credit losses on standard notes receivable based on the Company’s historical loss rate. Notes receivable with an elevated risk profile, which are from customers who have filed bankruptcy, are subject to collections activity or are slow payers that are experiencing financial difficulties, are aggregated and evaluated to determine the total reserve for the class of receivable.

The guidance in ASC 326 permits entities to make an accounting policy election not to measure an estimate for credit losses on accrued interest if those entities write-off accrued interest deemed uncollectible in a timely manner. The Company follows an income recognition policy on all interest earned on notes receivable. Under such policy the Company accounts for all notes receivable on a non-accrual basis and defers the recognition of any interest income until receipt of cash payments. This policy was established, recognizing the environment of the long-term care industry, and not because such notes receivable are necessarily impaired. Accordingly, the Company does not record a credit loss adjustment for accrued interest. For the three months ended March 31, 2020, the Company recognized $0.6 million in interest income from notes receivables.

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As part of the Company’s adoption of ASC 326, there are additional disclosures required to be made on a class of financing receivable basis. The following table presents the Company’s two tiers of notes receivable further disaggregated by year of origination as of March 31, 2020. The information is updated as of March 31, 2020:

Notes Receivable
Amortized Cost Basis by Origination Year
20202019201820172016PriorTotal
(in thousands)
Notes Receivable
Standard note receivable$6,810  $16,058  $17,745  $27,066  $1,989  $1,606  $71,274  
Elevated risk note receivable$  $  $397  $5,511  $  $2,457  $8,365  
Current-period gross write-offs$—  $—  $—  $—  $—  $—  $  
Current-period recoveries—  —  —  —  —  —    
Current-period net write-offs $—  $—  $—  $—  $—  $—  $  

The following table provides information as to the status of payment on the Company’s notes receivable in the manner in which the Company evaluates credit risk amongst the portfolio:

 Age Analysis of Past-Due Note Receivable as of March 31, 2020
0-90 Days91 - 180 DaysGreater than 181 DaysTotal
(in thousands)
Notes Receivable
Standard notes receivable$872  $531  $2,540  $3,943  
Elevated risk notes receivable804  532  5,399  6,735  
$1,676  $1,063  $7,939  $10,678  

The following table provides a summary of the changes in the Company’s allowance for doubtful accounts on a portfolio segment basis for the three months ended March 31, 2020:

Allowance for doubtful accounts
Portfolio SegmentDecember 31,
2019
Cumulative effect of ASC 326 adoption1
Write-OffsBad Debt ExpenseMarch 31,
2020
(in thousands)
Accounts receivable$39,903  $36,709  $(4,409) $2,186  $74,389  
Note receivable
Standard notes receivable$6,667  $5,236  $  $(249) $11,654  
Elevated risk notes receivable5,823  291    123  6,237  
Total notes receivable$12,490  $5,527  $  $(126) $17,891  
Total accounts and notes receivable$52,393  $42,236  $(4,409) $2,060  $92,280  
1.Represents a one-time adjustment to the Company’s 2020 opening retained earnings balance in accordance with the adoption of the accounting guidance.


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Note 5—Changes in Accumulated Other Comprehensive Income by Component

Accumulated other comprehensive income consists of unrealized gains and losses from the Company’s available-for-sale marketable securities. The following table provides a summary of the changes in accumulated other comprehensive income for the three months ended March 31, 2020 and 2019:
Unrealized Gains and Losses on Available-for-Sale Securities1
Three Months Ended March 31,
20202019
(in thousands)
Accumulated other comprehensive income — beginning balance$2,919  $158  
Other comprehensive (loss) income before reclassifications(542) 1,419  
Losses (Gains) reclassified from other comprehensive income2
9  (3) 
Net current period other comprehensive (loss) income3
(533) 1,416  
Accumulated other comprehensive income — ending balance$2,386  $1,574  
1.All amounts are net of tax
2.Realized gains and losses were recorded pre-tax under “Investment and other income” in the Consolidated Statements of Comprehensive Income. For the three months ended March 31, 2020, the Company recorded less than $0.1 million of realized losses from the sale of available-for-sale securities. For the three months ended March 31, 2019, the Company recorded less than $0.1 million of realized gains from the sale of available-for-sale securities. Refer to Note 9—Fair Value Measurements herein for further information.
3.For the three months ended March 31, 2020, the changes in other comprehensive income were net of a tax benefit of $0.1 million. For the three months ended March 31, 2019, the changes in other comprehensive income were net of a tax expense of $0.4 million.

Amounts Reclassified from Accumulated Other Comprehensive Income
20202019
(in thousands)
Three Months Ended March 31,
(Losses) gains from the sale of available-for-sale securities$(11) $4  
Tax benefit (expense) 2  (1) 
Net (loss) gain reclassified from accumulated other comprehensive income$(9) $3  

Note 6—Property and Equipment

Property and equipment are recorded at cost. Depreciation is recorded over the estimated useful life of each class of depreciable asset, and is computed using the straight-line method. Leasehold improvements are amortized over the shorter of the estimated asset life or term of the lease. Repairs and maintenance costs are charged to expense as incurred.

The following table sets forth the amounts of property and equipment by each class of depreciable asset as of March 31, 2020 and December 31, 2019:
March 31, 2020December 31, 2019
(in thousands)
Housekeeping and Dietary equipment$23,070  $25,219  
Computer hardware and software9,384  12,769  
Operating lease — right-of-use assets1
23,221  21,176  
Other2
1,668  1,698  
Total property and equipment, at cost57,343  60,862  
Less accumulated depreciation28,333  32,042  
Total property and equipment, net$29,010  $28,820  
1.Upon the adoption of ASC 842 the Company recognized right-of-use assets pertaining to leases in Property and Equipment, net.
2.Includes furniture and fixtures, leasehold improvements and autos and trucks including auto leases.

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Depreciation expense for the three months ended March 31, 2020 and 2019 was $2.5 million and $2.4 million, respectively. Of the depreciation expense recorded for the three months ended March 31, 2020 and 2019, $1.4 million and $1.2 million related to the depreciation of the Company’s operating lease - right-of-use assets ("ROU Assets"), respectively.

Note 7—Leases

The Company recognizes ROU Assets and lease liabilities (“Lease Liabilities”) for automobiles, office buildings, IT equipment, and small storage units for the temporary storage of operational equipment. The Company’s leases have remaining lease terms ranging from less than 1 year to 10 years, and have extension options ranging from 1 year to 5 years. Most leases include the option to terminate the lease within 1 year.

Upon adopting ASC 842, the Company made accounting policy elections using practical expedients offered under the guidance to combine lease and non-lease components within leasing arrangements and to recognize the payments associated with short-term leases in earnings on a straight-line basis over the lease term, with the cost associated with variable lease payments recognized when incurred. These accounting policy elections impact the value of the Company’s ROU Assets and Lease Liabilities. The value of the Company’s ROU Assets is determined as the non-depreciated fair value of its leasing arrangements and is recorded to Property and Equipment, net on the Company’s Consolidated Balance Sheets. The value of the Company’s Lease Liabilities is the present value of fixed lease payments not yet paid, discounted using either the rate implicit in the lease contract if that rate can be determined, or the Company’s incremental borrowing rate ("IBR") and is recorded in Other accrued expenses and Lease liability — long-term portion on the Company’s Consolidated Balance Sheets. Any future lease payments that are not fixed based on the terms of the lease contract, or fluctuate based on a factor other than an index or rate, are considered variable lease payments and are not included in the value of the Company’s ROU Assets or Lease Liabilities. The Company’s IBR is determined as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

Components of lease expense required by ASC 842 are presented below for the three months ended March 31, 2020 and 2019.
Three Months Ended March 31
20202019
(in thousands)
Lease cost
Operating lease cost$1,355  $1,214  
Short-term lease cost129  221  
Variable lease cost146  153  
Total lease cost$1,630  $1,588  

Supplemental information required by ASC 842 is presented below for the three months ended March 31, 2020 and 2019.
Quarter ended March 31,
20202019
(dollar amounts in thousands)
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$1,380  $1,307  
Weighted-average remaining lease term — operating leases5.9 years6.9 years
Weighted-average discount rate — operating leases4.7 %4.7 %

During the three months ended March 31, 2020 and 2019, the Company’s ROU Assets and Lease Liabilities were both reduced by $0.2 million and $0.1 million, respectively, due to lease cancellations which are accounted for as noncash transactions.

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The following is a schedule by calendar year of future minimum lease payments under operating leases that have remaining terms as of March 31, 2020:

Period/YearOperating Leases
(in thousands)
April 1 to December 31, 2020$4,131  
20214,390  
20223,137  
20231,274  
20241,295  
20251,311  
Thereafter4,204  
Total minimum lease payments$19,742  

Note 8—Other Intangible Assets

The Company’s other intangible assets consist of customer relationships which were obtained through acquisitions and are recorded at their fair values at the date of acquisition. Intangible assets with determinable lives are amortized on a straight-line basis over their estimated useful lives. The customer relationships have a weighted-average amortization period of approximately 10 years.

The following table sets forth the estimated amortization expense for intangibles subject to amortization for the remainder of 2020, the following five fiscal years and thereafter:

Period/YearTotal Amortization Expense
(in thousands)
April 1 to December 31, 2020$3,124  
2021$4,165  
2022$4,165  
2023$3,169  
2024$2,035  
2025$2,035  
Thereafter$2,618  

Amortization expense for the three months ended March 31, 2020 and 2019 was $1.0 million and $1.1 million, respectively.

Note 9—Fair Value Measurements

The Company’s current assets and current liabilities are financial instruments and most of these items (other than marketable securities and inventories) are recorded at cost in the Consolidated Balance Sheets. The estimated fair value of these financial instruments approximates their carrying value due to their short-term nature. The carrying value of the Company’s line of credit represents the outstanding amount of the borrowings, which approximates fair value. The Company’s financial assets that are measured at fair value on a recurring basis are its marketable securities and deferred compensation funding. The recorded values of all of the financial instruments approximate their current fair values because of their nature, stated interest rates and respective maturity dates or durations.

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The Company’s marketable securities consist of tax-exempt municipal bonds, which are classified as available-for-sale and are reported at fair value. Unrealized gains and losses associated with these investments are included in other comprehensive income (net of tax) within the Consolidated Statements of Comprehensive Income. The fair value of these marketable securities is classified within Level 2 of the fair value hierarchy, as these securities are measured using quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable. Such valuations are determined by a third-party pricing service. For the three months ended March 31, 2020 and 2019, the Company recorded unrealized losses of $0.5 million and unrealized gains of $1.4 million on marketable securities, respectively.

For the three months ended March 31, 2020 and 2019, the Company received total proceeds, less the amount of interest received, of $1.8 million and $3.5 million, respectively, from sales of available-for-sale municipal bonds. For the three months ended March 31, 2020 and 2019, these sales resulted in realized losses of less than $0.1 million and realized gains of less than $0.1 million, respectively, which were recorded in “Other income – Investment and other income, net” in the Consolidated Statements of Comprehensive Income. The basis for the sale of these securities was the specific identification of each bond sold during the period.

The investments under the funded deferred compensation plan are accounted for as trading securities and unrealized gains or losses are included in earnings. The fair value of these investments are determined based on quoted market prices (Level 1). For the three months ended March 31, 2020 and 2019, the Company’s recognized unrealized losses of $5.8 million and unrealized gains of $3.4 million, respectively, related to equity securities still held at the respective reporting dates.

The following tables provide fair value measurement information for the Company’s marketable securities and deferred compensation fund investments as of March 31, 2020 and December 31, 2019:

As of March 31, 2020
Fair Value Measurement Using:
Carrying AmountTotal Fair ValueQuoted Prices in Active Markets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
(in thousands)
Financial Assets:
Marketable securities
Municipal bonds — available-for-sale$90,497  $90,497  $  $90,497  $  
Deferred compensation fund
Money Market 1
$1,152  $1,152  $  $1,152  $  
Balanced and Lifestyle8,250  8,250  8,250      
Large Cap Growth10,040  10,040  10,040      
Small Cap Growth2,935  2,935  2,935      
Fixed Income3,977  3,977  3,977      
International1,496  1,496  1,496      
Mid Cap Growth2,158  2,158  2,158      
Deferred compensation fund$30,008  $30,008  $28,856  $1,152  $  

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As of December 31, 2019
Fair Value Measurement Using:
Carrying
Amount
Total Fair
Value
Quoted Prices in Active Markets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
(in thousands)
Financial Assets:
Marketable securities
Municipal bonds — available-for-sale$90,711  $90,711  $  $90,711  $  
Deferred compensation fund
Money Market 1
$2,625  $2,625  $  $2,625  $  
Balanced and Lifestyle10,294  10,294  10,294      
Large Cap Growth11,369  11,369  11,369      
Small Cap Growth4,120  4,120  4,120      
Fixed Income4,072  4,072  4,072      
International1,932  1,932  1,932      
Mid Cap Growth2,835  2,835  2,835      
Deferred compensation fund$37,247  $37,247  $34,622  $2,625  $  
1.The fair value of the money market fund is based on the net asset value (“NAV”) of the shares held by the plan at the end of the period. The money market fund includes short-term United States dollar denominated money market instruments and the NAV is determined by the custodian of the fund. The money market fund can be redeemed at its NAV at the measurement date as there are no significant restrictions on the ability to sell this investment.

Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair ValueOther-than-temporary Impairments
(in thousands)
March 31, 2020
Type of security:
Municipal bonds — available-for-sale$87,477  $3,347  $(327) $90,497  $  
Total debt securities$87,477  $3,347  $(327) $90,497  $  
December 31, 2019
Type of security:
Municipal bonds — available-for-sale$87,016  $3,695  $  $90,711  $  
Total debt securities$87,016  $3,695  $  $90,711  $  

The following table summarizes the contractual maturities of debt securities held at March 31, 2020 and December 31, 2019, which are classified as marketable securities in the Consolidated Balance Sheets:

Municipal Bonds — Available-for-Sale
Contractual maturity:March 31, 2020December 31, 2019
(in thousands)
Maturing in one year or less$1,133  $876  
Maturing in second year through fifth year21,489  16,071  
Maturing in sixth year through tenth year42,400  38,801  
Maturing after ten years25,475  34,963  
Total debt securities$90,497  $90,711  

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Note 10—Shared-Based Compensation

The components of the Company’s shared-based compensation expense for the three months ended March 31, 2020 and 2019 are as follows:
Three Months Ended March 31,
20202019
(in thousands)
Stock options$521  $664  
Restricted stock and restricted stock units1,301  992  
Employee Stock Purchase Plan151  182  
Total pre-tax share-based compensation expense charged against income1
$1,973  $1,838  
1.Share-based compensation expense is recorded in cost of services and selling, general and administrative expense in the Company’s Consolidated Statements of Comprehensive Income.

At March 31, 2020, the unrecognized compensation cost related to unvested stock options and awards was $22.4 million. The weighted average period over which these awards will vest is approximately 3.4 years.

2012 Equity Incentive Plan

The Company’s Second Amended and Restated 2012 Equity Incentive Plan (the “Plan”) provides that current or prospective officers, employees, non-employee directors and advisors can receive share-based awards such as stock options, restricted stock, restricted stock units and other stock awards. The Plan seeks to promote the highest level of performance by providing an economic interest in the long-term success of the Company.

As of March 31, 2020, 3.1 million shares of common stock were reserved for issuance under the Plan, including 0.3 million shares available for future grant. No stock award will have a term in excess of 10 years. All awards granted under the Plan become vested and exercisable ratably over a five year period on each yearly anniversary of the grant date.

The Nominating, Compensation and Stock Option Committee of the Board of Directors is responsible for determining the terms of the grants in accordance with the Plan.

Stock Options

A summary of stock options outstanding under the Plan as of December 31, 2019 and changes during the three months ended March 31, 2020 is as follows:
Stock Options Outstanding
Number of SharesWeighted Average Exercise Price
(in thousands)
December 31, 20192,107  $32.99  
Granted210  $24.43  
Exercised(92) $17.55  
Forfeited(9) $37.64  
Expired(12) $32.58  
March 31, 20202,204  $32.80  

The weighted average grant-date fair value of stock options granted during the three months ended March 31, 2020 and 2019 was $4.62 and $8.18 per common share, respectively. The total intrinsic value of stock options exercised during the three months ended March 31, 2020 and 2019 was $0.8 million and $0.9 million, respectively.

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The fair value of stock option awards granted in 2020 and 2019 was estimated on the date of grant using the Black-Scholes option valuation model with the following assumptions:
Three Months Ended March 31,
20202019
Risk-free interest rate1.8 %2.5 %
Weighted average expected life6.6 years5.7 years
Expected volatility26.5 %22.6 %
Dividend yield3.2 %1.9 %

The following table summarizes other information about the stock options at March 31, 2020:
March 31, 2020
(amounts in thousands, except per share data)
Outstanding:
Aggregate intrinsic value$1,340  
Weighted average remaining contractual life5.8 years
Exercisable:
Number of options1,483  
Weighted average exercise price$31.04  
Aggregate intrinsic value$1,340  
Weighted average remaining contractual life4.6 years

Restricted Stock Units and Restricted Stock

The fair value of outstanding restricted stock units and restricted stock was determined based on the market price of the shares on the date of grant. During the three months ended March 31, 2020, the Company granted 0.3 million restricted stock units with a weighted average grant date fair value of $24.43 per unit. During the three months ended March 31, 2019, the Company granted 0.2 million restricted stock units with a weighted average grant date fair value of $40.49 per unit.

During the three months ended March 31, 2020 and 2019, the Company did not grant any restricted stock.

A summary of the outstanding restricted stock units and restricted stock as of December 31, 2019 and changes during the three months ended March 31, 2020 is as follows:
Restricted Stock Units and Restricted Stock
NumberWeighted Average Grant Date Fair Value
(in thousands)
December 31, 2019362  $43.24  
Granted307  $24.43  
Vested(93) $42.30  
Forfeited(8) $32.68  
March 31, 2020568  $33.36  

Employee Stock Purchase Plan

The Company’s Employee Stock Purchase Plan ("ESPP") is currently available through 2021 to all eligible employees. All full-time and part-time employees who work an average of 20 hours per week and have completed two years of continuous service with the Company are eligible to participate. Annual offerings commence and terminate on the respective year’s first and last calendar day.

Under the ESPP, the Company is authorized to issue up to 4.1 million shares of its common stock to its employees. Pursuant to such authorization, there are 2.1 million shares available for future grant at March 31, 2020.

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The expense associated with the options granted under the ESPP during the three months ended March 31, 2020 and 2019 was estimated on the date of grant using the Black-Scholes option valuation model with the following assumptions:

Three Months Ended March 31,
20202019
Risk-free interest rate1.6%2.6%
Weighted average expected life (years)1.01.0
Expected volatility42.0%30.8%
Dividend yield3.3%1.9%

Deferred Compensation Plan

The Company offers a Supplemental Executive Retirement Plan (“SERP”) for executives and certain key employees. The SERP allows participants to defer a portion of their earned income on a pre-tax basis and as of the last day of each plan year, each participant will be credited with a match of a portion of their deferral in the form of the Company’s common stock based on the then-current market value. Under the SERP, the Company is authorized to issue 1.0 million shares of its common stock to its employees. Pursuant to such authorization, the Company has 0.4 million shares available for future grant at March 31, 2020. At the time of issuance, such shares are accounted for at cost as treasury stock.

The following table summarizes information about the SERP during the three months ended March 31, 2020 and 2019:
Three Months Ended March 31,
 20202019
(in thousands)
SERP expense 1
$170  $169  
Unrealized (loss) gain recorded in SERP liability account$(5,728) $3,418  
1.Both the SERP match and the deferrals are included in the selling, general and administrative caption in the Consolidated Statements of Comprehensive Income.

Note 11—Dividends

During the three months ended March 31, 2020, the Company paid regular quarterly cash dividends totaling approximately $15.0 million as follows:
Quarter Ended
March 31, 2020
Cash dividend paid per common share$0.20125  
Total cash dividends paid$15,033  
Record dateFebruary 28, 2020
Payment dateMarch 27, 2020

Additionally, on April 21, 2020, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.20250 per common share, which will be paid on June 26, 2020, to shareholders of record as of the close of business on May 22, 2020.

Cash dividends declared for the periods presented were as follows:
Three Months Ended March 31,
20202019
Cash dividends declared per common share0.2025  0.1975  

Note 12—Income Taxes

The Company’s annual effective tax rate is impacted by the tax effects of option exercises and vested awards, which are treated as discrete items in the reporting period in which they occur, and therefore cannot be considered in the calculation of the estimated annual effective tax rate. The impact on the Company’s income tax provision through the three months ended March 31, 2020 for such discrete items was not material.
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Differences between the effective tax rate and the applicable U.S. federal statutory rate arise primarily from the effect of state and local income taxes, share-based compensation and tax credits available to the Company. The actual 2020 effective tax rate will likely vary from the estimate depending on the actual operating income earned with availability of tax credits and the exercise of stock options and vesting of share-based awards. The Company’s estimate for the 2020 effective tax rate has not been adjusted for any impacts related to COVID-19.

The Company accounts for income taxes using the asset and liability method, which results in recognizing income tax expense based on the amount of income taxes payable or refundable for the current year. Additionally, the Company regularly evaluates the tax positions taken or expected to be taken resulting from financial statement recognition of certain items. Based on the evaluation, there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The evaluation was performed for the tax years ended December 31, 2016 through 2019 (with regard to U.S. federal income tax returns) and December 31, 2015 through 2019 (with regard to various state and local income tax returns), the tax years which remain subject to examination by major tax jurisdictions as of March 31, 2020.

The Company may from time to time be assessed interest or penalties by taxing jurisdictions, although any such assessments historically have been minimal. When the Company has received an assessment for interest and/or penalties, it will be classified in the financial statements as selling, general and administrative expense. In addition, any interest or penalties relating to recognized uncertain tax positions would also be recorded in selling, general and administrative expense.

Note 13—Segment Information

The Company manages and evaluates its operations in two reportable segments: Housekeeping (housekeeping, laundry, linen and other services) and Dietary (dietary department services). Although both segments serve the same client base and share many operational similarities, they are managed separately due to distinct differences in the type of services provided, as well as the specialized expertise required of the professional management personnel responsible for delivering each segment’s services. Such services are rendered pursuant to discrete contracts, specific to each reportable segment.

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The Company’s accounting policies for the segments are generally the same as described in the Company’s significant accounting policies. Differences between the reportable segments’ operating results and other disclosed data and the information in the consolidated financial statements relate primarily to corporate level transactions and recording of transactions at the reportable segment level using other than generally accepted accounting principles. There are certain inventories and supplies that are primarily expensed when incurred within the operating segments, while they are capitalized in the consolidated financial statements. In addition, most corporate expenses such as corporate salary and benefit costs, certain legal costs, debt expense, information technology costs, depreciation, amortization of finite-lived intangible assets, share based compensation costs and other corporate-specific costs, are not fully allocated to the operating segments. There are also allocations for workers’ compensation and general liability expense within the operating segments that differ from the actual expense recorded by the Company under U.S. GAAP. Segment amounts disclosed are prior to elimination entries made in consolidation.

Three Months Ended March 31,
20202019
(in thousands)
Revenues
Housekeeping$224,293  $233,134  
Dietary224,857  242,977  
Total$449,150  $476,111  
Income before income taxes
Housekeeping$23,941  $26,507  
Dietary14,329  15,425  
Corporate and eliminations1
(11,488) (30,040) 
Total$26,782  $11,892  
1.Primarily represents corporate office costs and related overhead, recording of certain inventories and supplies and workers compensation costs at the reportable segment level which use accounting methods that differ from those used at the corporate level, as well as consolidated subsidiaries’ operating expenses that are not allocated to the reportable segments, net of investment and other income and interest expense.

Note 14—Earnings Per Common Share

Basic and diluted earnings per common share are computed by dividing net income by the weighted-average number of basic and diluted common shares outstanding, respectively. The weighted-average number of diluted common shares includes the impact of dilutive securities, including outstanding stock options and unvested restricted stock and restricted stock units. The table below reconciles the weighted-average basic and diluted common shares outstanding:
Three Months Ended March 31,
20202019
(in thousands)
Weighted average number of common shares outstanding - basic74,658  74,301  
Effect of dilutive securities 1
109  418  
Weighted average number of common shares outstanding - diluted74,767  74,719  
1.Certain outstanding equity awards are anti-dilutive and therefore were excluded from the calculation of the weighted average number of diluted common shares outstanding.

Anti-dilutive outstanding equity awards under share based compensation plans were as follows:
Three Months Ended March 31,
20202019
(in thousands)
Anti-dilutive 2,090  1,146  

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Note 15—Other Contingencies

Line of Credit

At March 31, 2020, the Company had a $475 million bank line of credit on which to draw for general corporate purposes. Amounts drawn under the line of credit are payable upon demand and generally bear interest at a float rate, based on the Company’s leverage ratio, and starting at LIBOR plus 115 basis points (or if LIBOR becomes unavailable, the higher of the Overnight Bank Funding Rate, plus 50 basis points and the Prime Rate). As of March 31, 2020 and December 31, 2019 there were $50.0 million and $10.0 million in borrowings under the line of credit, respectively. The line of credit requires the Company to satisfy two financial covenants, with which the Company is in compliance as of March 31, 2020 and expects to remain in compliance. The line of credit expires on December 21, 2023.

At March 31, 2020, the Company also had outstanding $64.9 million in irrevocable standby letters of credit, which relate to payment obligations under the Company’s insurance programs. In connection with the issuance of the letters of credit, the amount available under the line of credit was reduced by $64.9 million to $360.1 million at March 31, 2020. The letters of credit expire on January 2, 2021. Besides the $64.9 million letters of credit there are no other restrictions as to the amount which the Company can draw upon the $475 million line of credit.

Tax Jurisdictions and Matters

The Company provides services throughout the continental United States and is subject to numerous state and local taxing jurisdictions. In the ordinary course of business, a jurisdiction may contest the Company’s reporting positions with respect to the application of its tax code to the Company’s services, which could result in additional tax liabilities.

The Company has tax matters with various taxing authorities. Because of the uncertainties related to both the probable outcomes and amount of probable assessments due, the Company is unable to make a reasonable estimate of a liability. The Company does not expect the resolution of any of these matters, taken individually or in the aggregate, to have a material adverse effect on the consolidated financial position or results of operations based on the Company’s best estimate of the outcomes of such matters.

Legal Proceedings

The Company is subject to various claims and legal actions in the ordinary course of business. Some of these matters include payroll and employee-related matters and examinations by governmental agencies. As the Company becomes aware of such claims and legal actions, the Company records accruals for any exposures that are probable and estimable. If adverse outcomes of such claims and legal actions are reasonably possible, Management assesses materiality and provides financial disclosure, as appropriate.

As previously disclosed, the Securities and Exchange Commission (“SEC”) is conducting an investigation into the Company’s earnings per share (“EPS”) calculation practices. Following receipt of a letter from the SEC in November 2017 regarding its inquiry into those practices followed by a subpoena in March 2018, the Company authorized its outside counsel to conduct an internal investigation, under the direction of the Company’s Audit Committee, into matters related to the SEC subpoena. This investigation was completed in March 2019 and the Company continues to cooperate with the SEC’s investigation and document requests.

On March 22, 2019, a putative shareholder class action lawsuit was filed against the Company and its Chief Executive Officer in the U.S. District Court for the Eastern District of Pennsylvania. The initial complaint, which was filed by a plaintiff purportedly on behalf of all purchasers of the Company’s securities between April 11, 2017 and March 4, 2019 (the "Class Period"), alleges violations of the federal securities laws in connection with the matters related to the Company’s EPS calculation practices. On September 17, 2019, the complaint was amended to, among other things, extend the Class Period to cover the period between April 8, 2014 and March 4, 2019, and to name additional individuals affiliated with the Company as defendants. The lead plaintiff seeks unspecified monetary damages and other relief on behalf of the plaintiff class.

While the Company is vigorously defending against all litigation claims asserted, this litigation—along with the ongoing SEC investigation—could result in substantial costs to the Company and a diversion of the Company’s management’s attention and resources, which could harm its business. In addition, the uncertainty of the pending lawsuit or potential filing of additional lawsuits could lead to more volatility and a reduction in the Company’s stock price. At this time the Company is unable to reasonably estimate possible losses or form a judgment that an unfavorable outcome is either probable or remote. It is not
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currently possible to assess whether or not the outcome of these proceedings may have a material adverse effect on the Company.

Government Regulations

The Company’s clients are concentrated in the healthcare industry and are primarily providers of long-term care many of whom have been significantly impacted by COVID-19. For those clients who were impacted, the pandemic has resulted in increased operating costs, reductions in new resident admitants, and reduced census. The revenues of many of the Company’s clients are highly reliant on Medicare, Medicaid and third party payors’ reimbursement funding rates. New legislation or additional changes in existing regulations could directly impact the governmental reimbursement programs in which the clients participate. There have been several enacted and proposed federal and state relief measures as a result of COVID-19 which should provide support for these clients during this pandemic, however, the full benefit of any such programs would not be realized until these programs are fully implemented, government agencies issue applicable regulations or guidance and such relief is provided.

Note 16—Subsequent Events

The Company evaluated all subsequent events through the filing date of this Form 10-Q. There were no events or transactions occurring during this subsequent reporting period which require recognition or additional disclosure in these financial statements.

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

The following discussion is intended to provide the reader with information that will be helpful in understanding our financial statements, including the changes in certain key items when comparing financial statements period to period. We also intend to provide the primary factors that accounted for those changes, as well as a summary of how certain accounting principles affect our financial statements. In addition, we are providing information about the financial results of our two operating segments to further assist in understanding how these segments and their results affect our consolidated results of operations. This discussion should be read in conjunction with our financial statements as of March 31, 2020 and December 31, 2019 and the notes accompanying those financial statements.

COVID-19 Considerations

The Company’s priorities during the COVID-19 pandemic are protecting the health and safety of our employees; maximizing the impact of our main services in helping customers with the housekeeping and dietary services needs of their facilities, and deploying the talents of our employees and our resources to help the communities we serve meet and overcome the current challenges. In the quarter ended March 31, 2020, the COVID-19 pandemic did not have a material net impact on our consolidated operating results. In the future, the pandemic may cause reduced demand for our services if, for example, the pandemic results in a recessionary economic environment to the long-term care and skilled nursing industries in which we serve; however since the services that we offer are essential to the daily lives of our customers, we believe that over the long term, there will continue to be strong demand for our services.

Our ability to continue to operate without any significant negative operational impact from the COVID-19 pandemic will in part depend on our ability to protect our employees and our supply chain. The Company has endeavored to follow the recommended actions of government and health authorities to protect our employees, with particular measures in place for those working in our customer facilities. For the three months ended March 31, 2020, we maintained the consistency of our operations during the onset of the COVID-19 pandemic. We intend to continue to adhere to our employee safety measures to ensure that any disruptions to our operations remain minimal during the pandemic. However, the uncertainty resulting from the pandemic could result in an unforeseen disruption to our workforce and supply chain (for example an inability of a key supplier or transportation supplier to source and transport materials) that could negatively impact our operations.

Because the pandemic has not materially impacted our operations or demand for our products through March 31, 2020, it has also not negatively impacted the Company’s liquidity position as of such date. Through March 31, 2020, we continue to generate operating cash flows to meet our short-term liquidity needs, and we expect to maintain access to the capital markets. We have also not observed any material impairments of our assets or a significant change in the fair value of our assets due to the COVID-19 pandemic.

For additional information on risk factors related to the pandemic or other risks that could impact our results, please refer to “Risk Factors” in Part II, Item 1A of this Form 10-Q.

Overview

We provide management, administrative and operating expertise and services to the housekeeping, laundry, linen, facility maintenance and dietary service departments of healthcare facilities, including nursing homes, retirement complexes, rehabilitation centers and hospitals located throughout the United States. We believe we are the largest provider of housekeeping and laundry management services to the long-term care industry in the United States, rendering such services to over 3,000 facilities throughout the continental United States as of March 31, 2020.

We provide services primarily pursuant to full service agreements with our clients. Under such agreements, we are responsible for the day-to-day management of the employees located at our clients’ facilities, as well as for the provision of certain supplies. We also provide services on the basis of management-only agreements for a limited number of clients. Under a management-only agreement, we provide management and supervisory services while the client facility retains payroll responsibility for the non-supervisory staff. Our agreements with clients typically provide for a renewable one year service term, cancellable by either party upon 30 to 90 days’ notice after an initial period of 60 to 120 days.

We are organized into two reportable segments: housekeeping, laundry, linen and other services (“Housekeeping”), and dietary department services (“Dietary”).

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Housekeeping consists of managing our clients’ housekeeping departments, which are principally responsible for the cleaning, disinfecting and sanitizing of resident rooms and common areas of the clients’ facilities, as well as the laundering and processing of the bed linens, uniforms, resident personal clothing and other assorted linen items utilized at the clients’ facilities. Upon beginning service with a client facility, we typically hire and train the employees previously employed by such facility and assign an on-site manager to supervise and train the front-line personnel and coordinate housekeeping services with other facility support functions in accordance with client requests. Such management personnel also oversee the execution of various cost and quality control procedures including continuous training and employee evaluation.

Dietary consists of managing our clients’ dietary departments, which are principally responsible for food purchasing, meal preparation and professional dietitian services, which include the development of menus that meet the dietary needs of residents. On-site management is responsible for all daily dietary department activities, with regular support provided by a District Manager specializing in dietary services. We also offer clinical consulting services to our dietary clients, which may be provided as a stand-alone service, or bundled with other dietary department services. Upon beginning service with a client facility, we typically hire and train the employees previously employed by such facility and assign an on-site manager to supervise and train the front-line personnel and coordinate dietitian services with other facility support functions in accordance with client requests. Such management personnel also oversee the execution of various cost and quality control procedures including continuous training and employee evaluation.

At March 31, 2020, Housekeeping services were provided at essentially all of our approximately 3,000 client facilities, generating approximately 49.9% or $224.2 million of our total revenues for the three months ended March 31, 2020. Dietary services were provided to over 1,500 client facilities at March 31, 2020 and contributed approximately 50.1% or $225.0 million of our total revenues for the three months ended March 31, 2020.


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Three Months Ended March 31, 2020 and 2019

The following table summarizes the income statement key components that we use to evaluate our financial performance on a consolidated and reportable segment basis, for the three months ended March 31, 2020 and 2019. The differences between the reportable segments’ operating results and other disclosed data and our consolidated financial results relate primarily to corporate level transactions and adjustments related to transactions recorded at the reportable segment level which use methods other than generally accepted accounting principles.

Three Months Ended March 31,
20202019% Change
(in thousands)
Revenues
Housekeeping$224,293  $233,134  (3.8)%
Dietary224,857  242,977  (7.5)%
Consolidated$449,150  $476,111  (5.7)%
Costs of services provided
Housekeeping$200,352  $206,627  (3.0)%
Dietary210,528  227,552  (7.5)%
Corporate and eliminations(23,724) (6,914) 243.1 %
Consolidated$387,156  $427,265  (9.4)%
Selling, general and administrative expense
Corporate and eliminations$30,017  $41,101  (27.0)%
Investment and other (expense) income, net
Corporate and eliminations$(4,827) $5,203  (192.8)%
Interest expense
Corporate and eliminations$(368) $(1,056) (65.2)%
Income (loss) before income taxes
Housekeeping$23,941  $26,507  (9.7)%
Dietary14,329  15,425  (7.1)%
Corporate and eliminations(11,488) (30,040) 61.8 %
Consolidated$26,782  $11,892  125.2 %

Housekeeping revenues represented approximately 49.9% of consolidated revenues for the three months ended March 31, 2020. Dietary revenues represented approximately 50.1% of consolidated revenues for the three months ended March 31, 2020.

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The following table sets forth the ratio of certain items to consolidated revenues:
Three Months Ended March 31,
20202019
Revenues100.0 %100.0 %
Operating costs and expenses:
Costs of services provided86.2 %89.7 %
Selling, general and administrative expense6.7 %8.6 %
Other (expense) income:
Investment and other income, net(1.1)%1.1 %
Interest expense(0.1)%(0.2)%
Income before income taxes5.9 %2.6 %
Income tax1.5 %0.6 %
Net income 4.4 %2.0 %

Revenues

Consolidated

Consolidated revenues decreased 5.7% to $449.2 million for the three months ended March 31, 2020 compared to $476.1 million for the corresponding period in 2019, as a result of the factors discussed below under Reportable Segments.

Reportable Segments

Housekeeping and Dietary revenues decreased 3.8% and 7.5%, respectively, during the three months ended March 31, 2020 compared to the corresponding period in 2019, primarily driven by the Company exiting facilities in conjunction with operator transitions where we have been unable to come to agreeable terms.

We do not currently expect that our future revenues will be adversely impacted by COVID-19.

Costs of Services Provided

Consolidated

Consolidated costs of services provided decreased 9.4% to $387.2 million for the three months ended March 31, 2020 compared to $427.3 million for the three months ended March 31, 2019. During the three months ended March 31, 2020 costs of services related to COVID-19 was not material. Future increases to both labor and supplies expense as a result of COVID-19 are possible, however we anticipate to be reimbursed from our clients for most COVID-19 related costs which are outside the scope of services or supplies which we are contractually obligated. The terms in our service agreements support this anticipation and the expectation of our clients eligibility for additional reimbursement under enacted and proposed government regulations.

The following table provides a comparison of key indicators we consider when managing the consolidated costs of services provided:
Three Months Ended March 31,
Costs of Services Provided - Key Indicators as a % of Consolidated Revenue20202019Change
Bad debt provision0.5%3.9%(3.4)%
Self-insurance costs2.8%2.4%0.4%
The decrease in the bad debt provision was impacted by the 2019 out-of-court restructuring of a privately held Northeast based operator. Effective January 1, 2020, the Company adopted the ASC 326 accounting guidance which changed the Company’s procedures for estimating its bad debt provision. Under ASC 326, the Company now records a provision for bad debt based on management’s forecast of expected future credit losses. Prior to ASC 326, the Company recorded a provision for bad debt based solely on accounts and notes receivables which were identified as impaired.

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Reportable Segments

Costs of services provided for Housekeeping, as a percentage of Housekeeping revenues, increased to 89.3% for the three months ended March 31, 2020 from 88.6% in the corresponding period in 2019. Costs of services provided for Dietary, as a percentage of Dietary revenues, decreased to 93.6% for the three months ended March 31, 2020 from 93.7% in the corresponding period in 2019.

The following table provides a comparison of the key indicators we consider when managing costs of services provided at the segment level, as a percentage of the respective segment’s revenues:
Three Months Ended March 31,
Costs of Services Provided - Key Indicators as a % of Segment Revenue20202019Change
Housekeeping labor and other labor-related costs79.5%79.1%0.4%
Housekeeping supplies7.7%7.7%—%
Dietary labor and other labor-related costs63.6%61.7%1.9%
Dietary supplies27.6%29.6%(2.0)%

Variations within these key indicators relate to the provision of services at new facilities and changes in the mix of clients for whom we provide supplies or do not provide supplies. Management focuses on building efficiencies and managing labor and other costs at the facility level, as well as managing supply chain costs, for new and existing facilities.

Consolidated Selling, General and Administrative Expense 

Included in selling, general and administrative expense are gains and losses associated with changes in the value of investments under the deferred compensation plan. These investments represent the amounts held on behalf of the participating employees and changes in the value of these investments affect the amount of our deferred compensation liability. Losses on the plan investments during the three months ended March 31, 2020 decreased our total selling, general and administrative expense for that period. In the corresponding period in 2019, the Company realized gains on the plan investments which increased our total selling, general and administrative expense for that period. During the three months ended March 31, 2020, we incurred an increase to certain costs related to COVID-19, however such costs were immaterial. There is a possibility for additional increased selling, general and administrative expense related to the pandemic but such costs at this time are not expected to be material.

Excluding the change in the deferred compensation plan described above, consolidated selling, general and administrative expense decreased $1.9 million or 5.1% for the three months ended March 31, 2020 compared to the corresponding period in 2019, when the Company settled a state-specific sales tax audit.

The table below summarizes the changes in these components of selling, general and administrative expense:
Three Months Ended March 31,
20202019$ Change% Change
(dollar amounts in thousands)
Selling, general and administrative expense excluding change in deferred compensation liability$35,778  $37,683  $(1,905) (5.1)%
(Loss) gain on deferred compensation plan investments(5,761) 3,418  (9,179) (268.5)%
Selling, general and administrative expense$30,017  $41,101  $(11,084) (27.0)%


Consolidated Investment and Other (Expense) Income, net

Investment and other income decreased 192.8% for the three months ended March 31, 2020 compared to the corresponding 2019 period, primarily due to negative market fluctuations related to COVID-19.

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Consolidated Interest Expense

Consolidated interest expense decreased 65.2% to $0.4 million for the three months ended March 31, 2020 compared to the corresponding 2019 period due to fewer interquarter borrowings.

Consolidated Income Taxes

During the three months ended March 31, 2020, the Company recognized a provision for income taxes of $6.6 million, or 24.6% effective tax rate, versus $2.7 million, or 23.0% effective tax rate, for the same period in 2019. The increase to the Company tax rate related to discrete items from stock compensation expense. The Company’s estimate for the 2020 effective tax rate has not been adjusted for any impacts related to COVID-19 as the impact at this time is not expected to be material.

The actual annual effective tax rate will be impacted by the tax effects of option exercises or vested awards, which are treated as discrete items in the reporting period in which they occur, and therefore cannot be considered in the calculation of the estimated annual effective tax rate. The impact on our income tax provision for the three months ended March 31, 2020 for such discrete items was not material.

Liquidity and Capital Resources

Cash generated through operations is our primary source of liquidity. At March 31, 2020, we had cash, cash equivalents and marketable securities of $155.0 million and working capital of $334.3 million, compared to December 31, 2019 cash, cash equivalents and marketable securities of $118.0 million and working capital of $367.1 million. Our current ratio was 2.8 to 1 at March 31, 2020 versus 3.5 to 1 at December 31, 2019. Marketable securities represent fixed income investments that are highly liquid and can be readily purchased or sold through established markets. Such securities are held by our captive insurance company to satisfy capital requirements of the state regulator related to captive insurance companies.

For the three months ended March 31, 2020 and 2019, our cash flows were as follows:
Three Months Ended March 31,
20202019
(in thousands)
Net cash provided by operating activities$12,688  $17,577  
Net cash used in investing activities$(1,572) $(2,010) 
Net cash provided by (used in) financing activities$26,053  $(13,230) 

Operating Activities

Our primary sources of cash from operating activities are the revenues generated from our Housekeeping and Dietary services. Our primary uses of cash from operating activities are the funding of our payroll and other personnel-related costs, as well as the costs of supplies used in providing our services. The timing of cash receipts and cash payments are the primary drivers of the period-over-period changes in net cash provided by operating activities.

We have not changed our expectations on future cash from operating activities due to COVID-19. We anticipate that several of our clients may experience changes in their cash flows however we will continue to pursue collections in accordance with our service agreements.

Investing Activities

Our principal uses of cash for investing activities are the purchases of marketable securities and capital expenditures such as those for housekeeping and food service equipment, computer software and equipment, and furniture and fixtures (see “Capital Expenditures” below for additional information). Such uses of cash are partially offset by proceeds from sales of marketable securities.

Our investments in marketable securities are primarily comprised of tax-exempt municipal bonds and are intended to achieve our goal of preserving principal, maintaining adequate liquidity and maximizing returns subject to our investment guidelines. Our investment policy limits investment to certain types of instruments issued by institutions primarily with investment-grade ratings and places restrictions on concentration by type and issuer.
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Financing Activities

The primary use of cash for financing activities is the payment of dividends. We have paid regular quarterly cash dividends since the second quarter of 2003. During 2020, we paid regular quarterly cash dividends to shareholders totaling $15.0 million as follows:
March 31, 2020
(amounts in thousands, except per share data)
Cash dividend paid per common share$0.20125  
Total cash dividends paid$15,033  
Record dateFebruary 28, 2020
Payment dateMarch 27, 2020

The dividends paid to shareholders during the three months ended March 31, 2020 were funded by cash generated from operations. Our Board of Directors reviews our dividend policy on a quarterly basis. Although there can be no assurance that we will continue to pay dividends or regarding the amount of future dividend payments, we expect to continue to pay a regular quarterly cash dividend. In connection with the establishment of our dividend policy, we adopted a Dividend Reinvestment Plan in 2003.

The primary source of cash from financing activities is the net borrowings under our bank line of credit. We borrow for general corporate purposes as needed throughout the year. The outstanding short-term borrowings balance as of March 31, 2020 relates to cash flow requirements due to the timing of cash receipts and cash payments.

We remain authorized to repurchase 1.7 million shares of our common stock pursuant to previous Board of Directors’ authorization. During the three months ended March 31, 2020 and 2019, we repurchased our common stock as part of the dividend reinvestment related to treasury shares held within the Deferred Compensation Plan. The number of shares and value of shares repurchased were immaterial for the three months ended March 31, 2020 and 2019.

Line of Credit

At March 31, 2020, we had a $475 million bank line of credit on which to draw for general corporate purposes. Amounts drawn under the line of credit are payable upon demand and generally bear interest at a floating rate, based on our leverage ratio, and starting at LIBOR plus 115 basis points (or if LIBOR becomes unavailable, the higher of the Overnight Bank Funding Rate, plus 50 basis points and the Prime Rate). At March 31, 2020, there were $50.0 million in borrowings under the line of credit.

The line of credit requires us to satisfy two financial covenants. The covenants and their respective status at March 31, 2020 were as follows:
Covenant Descriptions and RequirementsAs of March 31, 2020
Funded debt 1 to EBITDA 2 ratio: less than 3.50 to 1.00
0.67
EBITDA to Interest Expense ratio: not less than 3.00 to 1.0042.83
1.All indebtedness for borrowed money including, but not limited to, capitalized lease obligations, reimbursement obligations in respect of letters of credit and guarantees of any such indebtedness.
2.Net income plus interest expense, income tax expense, depreciation, amortization, stock compensation expense and extraordinary non-recurring losses/gains.

As noted above, we were in compliance with our financial covenants at March 31, 2020 and we expect to remain in compliance. The line of credit expires on December 21, 2023. We believe that our existing capacity under the line of credit provides adequate liquidity considering the potential impact of COVID-19.

LIBOR is expected to be discontinued after 2021. Our line of credit agreement provides procedures for determining a replacement or alternative rate in the event that LIBOR is unavailable. However, there can be no assurances as to whether such replacement or alternative rate will be more or less favorable than LIBOR. We intend to monitor the developments with respect to the potential phasing out of LIBOR after 2021 and will work with our lenders to ensure any transition away from LIBOR will have minimal impact on our financial condition. We however can provide no assurances regarding the impact of the discontinuation of LIBOR on the interest rate that we would be required to pay or on our financial condition.
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At March 31, 2020, we also had outstanding $64.9 million in irrevocable standby letters of credit, which relate to payment obligations under our insurance programs.

Capital Expenditures

The level of capital expenditures is generally dependent on the number of new clients obtained. Such capital expenditures primarily consist of housekeeping and food service equipment purchases, laundry and linen equipment installations, computer hardware and software, and furniture and fixtures. Although we have no specific material commitments for capital expenditures through the end of calendar year 2020, we estimate that for 2020 we will have capital expenditures of approximately $5.0 million to $5.5 million. We believe that our cash from operations, existing cash and cash equivalents balance and credit line will be adequate for the foreseeable future to satisfy the needs of our operations and to fund our anticipated growth. However, should these sources not be sufficient, we would seek to obtain necessary capital from such sources as long-term debt or equity financing.

Material Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements, other than our irrevocable standby letter of credit previously discussed.

Critical Accounting Policies and Estimates

Our significant accounting policies are described in the notes to the consolidated financial statements included in our Form 10-K for the period ended December 31, 2019. As described in such notes, we recognize revenue in the period in which the performance obligation is satisfied. Refer to our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K filed with the SEC on February 21, 2020.

In preparing our financial statements, management is required to make estimates and assumptions that, among other things, affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are most significant where they involve levels of subjectivity and judgment necessary to account for highly uncertain matters or matters susceptible to change, and where they can have a material impact on our financial condition and operating performance. If actual results were to differ materially from the estimates made, the reported results could be materially affected.

Critical accounting estimates and the related assumptions are evaluated periodically as conditions warrant, and changes to such estimates are recorded as new information or changed conditions require.

New Accounting Standard Updates

See Note 1—Description of Business and Significant Accounting Policies herein to the condensed consolidated financial statements for a full description of recent accounting standard updates, including the expected dates of adoption.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

At March 31, 2020, we had $155.0 million in cash, cash equivalents and marketable securities. The fair values of all of our cash equivalents and marketable securities are determined based on “Level 1” or “Level 2” inputs, which are based upon quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. We place our cash investments in instruments that meet credit quality standards, as specified in our investment policy guidelines.

Investments in both fixed-rate and floating-rate investments carry a degree of interest rate risk. The market value of fixed rate securities may be adversely impacted by an increase in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or if there is a decline in the fair value of our investments.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are intended to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), such as this Form 10-Q, is reported in accordance with Securities and Exchange Commission rules. Disclosure controls are also intended to ensure that such information is accumulated and communicated to Management, including the President and Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on their evaluation as of March 31, 2020, pursuant to Exchange Act Rule 13a-15(b), our Management, including our President and Chief Executive Officer and Chief Financial Officer, believe our disclosure controls and procedures (as defined in Exchange Act 13a-15(e)) are effective.

Changes in Internal Controls over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting that occurred during the three months ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company continues to review its disclosure controls and procedures, including its internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that the Company’s systems evolve with its business.

Certifications

Certifications of the Principal Executive Officer and Principal Financial and Accounting Officer regarding, among other items, disclosure controls and procedures are included as exhibits to this Form 10-Q.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

In the normal course of business, the Company is involved in various administrative and legal proceedings, including labor and employment, contracts, personal injury, and insurance matters.

As previously disclosed, the SEC is conducting an investigation into our EPS calculation practices. Following receipt of a letter from the SEC in November 2017 regarding its inquiry into those practices followed by a subpoena in March 2018, we authorized our outside counsel to conduct an internal investigation, under the direction of the Company’s Audit Committee, into matters related to the SEC subpoena. This investigation was completed in March 2019 and we continue to cooperate with the SEC’s investigation and document requests.

On March 22, 2019, a putative shareholder class action lawsuit was filed against the Company and our Chief Executive Officer in the U.S. District Court for the Eastern District of Pennsylvania. The initial complaint, which was filed by a plaintiff purportedly on behalf of all purchasers of our securities between April 11, 2017 and March 4, 2019, alleges violations of the federal securities laws in connection with the matters related to our EPS calculation practices. On September 17, 2019, the complaint was amended to, among other things, extend the Class Period to cover the period between April 8, 2014 and March 4, 2019, and to name additional individuals affiliated with the Company as defendants. The lead plaintiff seeks unspecified monetary damages and other relief on behalf of the plaintiff class.

While the Company is vigorously defending against all litigation claims asserted, this litigation—along with the ongoing SEC investigation—could result in substantial costs to the Company and a diversion of the Company’s management’s attention and resources, which could harm its business. In addition, the uncertainty of the pending lawsuit or potential filing of additional lawsuits could lead to more volatility and a reduction in the Company’s stock price. At this time the Company is unable to reasonably estimate possible losses or form a judgment that an unfavorable outcome is either probable or remote.

In light of the uncertainties involved in such proceedings, the ultimate outcome of a particular matter could become material to the Company’s results of operations for a particular period depending on, among other factors, the size of the loss or liability imposed and the level of the Company’s operating income for that period.

Item 1A. Risk Factors

COVID-19 and other pandemics, epidemics, or outbreaks of a contagious illness may adversely affect our operating results, cash flows and financial condition.

COVID-19 coronavirus outbreak and other pandemics, epidemics, or outbreaks of a contagious illness, and similar events, may cause harm to us, our employees, our clients, our vendors and supply chain partners, and financial institutions, which could have a material adverse effect on our results of operations, financial condition and cash flows. The impacts may include, but would not be limited to:

Decreased availability and increased cost of supplies due to increased demand around essential cleaning supplies including disinfecting agents, personal protective equipment (“PPE”), and food and food-related products due to increased global demand and disruptions along the global supply chains of these manufactures and distributors;
Disruption to operations due to the unavailability of employees due to illness, quarantines, risk of illness, travel restrictions or factors that limit our existing or potential workforce;
Disruption to the availability of our key personnel due to travel restrictions;
Our capacity to meet more stringent, medically-required procedures at customer facilities;
Elevated employee turnover which may increase payroll expense and recruiting-related expenses;
Decreased census in the nursing home and long-term care industry, which could increase our credit risk with customers;
Significant disruption of global financial markets, which could have a negative impact on us or our clients’ ability to access capital in the future.

In addition, we have taken and will continue to take temporary precautionary measures intended to help minimize the risk of COVID-19 to our employees, including requiring administrative and other groups of our employees to work remotely, suspending non-essential travel and restricting attendance at industry events and in-person work-related meetings. Such measures could have a material adverse effect on our business.

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The further spread of COVID-19, and the requirements to take action to help limit the spread of the virus, could impact the resources required to carry out our business as usual and may have a material adverse effect on our results of operations, financial condition and cash flows. The extent to which COVID-19 will impact our business and our financial results will depend on future developments, which are highly uncertain and cannot be predicted. Such developments may include the ongoing geographic spread of the virus, the severity of the disease, the duration of the outbreak and the type and duration of actions that may be taken by various governmental authorities in response to the outbreak and the impact on the United States and the global economy. Any of these developments, individually or in aggregate, could materially impact our business and our financial results and condition.

There have been no other material changes in the risk factors set forth in Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

The following exhibits are filed as part of this Report:
Exhibit NumberDescription
31.1
31.2
32.1
101The following financial information from the Company’s Form 10-Q for the quarterly period ended March 31, 2020 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statement of Stockholders’ Equity, and (v) Notes to Consolidated Financial Statements
104Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.)
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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant had duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HEALTHCARE SERVICES GROUP, INC.
Date:April 24, 2020 /s/ Theodore Wahl
Theodore Wahl
President & Chief Executive Officer
(Principal Executive Officer)
Date:April 24, 2020 /s/ John C. Shea
John C. Shea
Chief Financial Officer
(Principal Financial and Accounting Officer)


37
Document

Exhibit 31.1

Certification of the Chief Executive Officer
Pursuant to Rules 13a-14(a) and 15d-14(a)
Under the Securities Exchange Act, as Amended

I, Theodore Wahl, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Healthcare Services Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:April 24, 2020/s/ Theodore Wahl
Theodore Wahl
President & Chief Executive Officer
(Principal Executive Officer)



Document

Exhibit 31.2

Certification of the Chief Financial Officer
Pursuant to Rules 13a-14(a) and 15d-14(a)
Under the Securities Exchange Act, as Amended

I, John C. Shea, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Healthcare Services Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:April 24, 2020/s/ John C. Shea
John C. Shea
Chief Financial Officer
(Principal Financial and Accounting Officer)



Document

Exhibit 32.1

Certification Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Healthcare Services Group, Inc. (the "Company") for the quarter ended March 31, 2020 as filed with the Securities and Exchange commission on the date hereof (the "Form 10-Q"), Theodore Wahl, the Chief Executive Officer of the Company, and John C. Shea, the Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge:

(1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d), of the Securities Exchange Act of 1934, as amended; and

(2) That information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
 

/s/ Theodore Wahl  /s/ John C. Shea
Theodore Wahl  John C. Shea
President & Chief Executive Officer  Chief Financial Officer
(Principal Executive Officer)(Principal Financial and Accounting Officer)
April 24, 2020  April 24, 2020


v3.20.1
Accounts and Notes Receivable - Schedule of Accounts and Notes Receivable (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Jan. 01, 2020
Dec. 31, 2019
Short-term      
Accounts and notes receivable $ 391,257   $ 386,656
Allowance for doubtful accounts (87,453)   (45,726)
Total net short-term accounts and notes receivable 303,804   340,930
Long-term      
Notes receivable 54,293   53,659
Allowance for doubtful accounts (4,827)   (6,667)
Total net long-term notes receivable 49,466   46,992
Total net accounts and notes receivable 353,270   387,922
New Accounting Pronouncements or Change in Accounting Principle [Line Items]      
One-time adjustment $ 92,280   $ 52,393
Cumulative Impact from Adopting ASC 326 Guidance      
Short-term      
Allowance for doubtful accounts   $ (41,100)  
Total net short-term accounts and notes receivable   (41,100)  
Long-term      
Allowance for doubtful accounts   (1,136)  
Total net long-term notes receivable   (1,136)  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]      
One-time adjustment   $ 42,236  
v3.20.1
Allowance for Doubtful Accounts - Allowance for doubtful accounts (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Jan. 01, 2020
Accounts receivable      
Accounts receivable, Allowance for doubtful accounts, beginning balance $ 39,903    
One-time adjustment 74,389    
Write-Offs (4,409)    
Bad Debt Expense 2,186    
Accounts receivable, Allowance for doubtful accounts, ending balance 74,389    
Note receivable      
Notes receivable, Allowance for doubtful accounts, beginning balance 17,891    
One-time adjustment 17,891    
Write-Offs 0    
Bad Debt Expense (126)    
Notes receivable, Allowance for doubtful accounts, ending balance 12,490    
Allowance for doubtful accounts, beginning balance 52,393    
One-time adjustment 92,280    
Write-Offs (4,409)    
Bad Debt Expense 2,060 $ 18,470  
Allowance for doubtful accounts, ending balance 92,280    
Cumulative Impact from Adopting ASC 326 Guidance      
Accounts receivable      
One-time adjustment     $ 36,709
Note receivable      
One-time adjustment     5,527
One-time adjustment     42,236
Standard note receivable      
Note receivable      
Notes receivable, Allowance for doubtful accounts, beginning balance 11,654    
One-time adjustment 11,654    
Write-Offs 0    
Bad Debt Expense (249)    
Notes receivable, Allowance for doubtful accounts, ending balance 6,667    
Standard note receivable | Cumulative Impact from Adopting ASC 326 Guidance      
Note receivable      
One-time adjustment     5,236
Elevated risk note receivable      
Note receivable      
Notes receivable, Allowance for doubtful accounts, beginning balance 6,237    
One-time adjustment 6,237    
Write-Offs 0    
Bad Debt Expense 123    
Notes receivable, Allowance for doubtful accounts, ending balance $ 5,823    
Elevated risk note receivable | Cumulative Impact from Adopting ASC 326 Guidance      
Note receivable      
One-time adjustment     $ 291
v3.20.1
Leases - Additional Information (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Lessee, Lease, Description [Line Items]    
Termination option 1 year  
Reduction in ROU Assets due to cancellation (less than) $ 0.2 $ 0.1
Reduction in Lease Liability due to cancellation (less than) $ 0.2 $ 0.1
Minimum    
Lessee, Lease, Description [Line Items]    
Remaining lease term 1 year  
Extension option 1 year  
Maximum    
Lessee, Lease, Description [Line Items]    
Remaining lease term 10 years  
Extension option 5 years  
v3.20.1
Dividends - Additional Information (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended
Apr. 21, 2020
Mar. 31, 2020
Mar. 31, 2019
Equity [Abstract]      
Dividends paid   $ 15,033 $ 14,588
Subsequent Event [Line Items]      
Dividends declared (in dollars per share)   $ 0.2025 $ 0.1975
Subsequent Event      
Subsequent Event [Line Items]      
Dividends declared (in dollars per share) $ 0.20250    
v3.20.1
Share-Based Compensation - Summarized Information About Stock Awards (Details)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2020
USD ($)
$ / shares
shares
Outstanding:  
Aggregate intrinsic value $ 1,340
Weighted average remaining contractual life 5 years 9 months 18 days
Exercisable:  
Number of options (in shares) | shares 1,483
Weighted average exercise price (in dollars per share) | $ / shares $ 31.04
Aggregate intrinsic value $ 1,340
Weighted average remaining contractual life 4 years 7 months 6 days
v3.20.1
Changes in Accumulated Other Comprehensive Income by Component (Tables)
3 Months Ended
Mar. 31, 2020
Equity [Abstract]  
Schedule of Accumulated Other Comprehensive Income The following table provides a summary of the changes in accumulated other comprehensive income for the three months ended March 31, 2020 and 2019:
Unrealized Gains and Losses on Available-for-Sale Securities1
Three Months Ended March 31,
20202019
(in thousands)
Accumulated other comprehensive income — beginning balance$2,919  $158  
Other comprehensive (loss) income before reclassifications(542) 1,419  
Losses (Gains) reclassified from other comprehensive income2
 (3) 
Net current period other comprehensive (loss) income3
(533) 1,416  
Accumulated other comprehensive income — ending balance$2,386  $1,574  
1.All amounts are net of tax
2.Realized gains and losses were recorded pre-tax under “Investment and other income” in the Consolidated Statements of Comprehensive Income. For the three months ended March 31, 2020, the Company recorded less than $0.1 million of realized losses from the sale of available-for-sale securities. For the three months ended March 31, 2019, the Company recorded less than $0.1 million of realized gains from the sale of available-for-sale securities. Refer to Note 9—Fair Value Measurements herein for further information.
3.For the three months ended March 31, 2020, the changes in other comprehensive income were net of a tax benefit of $0.1 million. For the three months ended March 31, 2019, the changes in other comprehensive income were net of a tax expense of $0.4 million.
Reclassification out of Accumulated Other Comprehensive Income
Amounts Reclassified from Accumulated Other Comprehensive Income
20202019
(in thousands)
Three Months Ended March 31,
(Losses) gains from the sale of available-for-sale securities$(11) $ 
Tax benefit (expense)  (1) 
Net (loss) gain reclassified from accumulated other comprehensive income$(9) $ 
v3.20.1
Description of Business and Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Nature of Operations
Healthcare Services Group, Inc. (the “Company”) provides management, administrative and operating expertise and services to the housekeeping, laundry, linen, facility maintenance and dietary service departments of the healthcare industry, including nursing homes, retirement complexes, rehabilitation centers and hospitals located throughout the United States. Although the Company does not directly participate in any government reimbursement programs, the Company’s clients receive government reimbursements related to Medicare and Medicaid. Therefore, they are directly affected by any legislation relating to Medicare and Medicaid reimbursement programs.

The Company provides services primarily pursuant to full service agreements with its clients. In such agreements, the Company is responsible for the day-to-day management of employees located at the clients’ facilities. The Company also provides services on the basis of management-only agreements for a limited number of clients. The agreements with clients typically provide for a renewable one year service term, cancellable by either party upon 30 to 90 days’ notice after an initial period of 60 to 120 days.

The Company is organized into two reportable segments: housekeeping, laundry, linen and other services (“Housekeeping”), and dietary department services (“Dietary”).

Housekeeping consists of managing the clients’ housekeeping departments, which are principally responsible for the cleaning, disinfecting and sanitizing of resident rooms and common areas of a client’s facility, as well as the laundering and processing of the bed linens, uniforms, resident personal clothing and other assorted linen items utilized at a client facility.

Dietary consists of managing the clients’ dietary departments, which are principally responsible for food purchasing, meal preparation and dietitian professional services, which includes the development of menus that meet residents’ dietary needs.
Unaudited Interim Financial Data The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, these consolidated financial statements do not include all of the information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows. However, in the Company’s opinion, all adjustments which are of a normal recurring nature and are necessary for a fair presentation have been reflected in these consolidated financial statements. The balance sheet shown in this report as of December 31, 2019 has been derived from the audited financial statements for the year ended December 31, 2019. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for any future period.
Use of Estimates in Financial Statements In preparing financial statements in conformity with U.S. GAAP, estimates and assumptions are made that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Significant estimates are used in determining, but are not limited to, the Company’s allowance for doubtful accounts, accrued insurance claims, valuations, deferred taxes and reviews for potential impairment. The estimates are based upon various factors including current and historical trends, as well as other pertinent industry and regulatory authority information, including the potential future effects of COVID-19. Management regularly evaluates this information to determine if it is necessary to update the basis for its estimates and to adjust for known changes.
Principles of Consolidation The accompanying consolidated financial statements include the accounts of Healthcare Services Group, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Cash and Cash Equivalents Cash and cash equivalents are held in U.S. financial institutions or in custodial accounts with U.S. financial institutions. Cash equivalents are defined as short-term, highly liquid investments with a maturity of three months or less at time of purchase that are readily convertible into cash and have insignificant interest rate risk.
Accounts and Notes Receivable
Accounts and notes receivable consist of Housekeeping and Dietary segment trade receivables from contracts with customers. The Company’s payment terms with customers for services provided are defined within each customer’s service agreement. All accounts receivables are considered short term assets as the Company does not grant payment terms greater than one year. Accounts receivable initially are recorded at the transaction amount, and are recorded after the Company has an unconditional right to payment where only the passage of time is required before payment is received. Each reporting period, the Company evaluates the collectability of outstanding receivable balances and records an allowance for doubtful accounts representing an estimate of future expected credit loss. Additions to the allowance for doubtful accounts are made by recording a charge to bad debt expense reported in costs of services provided.

Notes receivable are initially recorded when accounts receivable are transferred into a promissory note and are recorded as an alternative to accounts receivable to memorialize an unqualified promise to pay a specific sum, typically with interest, in accordance with a defined payment schedule. The Company’s payment terms with customers on promissory notes can vary based on several factors and the circumstances of each promissory note, however typically promissory notes mature over a 1 to 3 year period. Similar to accounts receivable, each reporting period the Company evaluates the collectability of outstanding notes receivable balances and records an allowance for doubtful accounts representing an estimate of future expected credit loss.
Recent Accounting Pronouncements
The guidance under the Financial Accounting Standards Board ("FASB") Accounting Standards Codification subtopic 326 Credit Losses - Measurement of Credit Losses on Financial Instruments ("ASC 326") became effective and was adopted by the Company prospectively as of January 1, 2020. In adopting ASC 326 the Company replaced its previous incurred loss impairment model for estimating credit losses on accounts and notes receivables for its reporting of quarterly and annual financial results with an expected loss model prepared in accordance with ASC 326. While the incurred loss impairment model had the Company recognize credit losses when it was probable that a loss had been incurred, ASC 326 requires the Company to estimate the lifetime expected credit losses on such instruments and to record an allowance to offset the receivables. ASC 326 requires the recognition of credit losses that are expected based on existing accounts and notes receivable as compared to the incurred loss approach. Accordingly, credit losses under ASC 326 generally are recognized earlier in the life cycle of a receivable than under the Company’s previous incurred loss model. Modeling must be prepared after considering historical experience, current conditions, and reasonable and supportable economic forecasts to estimate lifetime expected credit losses. Under the previous incurred loss impairment model, credit losses were recognized when Management determined that it was more likely than not that a loss had been incurred and such loss was estimable.

Refer to Note 4—Allowance for Doubtful Accounts herein for further information.
The cumulative effect of initially applying the new ASC 326 guidance to the consolidated financial statements on January 1, 2020 was as follows:

Consolidated Statement of Financial PositionDecember 31, 2019Cumulative Impact from Adopting ASC 326 GuidanceJanuary 1, 2020
(in thousands)
Assets
Short-term accounts and notes receivable, less allowance for doubtful accounts$340,930  $(41,100) $299,830  
Notes receivable – long–term portion, less allowance for doubtful accounts$46,992  $(1,136) $45,856  
Allowance for doubtful accounts on short-term accounts and notes receivables$(45,726) $(41,100) $(86,826) 
Allowance for doubtful accounts on long-term notes receivables$(6,667) $(1,136) $(7,803) 
Deferred income taxes$20,364  $10,137  $30,501  
Stockholders’ equity
Retained earnings$195,455  $(32,099) $163,356  
Inventories and Supplies Inventories and supplies include housekeeping, linen and laundry supplies, as well as food provisions and supplies. Non-linen inventories and supplies are stated on a first-in, first-out (FIFO) basis, and reduced as deemed necessary to approximate the lower of cost or net realizable value. Linen supplies are amortized on a straight-line basis over their estimated useful life of 24 months.
Revenue Recognition The Company recognizes revenue from contracts with customers when or as the promised goods and services are provided to customers. Revenues are reported net of sales taxes that are collected from customers and remitted to taxing authorities.The guidance under the FASB Accounting Standards Codification subtopic 606 Revenue from Contracts with Customers ("ASC 606") requires the Company to recognize revenue as the promised goods and services within the terms of the Company’s contracts are performed and satisfied. The amount of revenue recognized by the Company is based on the consideration to which the Company is entitled in exchange for providing the contracted goods and services. The adoption of this standard did not have a material impact on the Company’s accounting for revenue earned relating to the Housekeeping and Dietary segments. The Company also did not recognize an opening adjustment to retained earnings as a result of the adoption of the standard.
Leases The guidance under FASB Accounting Standards Codification subtopic ASC 842 Leases (“ASC 842”) became effective and was adopted by the Company as of January 1, 2019, by applying a modified retrospective transition approach which resulted in the capitalization of the Company’s existing operating leases as of January 1, 2019. As such, the Company records assets and liabilities on the balance sheet to recognize the rights and obligations arising from leasing arrangements with contractual terms greater than 12 months, as permitted by U.S. GAAP. A leasing arrangement includes any contract which entitles the Company to the right of use of an identified tangible asset where there are no restrictions as to the direct of use of the asset, and the Company obtains substantially all of the economic benefits from the right of use. As of March 31, 2020 and December 31, 2019, the Company was only the lessee of operating lease arrangements.
Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under this method, income tax expense or benefits are recognized for the amount of taxes payable or refundable for the current period. The Company accrues for probable tax obligations as required, based on facts and circumstances in various regulatory environments. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. When appropriate, valuation allowances are recorded to reduce deferred tax assets to amounts for which realization is more likely than not. Uncertain income tax positions taken or expected to be taken in tax returns are reflected within the Company’s financial statements based on a recognition and measurement process.
Earnings per Common Share Basic earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is computed using the weighted-average number of common shares outstanding and dilutive common shares, such as those issuable upon exercise of stock options and upon the vesting of restricted stock and restricted stock units.
Share-Based Compensation The Company estimates the fair value of share-based awards on the date of grant using the Black-Scholes valuation model for stock options and using the share price on the date of grant for restricted stock and restricted stock units. The value of the award is recognized ratably as an expense in the Company’s Consolidated Statements of Comprehensive Income over the requisite service periods, with adjustments made for forfeitures as they occur.
Identifiable Intangible Assets and Goodwill Identifiable intangible assets are amortized on a straight-line basis over their respective lives. Goodwill represents the excess of cost over the fair value of net assets of acquired businesses. Management reviews the carrying value of goodwill annually during the fourth quarter to assess for impairment, or more often if events or circumstances indicate that the carrying value may exceed its estimated fair value.
Concentrations of Credit Risk
The Company’s financial instruments that are subject to credit risk are cash and cash equivalents, marketable securities, deferred compensation funding and accounts and notes receivable. At March 31, 2020 and December 31, 2019, substantially all of the Company’s cash and cash equivalents and marketable securities were held in one large financial institution located in the United States. The Company’s marketable securities are fixed income investments which are highly liquid and can be readily purchased or sold through established markets.

The Company’s clients are concentrated in the healthcare industry and are primarily providers of long-term care. The revenues of many of the Company’s clients are highly reliant on Medicare, Medicaid and third party payors’ reimbursement funding rates. New legislation or changes in existing regulations could directly impact the governmental reimbursement programs in which the clients participate. As a result, the Company may not realize the full effects of such programs until these laws are fully implemented and governmental agencies issue applicable regulations or guidance.
Segments The Company’s accounting policies for the segments are generally the same as described in the Company’s significant accounting policies. Differences between the reportable segments’ operating results and other disclosed data and the information in the consolidated financial statements relate primarily to corporate level transactions and recording of transactions at the reportable segment level using other than generally accepted accounting principles. There are certain inventories and supplies that are primarily expensed when incurred within the operating segments, while they are capitalized in the consolidated financial statements. In addition, most corporate expenses such as corporate salary and benefit costs, certain legal costs, debt expense, information technology costs, depreciation, amortization of finite-lived intangible assets, share based compensation costs and other corporate-specific costs, are not fully allocated to the operating segments. There are also allocations for workers’ compensation and general liability expense within the operating segments that differ from the actual expense recorded by the Company under U.S. GAAP. Segment amounts disclosed are prior to elimination entries made in consolidation.
v3.20.1
Segment Information
3 Months Ended
Mar. 31, 2020
Segment Reporting [Abstract]  
Segment Information
Note 13—Segment Information

The Company manages and evaluates its operations in two reportable segments: Housekeeping (housekeeping, laundry, linen and other services) and Dietary (dietary department services). Although both segments serve the same client base and share many operational similarities, they are managed separately due to distinct differences in the type of services provided, as well as the specialized expertise required of the professional management personnel responsible for delivering each segment’s services. Such services are rendered pursuant to discrete contracts, specific to each reportable segment.
The Company’s accounting policies for the segments are generally the same as described in the Company’s significant accounting policies. Differences between the reportable segments’ operating results and other disclosed data and the information in the consolidated financial statements relate primarily to corporate level transactions and recording of transactions at the reportable segment level using other than generally accepted accounting principles. There are certain inventories and supplies that are primarily expensed when incurred within the operating segments, while they are capitalized in the consolidated financial statements. In addition, most corporate expenses such as corporate salary and benefit costs, certain legal costs, debt expense, information technology costs, depreciation, amortization of finite-lived intangible assets, share based compensation costs and other corporate-specific costs, are not fully allocated to the operating segments. There are also allocations for workers’ compensation and general liability expense within the operating segments that differ from the actual expense recorded by the Company under U.S. GAAP. Segment amounts disclosed are prior to elimination entries made in consolidation.

Three Months Ended March 31,
20202019
(in thousands)
Revenues
Housekeeping$224,293  $233,134  
Dietary224,857  242,977  
Total$449,150  $476,111  
Income before income taxes
Housekeeping$23,941  $26,507  
Dietary14,329  15,425  
Corporate and eliminations1
(11,488) (30,040) 
Total$26,782  $11,892  
1.Primarily represents corporate office costs and related overhead, recording of certain inventories and supplies and workers compensation costs at the reportable segment level which use accounting methods that differ from those used at the corporate level, as well as consolidated subsidiaries’ operating expenses that are not allocated to the reportable segments, net of investment and other income and interest expense.
v3.20.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Note 9—Fair Value Measurements

The Company’s current assets and current liabilities are financial instruments and most of these items (other than marketable securities and inventories) are recorded at cost in the Consolidated Balance Sheets. The estimated fair value of these financial instruments approximates their carrying value due to their short-term nature. The carrying value of the Company’s line of credit represents the outstanding amount of the borrowings, which approximates fair value. The Company’s financial assets that are measured at fair value on a recurring basis are its marketable securities and deferred compensation funding. The recorded values of all of the financial instruments approximate their current fair values because of their nature, stated interest rates and respective maturity dates or durations.
The Company’s marketable securities consist of tax-exempt municipal bonds, which are classified as available-for-sale and are reported at fair value. Unrealized gains and losses associated with these investments are included in other comprehensive income (net of tax) within the Consolidated Statements of Comprehensive Income. The fair value of these marketable securities is classified within Level 2 of the fair value hierarchy, as these securities are measured using quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable. Such valuations are determined by a third-party pricing service. For the three months ended March 31, 2020 and 2019, the Company recorded unrealized losses of $0.5 million and unrealized gains of $1.4 million on marketable securities, respectively.

For the three months ended March 31, 2020 and 2019, the Company received total proceeds, less the amount of interest received, of $1.8 million and $3.5 million, respectively, from sales of available-for-sale municipal bonds. For the three months ended March 31, 2020 and 2019, these sales resulted in realized losses of less than $0.1 million and realized gains of less than $0.1 million, respectively, which were recorded in “Other income – Investment and other income, net” in the Consolidated Statements of Comprehensive Income. The basis for the sale of these securities was the specific identification of each bond sold during the period.

The investments under the funded deferred compensation plan are accounted for as trading securities and unrealized gains or losses are included in earnings. The fair value of these investments are determined based on quoted market prices (Level 1). For the three months ended March 31, 2020 and 2019, the Company’s recognized unrealized losses of $5.8 million and unrealized gains of $3.4 million, respectively, related to equity securities still held at the respective reporting dates.

The following tables provide fair value measurement information for the Company’s marketable securities and deferred compensation fund investments as of March 31, 2020 and December 31, 2019:

As of March 31, 2020
Fair Value Measurement Using:
Carrying AmountTotal Fair ValueQuoted Prices in Active Markets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
(in thousands)
Financial Assets:
Marketable securities
Municipal bonds — available-for-sale$90,497  $90,497  $—  $90,497  $—  
Deferred compensation fund
Money Market 1
$1,152  $1,152  $—  $1,152  $—  
Balanced and Lifestyle8,250  8,250  8,250  —  —  
Large Cap Growth10,040  10,040  10,040  —  —  
Small Cap Growth2,935  2,935  2,935  —  —  
Fixed Income3,977  3,977  3,977  —  —  
International1,496  1,496  1,496  —  —  
Mid Cap Growth2,158  2,158  2,158  —  —  
Deferred compensation fund$30,008  $30,008  $28,856  $1,152  $—  
As of December 31, 2019
Fair Value Measurement Using:
Carrying
Amount
Total Fair
Value
Quoted Prices in Active Markets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
(in thousands)
Financial Assets:
Marketable securities
Municipal bonds — available-for-sale$90,711  $90,711  $—  $90,711  $—  
Deferred compensation fund
Money Market 1
$2,625  $2,625  $—  $2,625  $—  
Balanced and Lifestyle10,294  10,294  10,294  —  —  
Large Cap Growth11,369  11,369  11,369  —  —  
Small Cap Growth4,120  4,120  4,120  —  —  
Fixed Income4,072  4,072  4,072  —  —  
International1,932  1,932  1,932  —  —  
Mid Cap Growth2,835  2,835  2,835  —  —  
Deferred compensation fund$37,247  $37,247  $34,622  $2,625  $—  
1.The fair value of the money market fund is based on the net asset value (“NAV”) of the shares held by the plan at the end of the period. The money market fund includes short-term United States dollar denominated money market instruments and the NAV is determined by the custodian of the fund. The money market fund can be redeemed at its NAV at the measurement date as there are no significant restrictions on the ability to sell this investment.

Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair ValueOther-than-temporary Impairments
(in thousands)
March 31, 2020
Type of security:
Municipal bonds — available-for-sale$87,477  $3,347  $(327) $90,497  $—  
Total debt securities$87,477  $3,347  $(327) $90,497  $—  
December 31, 2019
Type of security:
Municipal bonds — available-for-sale$87,016  $3,695  $—  $90,711  $—  
Total debt securities$87,016  $3,695  $—  $90,711  $—  

The following table summarizes the contractual maturities of debt securities held at March 31, 2020 and December 31, 2019, which are classified as marketable securities in the Consolidated Balance Sheets:

Municipal Bonds — Available-for-Sale
Contractual maturity:March 31, 2020December 31, 2019
(in thousands)
Maturing in one year or less$1,133  $876  
Maturing in second year through fifth year21,489  16,071  
Maturing in sixth year through tenth year42,400  38,801  
Maturing after ten years25,475  34,963  
Total debt securities$90,497  $90,711  
v3.20.1
Changes in Accumulated Other Comprehensive Income by Component
3 Months Ended
Mar. 31, 2020
Equity [Abstract]  
Changes in Accumulated Other Comprehensive Income by Component
Note 5—Changes in Accumulated Other Comprehensive Income by Component

Accumulated other comprehensive income consists of unrealized gains and losses from the Company’s available-for-sale marketable securities. The following table provides a summary of the changes in accumulated other comprehensive income for the three months ended March 31, 2020 and 2019:
Unrealized Gains and Losses on Available-for-Sale Securities1
Three Months Ended March 31,
20202019
(in thousands)
Accumulated other comprehensive income — beginning balance$2,919  $158  
Other comprehensive (loss) income before reclassifications(542) 1,419  
Losses (Gains) reclassified from other comprehensive income2
 (3) 
Net current period other comprehensive (loss) income3
(533) 1,416  
Accumulated other comprehensive income — ending balance$2,386  $1,574  
1.All amounts are net of tax
2.Realized gains and losses were recorded pre-tax under “Investment and other income” in the Consolidated Statements of Comprehensive Income. For the three months ended March 31, 2020, the Company recorded less than $0.1 million of realized losses from the sale of available-for-sale securities. For the three months ended March 31, 2019, the Company recorded less than $0.1 million of realized gains from the sale of available-for-sale securities. Refer to Note 9—Fair Value Measurements herein for further information.
3.For the three months ended March 31, 2020, the changes in other comprehensive income were net of a tax benefit of $0.1 million. For the three months ended March 31, 2019, the changes in other comprehensive income were net of a tax expense of $0.4 million.

Amounts Reclassified from Accumulated Other Comprehensive Income
20202019
(in thousands)
Three Months Ended March 31,
(Losses) gains from the sale of available-for-sale securities$(11) $ 
Tax benefit (expense)  (1) 
Net (loss) gain reclassified from accumulated other comprehensive income$(9) $ 
v3.20.1
Other Intangible Assets (Tables)
3 Months Ended
Mar. 31, 2020
Intangible Assets, Net (Excluding Goodwill) [Abstract]  
Estimated Amortization Expense For Intangibles Subject To Amortization
The following table sets forth the estimated amortization expense for intangibles subject to amortization for the remainder of 2020, the following five fiscal years and thereafter:

Period/YearTotal Amortization Expense
(in thousands)
April 1 to December 31, 2020$3,124  
2021$4,165  
2022$4,165  
2023$3,169  
2024$2,035  
2025$2,035  
Thereafter$2,618  
v3.20.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Allowance for doubtful accounts, current $ 87,453 $ 45,726
Accumulated amortization of other intangible assets 20,342 19,300
Allowance for doubtful accounts, noncurrent $ 4,827 $ 6,667
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock authorized (in shares) 100,000,000 100,000,000
Common stock issued (in shares) 75,725,000 75,557,000
Common stock outstanding (in shares) 74,416,000 74,149,000
Common stock in treasury (in shares) 1,309,000 1,408,000
v3.20.1
Statement of Shareholders' Equity (Parenthetical) - $ / shares
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Stockholders' Equity [Abstract]    
Dividend paid and accrued (in dollars per share) $ 0.20125 $ 0.20
v3.20.1
Segment Information (Tables)
3 Months Ended
Mar. 31, 2020
Segment Reporting [Abstract]  
Schedule of Information of Reportable Segments
Three Months Ended March 31,
20202019
(in thousands)
Revenues
Housekeeping$224,293  $233,134  
Dietary224,857  242,977  
Total$449,150  $476,111  
Income before income taxes
Housekeeping$23,941  $26,507  
Dietary14,329  15,425  
Corporate and eliminations1
(11,488) (30,040) 
Total$26,782  $11,892  
1.Primarily represents corporate office costs and related overhead, recording of certain inventories and supplies and workers compensation costs at the reportable segment level which use accounting methods that differ from those used at the corporate level, as well as consolidated subsidiaries’ operating expenses that are not allocated to the reportable segments, net of investment and other income and interest expense.
v3.20.1
Revenue - Additional Information (Details) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Disaggregation of Revenue [Line Items]      
Revenue $ 449,150,000 $ 476,111,000  
Renewal term 1 year    
Contract liabilities $ 0   $ 0
Description of timing The Company’s contracts with customers typically provide for an initial term of one year, with renewable one year service terms, cancellable by either party upon 30 to 90 days’ notice after an initial period of 60 to 120 days.At March 31, 2020, the Company had $612.9 million related to performance obligations that were unsatisfied or partially unsatisfied for which the Company expects to recognize revenue. The Company expects to recognize revenue on approximately 25.6% of the remaining performance obligations over the next 12 months, with the balance to be recognized thereafter. These amounts exclude variable consideration primarily related to performance obligations that consists of a series of distinct service periods with revenues based on future performance that cannot be estimated at contract inception. The Company also has elected to apply the practical expedient that permits exclusion of information about the remaining performance obligations with original expected durations of one year or less.    
Minimum      
Disaggregation of Revenue [Line Items]      
Cancellation notice period 30 days    
Initial period preceding cancellation notice 60 days    
Maximum      
Disaggregation of Revenue [Line Items]      
Cancellation notice period 90 days    
Initial period preceding cancellation notice 120 days    
Housekeeping      
Disaggregation of Revenue [Line Items]      
Revenue $ 224,293,000 $ 233,134,000  
Percent of revenue 49.90% 49.00%  
Dietary      
Disaggregation of Revenue [Line Items]      
Revenue $ 224,857,000 $ 242,977,000  
Percent of revenue 50.10% 51.00%  
v3.20.1
Share-Based Compensation - Summary of Stock-Based Compensation Expense (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Total pre-tax stock-based compensation expense charged against income $ 1,973 $ 1,838
Stock options    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Total pre-tax stock-based compensation expense charged against income 521 664
Restricted stock and restricted stock units    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Total pre-tax stock-based compensation expense charged against income 1,301 992
Employee Stock Purchase Plan    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Total pre-tax stock-based compensation expense charged against income $ 151 $ 182
v3.20.1
Fair Value Measurements - Additional Information (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Fair Value Disclosures [Abstract]    
Unrealized (loss) gain on available-for-sale marketable securities, net of taxes $ (533) $ 1,416
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Proceeds from available for sale municipal bonds 1,757 3,539
Realized loss (less than $0.1 million for 2020) 100  
Realized gain (less than $0.1 million for 2019)   100
Unrealized losses related to equity securities (5,800)  
Unrealized gains related to equity securities   3,400
Municipal bonds — available-for-sale    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Proceeds from available for sale municipal bonds 1,800 3,500
Realized loss (less than $0.1 million for 2020) $ 100  
Realized gain (less than $0.1 million for 2019)   $ 100
v3.20.1
Leases - Components of Lease Expense (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Lease, Cost [Abstract]    
Operating lease cost $ 1,355 $ 1,214
Short-term lease cost 129 221
Variable lease cost 146 153
Total lease cost 1,630 1,588
Cash paid for amounts included in the measurement of lease liabilities    
Operating cash flows from operating leases $ 1,380 $ 1,307
Weighted-average remaining lease term — operating leases 5 years 10 months 24 days 6 years 10 months 24 days
Weighted-average discount rate — operating leases 4.70% 4.70%
v3.20.1
Other Contingencies (Details) - USD ($)
3 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Short-term Debt [Line Items]    
Bank line of credit $ 475,000,000  
Borrowings under line of credit 50,000,000 $ 10,000,000
Reduction of bank line of credit 64,900,000  
Amount available under line of credit 360,100,000  
Standby Letter Of Credit    
Short-term Debt [Line Items]    
Irrevocable standby letter of credit, outstanding $ 64,900,000  
LIBOR    
Short-term Debt [Line Items]    
Basis spread on variable rate 1.15%  
Prime Rate or Overnight Bank Funding Rate    
Short-term Debt [Line Items]    
Basis spread on variable rate 0.50%  
v3.20.1
Stock-Based Compensation
3 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement [Abstract]  
Share-Based Compensation
Note 10—Shared-Based Compensation

The components of the Company’s shared-based compensation expense for the three months ended March 31, 2020 and 2019 are as follows:
Three Months Ended March 31,
20202019
(in thousands)
Stock options$521  $664  
Restricted stock and restricted stock units1,301  992  
Employee Stock Purchase Plan151  182  
Total pre-tax share-based compensation expense charged against income1
$1,973  $1,838  
1.Share-based compensation expense is recorded in cost of services and selling, general and administrative expense in the Company’s Consolidated Statements of Comprehensive Income.

At March 31, 2020, the unrecognized compensation cost related to unvested stock options and awards was $22.4 million. The weighted average period over which these awards will vest is approximately 3.4 years.

2012 Equity Incentive Plan

The Company’s Second Amended and Restated 2012 Equity Incentive Plan (the “Plan”) provides that current or prospective officers, employees, non-employee directors and advisors can receive share-based awards such as stock options, restricted stock, restricted stock units and other stock awards. The Plan seeks to promote the highest level of performance by providing an economic interest in the long-term success of the Company.

As of March 31, 2020, 3.1 million shares of common stock were reserved for issuance under the Plan, including 0.3 million shares available for future grant. No stock award will have a term in excess of 10 years. All awards granted under the Plan become vested and exercisable ratably over a five year period on each yearly anniversary of the grant date.

The Nominating, Compensation and Stock Option Committee of the Board of Directors is responsible for determining the terms of the grants in accordance with the Plan.

Stock Options

A summary of stock options outstanding under the Plan as of December 31, 2019 and changes during the three months ended March 31, 2020 is as follows:
Stock Options Outstanding
Number of SharesWeighted Average Exercise Price
(in thousands)
December 31, 20192,107  $32.99  
Granted210  $24.43  
Exercised(92) $17.55  
Forfeited(9) $37.64  
Expired(12) $32.58  
March 31, 20202,204  $32.80  

The weighted average grant-date fair value of stock options granted during the three months ended March 31, 2020 and 2019 was $4.62 and $8.18 per common share, respectively. The total intrinsic value of stock options exercised during the three months ended March 31, 2020 and 2019 was $0.8 million and $0.9 million, respectively.
The fair value of stock option awards granted in 2020 and 2019 was estimated on the date of grant using the Black-Scholes option valuation model with the following assumptions:
Three Months Ended March 31,
20202019
Risk-free interest rate1.8 %2.5 %
Weighted average expected life6.6 years5.7 years
Expected volatility26.5 %22.6 %
Dividend yield3.2 %1.9 %

The following table summarizes other information about the stock options at March 31, 2020:
March 31, 2020
(amounts in thousands, except per share data)
Outstanding:
Aggregate intrinsic value$1,340  
Weighted average remaining contractual life5.8 years
Exercisable:
Number of options1,483  
Weighted average exercise price$31.04  
Aggregate intrinsic value$1,340  
Weighted average remaining contractual life4.6 years

Restricted Stock Units and Restricted Stock

The fair value of outstanding restricted stock units and restricted stock was determined based on the market price of the shares on the date of grant. During the three months ended March 31, 2020, the Company granted 0.3 million restricted stock units with a weighted average grant date fair value of $24.43 per unit. During the three months ended March 31, 2019, the Company granted 0.2 million restricted stock units with a weighted average grant date fair value of $40.49 per unit.

During the three months ended March 31, 2020 and 2019, the Company did not grant any restricted stock.

A summary of the outstanding restricted stock units and restricted stock as of December 31, 2019 and changes during the three months ended March 31, 2020 is as follows:
Restricted Stock Units and Restricted Stock
NumberWeighted Average Grant Date Fair Value
(in thousands)
December 31, 2019362  $43.24  
Granted307  $24.43  
Vested(93) $42.30  
Forfeited(8) $32.68  
March 31, 2020568  $33.36  

Employee Stock Purchase Plan

The Company’s Employee Stock Purchase Plan ("ESPP") is currently available through 2021 to all eligible employees. All full-time and part-time employees who work an average of 20 hours per week and have completed two years of continuous service with the Company are eligible to participate. Annual offerings commence and terminate on the respective year’s first and last calendar day.

Under the ESPP, the Company is authorized to issue up to 4.1 million shares of its common stock to its employees. Pursuant to such authorization, there are 2.1 million shares available for future grant at March 31, 2020.
The expense associated with the options granted under the ESPP during the three months ended March 31, 2020 and 2019 was estimated on the date of grant using the Black-Scholes option valuation model with the following assumptions:

Three Months Ended March 31,
20202019
Risk-free interest rate1.6%2.6%
Weighted average expected life (years)1.01.0
Expected volatility42.0%30.8%
Dividend yield3.3%1.9%

Deferred Compensation Plan

The Company offers a Supplemental Executive Retirement Plan (“SERP”) for executives and certain key employees. The SERP allows participants to defer a portion of their earned income on a pre-tax basis and as of the last day of each plan year, each participant will be credited with a match of a portion of their deferral in the form of the Company’s common stock based on the then-current market value. Under the SERP, the Company is authorized to issue 1.0 million shares of its common stock to its employees. Pursuant to such authorization, the Company has 0.4 million shares available for future grant at March 31, 2020. At the time of issuance, such shares are accounted for at cost as treasury stock.

The following table summarizes information about the SERP during the three months ended March 31, 2020 and 2019:
Three Months Ended March 31,
 20202019
(in thousands)
SERP expense 1
$170  $169  
Unrealized (loss) gain recorded in SERP liability account$(5,728) $3,418  
1.Both the SERP match and the deferrals are included in the selling, general and administrative caption in the Consolidated Statements of Comprehensive Income.
v3.20.1
Property and Equipment
3 Months Ended
Mar. 31, 2020
Property, Plant and Equipment [Abstract]  
Property and Equipment
Note 6—Property and Equipment

Property and equipment are recorded at cost. Depreciation is recorded over the estimated useful life of each class of depreciable asset, and is computed using the straight-line method. Leasehold improvements are amortized over the shorter of the estimated asset life or term of the lease. Repairs and maintenance costs are charged to expense as incurred.

The following table sets forth the amounts of property and equipment by each class of depreciable asset as of March 31, 2020 and December 31, 2019:
March 31, 2020December 31, 2019
(in thousands)
Housekeeping and Dietary equipment$23,070  $25,219  
Computer hardware and software9,384  12,769  
Operating lease — right-of-use assets1
23,221  21,176  
Other2
1,668  1,698  
Total property and equipment, at cost57,343  60,862  
Less accumulated depreciation28,333  32,042  
Total property and equipment, net$29,010  $28,820  
1.Upon the adoption of ASC 842 the Company recognized right-of-use assets pertaining to leases in Property and Equipment, net.
2.Includes furniture and fixtures, leasehold improvements and autos and trucks including auto leases.
Depreciation expense for the three months ended March 31, 2020 and 2019 was $2.5 million and $2.4 million, respectively. Of the depreciation expense recorded for the three months ended March 31, 2020 and 2019, $1.4 million and $1.2 million related to the depreciation of the Company’s operating lease - right-of-use assets ("ROU Assets"), respectively.
v3.20.1
Description of Business and Significant Accounting Policies - Schedule of Cumulative Effect of Initially Applying New Guidance (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Jan. 01, 2020
Dec. 31, 2019
Assets      
Short-term accounts and notes receivable, less allowance for doubtful accounts $ 303,804   $ 340,930
Notes receivable – long–term portion, less allowance for doubtful accounts 49,466   46,992
Allowance for doubtful accounts on short-term accounts and notes receivables (87,453)   (45,726)
Allowance for doubtful accounts on long-term notes receivables (4,827)   (6,667)
Deferred income taxes 30,642   20,364
Stockholders’ equity      
Retained earnings $ 168,404   $ 195,455
Cumulative Impact from Adopting ASC 326 Guidance      
Assets      
Short-term accounts and notes receivable, less allowance for doubtful accounts   $ (41,100)  
Notes receivable – long–term portion, less allowance for doubtful accounts   (1,136)  
Allowance for doubtful accounts on short-term accounts and notes receivables   (41,100)  
Allowance for doubtful accounts on long-term notes receivables   (1,136)  
Deferred income taxes   10,137  
Stockholders’ equity      
Retained earnings   (32,099)  
Balance, January 1, 2020      
Assets      
Short-term accounts and notes receivable, less allowance for doubtful accounts   299,830  
Notes receivable – long–term portion, less allowance for doubtful accounts   45,856  
Allowance for doubtful accounts on short-term accounts and notes receivables   (86,826)  
Allowance for doubtful accounts on long-term notes receivables   (7,803)  
Deferred income taxes   30,501  
Stockholders’ equity      
Retained earnings   $ 163,356  
v3.20.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 64,498 $ 27,329
Marketable securities, at fair value 90,497 90,711
Accounts and notes receivable, less allowance for doubtful accounts of $87,453 and $45,726 as of March 31, 2020 and December 31, 2019, respectively 303,804 340,930
Inventories and supplies 36,938 36,517
Prepaid expenses and other assets 24,819 20,245
Total current assets 520,556 515,732
Property and equipment, net 29,010 28,820
Goodwill 51,084 51,084
Other intangible assets, less accumulated amortization of $20,342 and $19,300 as of March 31, 2020 and December 31, 2019, respectively 21,311 22,353
Notes receivable — long–term portion, less allowance for doubtful accounts of $4,827 and $6,667 as of March 31, 2020 and December 31, 2019, respectively 49,466 46,992
Deferred compensation funding, at fair value 30,008 37,247
Deferred income taxes 30,642 20,364
Total assets 732,077 722,592
Current liabilities:    
Accounts payable 60,794 54,418
Accrued payroll, accrued and withheld payroll taxes 29,763 36,413
Other accrued expenses 11,443 16,489
Borrowings under line of credit 50,000 10,000
Income taxes payable 10,555 8,075
Accrued insurance claims 23,729 23,256
Total current liabilities 186,284 148,651
Accrued insurance claims — long-term portion 65,272 64,366
Deferred compensation liability 30,098 37,621
Lease liability — long-term portion 12,244 11,649
Commitments and contingencies (Note 15)
STOCKHOLDERS’ EQUITY:    
Common stock, $0.01 par value; 100,000 shares authorized; 75,725 and 75,557 shares issued, and 74,416 and 74,149 shares outstanding as of March 31, 2020 and December 31, 2019, respectively 757 756
Additional paid-in capital 275,447 270,614
Retained earnings 168,404 195,455
Accumulated other comprehensive income, net of taxes 2,386 2,919
Common stock in treasury, at cost, 1,309 and 1,408 shares as of March 31, 2020 and December 31, 2019, respectively (8,815) (9,439)
Total stockholders’ equity 438,179 460,305
Total liabilities and stockholders’ equity $ 732,077 $ 722,592
v3.20.1
Leases (Tables)
3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
Components of Lease Expense
Components of lease expense required by ASC 842 are presented below for the three months ended March 31, 2020 and 2019.
Three Months Ended March 31
20202019
(in thousands)
Lease cost
Operating lease cost$1,355  $1,214  
Short-term lease cost129  221  
Variable lease cost146  153  
Total lease cost$1,630  $1,588  
Supplemental Information Required by ASC 842
Supplemental information required by ASC 842 is presented below for the three months ended March 31, 2020 and 2019.
Quarter ended March 31,
20202019
(dollar amounts in thousands)
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$1,380  $1,307  
Weighted-average remaining lease term — operating leases5.9 years6.9 years
Weighted-average discount rate — operating leases4.7 %4.7 %
Schedule of Future Minimum Lease Payments
The following is a schedule by calendar year of future minimum lease payments under operating leases that have remaining terms as of March 31, 2020:

Period/YearOperating Leases
(in thousands)
April 1 to December 31, 2020$4,131  
20214,390  
20223,137  
20231,274  
20241,295  
20251,311  
Thereafter4,204  
Total minimum lease payments$19,742  
v3.20.1
Dividends (Tables)
3 Months Ended
Mar. 31, 2020
Equity [Abstract]  
Schedule of Dividends Payable
During the three months ended March 31, 2020, the Company paid regular quarterly cash dividends totaling approximately $15.0 million as follows:
Quarter Ended
March 31, 2020
Cash dividend paid per common share$0.20125  
Total cash dividends paid$15,033  
Record dateFebruary 28, 2020
Payment dateMarch 27, 2020
Schedule of Dividends Payable on Outstanding Weighted Average Number of Basic Common Shares
Cash dividends declared for the periods presented were as follows:
Three Months Ended March 31,
20202019
Cash dividends declared per common share0.2025  0.1975  
v3.20.1
Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Total
Adjustment to adopt credit-loss guidance
[1]
Balance, January 1, 2020
Common Stock
Common Stock
Balance, January 1, 2020
Additional Paid-in Capital
Additional Paid-in Capital
Balance, January 1, 2020
Accumulated Other Comprehensive Income, net of taxes
Accumulated Other Comprehensive Income, net of taxes
Balance, January 1, 2020
Retained Earnings
Retained Earnings
Adjustment to adopt credit-loss guidance
[1]
Retained Earnings
Balance, January 1, 2020
Treasury Stock
Treasury Stock
Balance, January 1, 2020
Balance (in shares) at Dec. 31, 2018       75,344,000                    
Beginning balance at Dec. 31, 2018 $ 440,780     $ 753   $ 259,440   $ 158   $ 190,092     $ (9,663)  
Comprehensive income:                            
Net income for the period 9,156                 9,156        
Unrealized loss on available-for-sale marketable securities, net of taxes 1,416             1,416            
Total comprehensive income 10,572                          
Exercise of stock options and other stock-based compensation, net of shares tendered for payment (in shares)       115,000                    
Exercise of stock options and other share-based compensation, net of shares tendered for payment 1,913     $ 2   1,911                
Payment of statutory withholding on issuance of restricted stock and restricted stock units (579)         (579)                
Share-based compensation expense — stock options, restricted stock and restricted stock units 1,656         1,656                
Treasury shares issued for Deferred Compensation Plan funding and redemptions 536         535             1  
Shares issued pursuant to Employee Stock Plan 2,130         1,781             349  
Dividends paid and accrued, $0.20 per share (14,656)                 (14,656)        
Shares issued pursuant to Dividend Reinvestment Plan 23         18             5  
Other (in shares)       6,000                    
Other 174         174                
Balance (in shares) at Mar. 31, 2019       75,465,000                    
Ending balance at Mar. 31, 2019 442,549     $ 755   264,936   1,574   184,592     (9,308)  
Balance (in shares) at Dec. 31, 2019       75,557,000 75,557,000                  
Beginning balance at Dec. 31, 2019 460,305 $ (32,099) $ 428,206 $ 756 $ 756 270,614 $ 270,614 2,919 $ 2,919 195,455 $ (32,099) $ 163,356 (9,439) $ (9,439)
Comprehensive income:                            
Net income for the period 20,190                 20,190        
Unrealized loss on available-for-sale marketable securities, net of taxes (533)             (533)            
Total comprehensive income 19,657                          
Exercise of stock options and other stock-based compensation, net of shares tendered for payment (in shares)       162,000                    
Exercise of stock options and other share-based compensation, net of shares tendered for payment 1,724     $ 1   1,723                
Payment of statutory withholding on issuance of restricted stock and restricted stock units (661)         (661)                
Share-based compensation expense — stock options, restricted stock and restricted stock units 1,822         1,822                
Treasury shares issued for Deferred Compensation Plan funding and redemptions 528         417             111  
Shares issued pursuant to Employee Stock Plan 1,835         1,329             506  
Dividends paid and accrued, $0.20 per share (15,142)                 (15,142)        
Shares issued pursuant to Dividend Reinvestment Plan 23         16             7  
Other (in shares)       6,000                    
Other 187         187                
Balance (in shares) at Mar. 31, 2020       75,725,000                    
Ending balance at Mar. 31, 2020 $ 438,179     $ 757   $ 275,447   $ 2,386   $ 168,404     $ (8,815)  
[1] See Note 4—Allowance for Doubtful Accounts regarding the new credit-loss guidance
v3.20.1
Fair Value Measurements - Marketable Securities and Deferred Compensation Fund Investments (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Marketable securities $ 90,497 $ 90,711
Deferred compensation fund 30,008 37,247
Quoted Prices in Active Markets (Level 1)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 28,856 34,622
Significant Other Observable Inputs (Level 2)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 1,152 2,625
Significant Unobservable Inputs (Level 3)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Carrying Amount    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 30,008 37,247
Total Fair Value    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 30,008 37,247
Municipal bonds — available-for-sale    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Marketable securities 90,497 90,711
Municipal bonds — available-for-sale | Quoted Prices in Active Markets (Level 1)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Marketable securities 0 0
Municipal bonds — available-for-sale | Significant Other Observable Inputs (Level 2)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Marketable securities 90,497 90,711
Municipal bonds — available-for-sale | Significant Unobservable Inputs (Level 3)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Marketable securities 0 0
Municipal bonds — available-for-sale | Carrying Amount    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Marketable securities 90,497 90,711
Municipal bonds — available-for-sale | Total Fair Value    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Marketable securities 90,497 90,711
Money Market | Quoted Prices in Active Markets (Level 1)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Money Market | Significant Other Observable Inputs (Level 2)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 1,152 2,625
Money Market | Significant Unobservable Inputs (Level 3)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Money Market | Carrying Amount    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 1,152 2,625
Money Market | Total Fair Value    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 1,152 2,625
Balanced and Lifestyle | Quoted Prices in Active Markets (Level 1)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 8,250 10,294
Balanced and Lifestyle | Significant Other Observable Inputs (Level 2)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Balanced and Lifestyle | Significant Unobservable Inputs (Level 3)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Balanced and Lifestyle | Carrying Amount    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 8,250 10,294
Balanced and Lifestyle | Total Fair Value    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 8,250 10,294
Large Cap Growth | Quoted Prices in Active Markets (Level 1)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 10,040 11,369
Large Cap Growth | Significant Other Observable Inputs (Level 2)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Large Cap Growth | Significant Unobservable Inputs (Level 3)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Large Cap Growth | Carrying Amount    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 10,040 11,369
Large Cap Growth | Total Fair Value    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 10,040 11,369
Small Cap Growth | Quoted Prices in Active Markets (Level 1)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 2,935 4,120
Small Cap Growth | Significant Other Observable Inputs (Level 2)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Small Cap Growth | Significant Unobservable Inputs (Level 3)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Small Cap Growth | Carrying Amount    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 2,935 4,120
Small Cap Growth | Total Fair Value    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 2,935 4,120
Fixed Income | Quoted Prices in Active Markets (Level 1)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 3,977 4,072
Fixed Income | Significant Other Observable Inputs (Level 2)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Fixed Income | Significant Unobservable Inputs (Level 3)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Fixed Income | Carrying Amount    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 3,977 4,072
Fixed Income | Total Fair Value    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 3,977 4,072
International | Quoted Prices in Active Markets (Level 1)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 1,496 1,932
International | Significant Other Observable Inputs (Level 2)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
International | Significant Unobservable Inputs (Level 3)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
International | Carrying Amount    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 1,496 1,932
International | Total Fair Value    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 1,496 1,932
Mid Cap Growth | Quoted Prices in Active Markets (Level 1)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 2,158 2,835
Mid Cap Growth | Significant Other Observable Inputs (Level 2)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Mid Cap Growth | Significant Unobservable Inputs (Level 3)    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 0 0
Mid Cap Growth | Carrying Amount    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund 2,158 2,835
Mid Cap Growth | Total Fair Value    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Deferred compensation fund $ 2,158 $ 2,835
v3.20.1
Leases - Schedule of Future Minimum Lease Payments (Details)
$ in Thousands
Mar. 31, 2020
USD ($)
Leases [Abstract]  
April 1 to December 31, 2020 $ 4,131
2021 4,390
2022 3,137
2023 1,274
2024 1,295
2025 1,311
Thereafter 4,204
Total minimum lease payments $ 19,742
v3.20.1
Share-Based Compensation - Additional Information (Details) - USD ($)
$ / shares in Units, $ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Unrecognized compensation cost $ 22.4  
Period of expense of unrecognized compensation cost, years 3 years 4 months 24 days  
Common stock reserved for future issuance (in shares) 3,100,000  
Shares available for future grant (in shares) 300,000  
Maximum term of grants 10 years  
Options vested and exercisable, period 5 years  
Weighted average grant-date fair value of stock options granted (in dollars per share) $ 4.62 $ 8.18
Aggregate intrinsic value of stock options exercised $ 0.8 $ 0.9
Average weekly hours of work 20 hours  
SERP    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Shares authorized for issuance (in shares) 1,000,000.0  
Remaining shares authorized for issuance (in shares) 400,000  
Restricted Stock Units (RSUs)    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Restricted stock granted (in shares) 300,000 200,000
Weighted average grant date fair value of restricted stock granted (in dollars per share) $ 24.43 $ 40.49
Restricted Stock    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Restricted stock granted (in shares) 0 0
Employee Stock Purchase Plan    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Requisite service period for plan participation eligibility 2 years  
Stock options authorized to issue to employees (in shares) 4,100,000  
Shares authorized for issuance (in shares) 2,100,000  
v3.20.1
Earnings Per Common Share - Schedule Anti-dilutive Outstanding Equity Awards Under Share Based Compensation Plans (Details) - shares
shares in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Earnings Per Share [Abstract]    
Anti-dilutive (in shares) 2,090 1,146
v3.20.1
Property and Equipment (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Property, Plant and Equipment [Line Items]      
Operating lease — right-of-use assets $ 23,221   $ 21,176
Total property and equipment, at cost 57,343   60,862
Less accumulated depreciation 28,333   32,042
Total property and equipment, net 29,010   28,820
Depreciation 2,500 $ 2,400  
Housekeeping and Dietary equipment      
Property, Plant and Equipment [Line Items]      
Total property and equipment, at cost 23,070   25,219
Computer hardware and software      
Property, Plant and Equipment [Line Items]      
Total property and equipment, at cost 9,384   12,769
Other      
Property, Plant and Equipment [Line Items]      
Total property and equipment, at cost 1,668   $ 1,698
Operating lease — right-of-use assets      
Property, Plant and Equipment [Line Items]      
Depreciation $ 1,400 $ 1,200  
v3.20.1
Revenue - Remaining Performance Obligation (Details)
$ in Millions
Mar. 31, 2020
USD ($)
Revenue from Contract with Customer [Abstract]  
Remaining performance obligation $ 612.9
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-04-01  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Remaining performance obligation percent 25.60%
Revenue, remaining performance obligation period 12 months
v3.20.1
Allowance for Doubtful Accounts - Age Analysis of Past-Due Note Receivable (Details)
$ in Thousands
Mar. 31, 2020
USD ($)
Financing Receivable, Past Due [Line Items]  
Notes Receivable $ 10,678
0-90 Days  
Financing Receivable, Past Due [Line Items]  
Notes Receivable 1,676
91 - 180 Days  
Financing Receivable, Past Due [Line Items]  
Notes Receivable 1,063
Greater than 181 Days  
Financing Receivable, Past Due [Line Items]  
Notes Receivable 7,939
Standard note receivable  
Financing Receivable, Past Due [Line Items]  
Notes Receivable 3,943
Standard note receivable | 0-90 Days  
Financing Receivable, Past Due [Line Items]  
Notes Receivable 872
Standard note receivable | 91 - 180 Days  
Financing Receivable, Past Due [Line Items]  
Notes Receivable 531
Standard note receivable | Greater than 181 Days  
Financing Receivable, Past Due [Line Items]  
Notes Receivable 2,540
Elevated risk note receivable  
Financing Receivable, Past Due [Line Items]  
Notes Receivable 6,735
Elevated risk note receivable | 0-90 Days  
Financing Receivable, Past Due [Line Items]  
Notes Receivable 804
Elevated risk note receivable | 91 - 180 Days  
Financing Receivable, Past Due [Line Items]  
Notes Receivable 532
Elevated risk note receivable | Greater than 181 Days  
Financing Receivable, Past Due [Line Items]  
Notes Receivable $ 5,399
v3.20.1
Dividends - Schedule of Dividends (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Equity [Abstract]    
Cash dividend paid per common share (in dollars per share) $ 0.20125 $ 0.20
Total cash dividends paid $ 15,033 $ 14,588
v3.20.1
Share-Based Compensation - Summary of Restricted Stock Units and Restricted Stock (Details) - Restricted stock and restricted stock units
3 Months Ended
Mar. 31, 2020
$ / shares
shares
Number  
Beginning balance (in shares) | shares 362,000
Granted (in shares) | shares 307,000
Vested (in shares) | shares (93,000)
Forfeited (in shares) | shares (8,000)
Ending balance (in shares) | shares 568,000
Weighted Average Grant Date Fair Value  
Beginning balance (in dollars per share) | $ / shares $ 43.24
Granted (in dollars per share) | $ / shares 24.43
Vested (in dollars per share) | $ / shares 42.30
Forfeited (in dollars per share) | $ / shares 32.68
Ending balance (in dollars per share) | $ / shares $ 33.36
v3.20.1
Description of Business and Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Schedule of Cumulative Effect of Initially Applying New Guidance
The cumulative effect of initially applying the new ASC 326 guidance to the consolidated financial statements on January 1, 2020 was as follows:

Consolidated Statement of Financial PositionDecember 31, 2019Cumulative Impact from Adopting ASC 326 GuidanceJanuary 1, 2020
(in thousands)
Assets
Short-term accounts and notes receivable, less allowance for doubtful accounts$340,930  $(41,100) $299,830  
Notes receivable – long–term portion, less allowance for doubtful accounts$46,992  $(1,136) $45,856  
Allowance for doubtful accounts on short-term accounts and notes receivables$(45,726) $(41,100) $(86,826) 
Allowance for doubtful accounts on long-term notes receivables$(6,667) $(1,136) $(7,803) 
Deferred income taxes$20,364  $10,137  $30,501  
Stockholders’ equity
Retained earnings$195,455  $(32,099) $163,356  
The following table provides a summary of the changes in the Company’s allowance for doubtful accounts on a portfolio segment basis for the three months ended March 31, 2020:

Allowance for doubtful accounts
Portfolio SegmentDecember 31,
2019
Cumulative effect of ASC 326 adoption1
Write-OffsBad Debt ExpenseMarch 31,
2020
(in thousands)
Accounts receivable$39,903  $36,709  $(4,409) $2,186  $74,389  
Note receivable
Standard notes receivable$6,667  $5,236  $—  $(249) $11,654  
Elevated risk notes receivable5,823  291  —  123  6,237  
Total notes receivable$12,490  $5,527  $—  $(126) $17,891  
Total accounts and notes receivable$52,393  $42,236  $(4,409) $2,060  $92,280  
1.Represents a one-time adjustment to the Company’s 2020 opening retained earnings balance in accordance with the adoption of the accounting guidance.
v3.20.1
Earnings Per Common Share
3 Months Ended
Mar. 31, 2020
Earnings Per Share [Abstract]  
Earnings Per Common Share
Note 14—Earnings Per Common Share

Basic and diluted earnings per common share are computed by dividing net income by the weighted-average number of basic and diluted common shares outstanding, respectively. The weighted-average number of diluted common shares includes the impact of dilutive securities, including outstanding stock options and unvested restricted stock and restricted stock units. The table below reconciles the weighted-average basic and diluted common shares outstanding:
Three Months Ended March 31,
20202019
(in thousands)
Weighted average number of common shares outstanding - basic74,658  74,301  
Effect of dilutive securities 1
109  418  
Weighted average number of common shares outstanding - diluted74,767  74,719  
1.Certain outstanding equity awards are anti-dilutive and therefore were excluded from the calculation of the weighted average number of diluted common shares outstanding.

Anti-dilutive outstanding equity awards under share based compensation plans were as follows:
Three Months Ended March 31,
20202019
(in thousands)
Anti-dilutive 2,090  1,146  
v3.20.1
Property and Equipment (Tables)
3 Months Ended
Mar. 31, 2020
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment
The following table sets forth the amounts of property and equipment by each class of depreciable asset as of March 31, 2020 and December 31, 2019:
March 31, 2020December 31, 2019
(in thousands)
Housekeeping and Dietary equipment$23,070  $25,219  
Computer hardware and software9,384  12,769  
Operating lease — right-of-use assets1
23,221  21,176  
Other2
1,668  1,698  
Total property and equipment, at cost57,343  60,862  
Less accumulated depreciation28,333  32,042  
Total property and equipment, net$29,010  $28,820  
1.Upon the adoption of ASC 842 the Company recognized right-of-use assets pertaining to leases in Property and Equipment, net.
2.Includes furniture and fixtures, leasehold improvements and autos and trucks including auto leases.
v3.20.1
Description of Business and Significant Accounting Policies
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Description of Business and Significant Accounting Policies
Note 1—Description of Business and Significant Accounting Policies

Nature of Operations

Healthcare Services Group, Inc. (the “Company”) provides management, administrative and operating expertise and services to the housekeeping, laundry, linen, facility maintenance and dietary service departments of the healthcare industry, including nursing homes, retirement complexes, rehabilitation centers and hospitals located throughout the United States. Although the Company does not directly participate in any government reimbursement programs, the Company’s clients receive government reimbursements related to Medicare and Medicaid. Therefore, they are directly affected by any legislation relating to Medicare and Medicaid reimbursement programs.

The Company provides services primarily pursuant to full service agreements with its clients. In such agreements, the Company is responsible for the day-to-day management of employees located at the clients’ facilities. The Company also provides services on the basis of management-only agreements for a limited number of clients. The agreements with clients typically provide for a renewable one year service term, cancellable by either party upon 30 to 90 days’ notice after an initial period of 60 to 120 days.

The Company is organized into two reportable segments: housekeeping, laundry, linen and other services (“Housekeeping”), and dietary department services (“Dietary”).

Housekeeping consists of managing the clients’ housekeeping departments, which are principally responsible for the cleaning, disinfecting and sanitizing of resident rooms and common areas of a client’s facility, as well as the laundering and processing of the bed linens, uniforms, resident personal clothing and other assorted linen items utilized at a client facility.

Dietary consists of managing the clients’ dietary departments, which are principally responsible for food purchasing, meal preparation and dietitian professional services, which includes the development of menus that meet residents’ dietary needs.

Unaudited Interim Financial Data

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, these consolidated financial statements do not include all of the information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows. However, in the Company’s opinion, all adjustments which are of a normal recurring nature and are necessary for a fair presentation have been reflected in these consolidated financial statements. The balance sheet shown in this report as of December 31, 2019 has been derived from the audited financial statements for the year ended December 31, 2019. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for any future period.

Use of Estimates in Financial Statements

In preparing financial statements in conformity with U.S. GAAP, estimates and assumptions are made that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Significant estimates are used in determining, but are not limited to, the Company’s allowance for doubtful accounts, accrued insurance claims, valuations, deferred taxes and reviews for potential impairment. The estimates are based upon various factors including current and historical trends, as well as other pertinent industry and regulatory authority information, including the potential future effects of COVID-19. Management regularly evaluates this information to determine if it is necessary to update the basis for its estimates and to adjust for known changes.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Healthcare Services Group, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Cash and Cash Equivalents

Cash and cash equivalents are held in U.S. financial institutions or in custodial accounts with U.S. financial institutions. Cash equivalents are defined as short-term, highly liquid investments with a maturity of three months or less at time of purchase that are readily convertible into cash and have insignificant interest rate risk.

Accounts and Notes Receivable

Accounts and notes receivable consist of Housekeeping and Dietary segment trade receivables from contracts with customers. The Company’s payment terms with customers for services provided are defined within each customer’s service agreement. All accounts receivables are considered short term assets as the Company does not grant payment terms greater than one year. Accounts receivable initially are recorded at the transaction amount, and are recorded after the Company has an unconditional right to payment where only the passage of time is required before payment is received. Each reporting period, the Company evaluates the collectability of outstanding receivable balances and records an allowance for doubtful accounts representing an estimate of future expected credit loss. Additions to the allowance for doubtful accounts are made by recording a charge to bad debt expense reported in costs of services provided.

Notes receivable are initially recorded when accounts receivable are transferred into a promissory note and are recorded as an alternative to accounts receivable to memorialize an unqualified promise to pay a specific sum, typically with interest, in accordance with a defined payment schedule. The Company’s payment terms with customers on promissory notes can vary based on several factors and the circumstances of each promissory note, however typically promissory notes mature over a 1 to 3 year period. Similar to accounts receivable, each reporting period the Company evaluates the collectability of outstanding notes receivable balances and records an allowance for doubtful accounts representing an estimate of future expected credit loss.

Refer to Note 3—Accounts and Notes Receivable herein for further information.

Allowance for Doubtful Accounts

The guidance under the Financial Accounting Standards Board ("FASB") Accounting Standards Codification subtopic 326 Credit Losses - Measurement of Credit Losses on Financial Instruments ("ASC 326") became effective and was adopted by the Company prospectively as of January 1, 2020. In adopting ASC 326 the Company replaced its previous incurred loss impairment model for estimating credit losses on accounts and notes receivables for its reporting of quarterly and annual financial results with an expected loss model prepared in accordance with ASC 326. While the incurred loss impairment model had the Company recognize credit losses when it was probable that a loss had been incurred, ASC 326 requires the Company to estimate the lifetime expected credit losses on such instruments and to record an allowance to offset the receivables. ASC 326 requires the recognition of credit losses that are expected based on existing accounts and notes receivable as compared to the incurred loss approach. Accordingly, credit losses under ASC 326 generally are recognized earlier in the life cycle of a receivable than under the Company’s previous incurred loss model. Modeling must be prepared after considering historical experience, current conditions, and reasonable and supportable economic forecasts to estimate lifetime expected credit losses. Under the previous incurred loss impairment model, credit losses were recognized when Management determined that it was more likely than not that a loss had been incurred and such loss was estimable.

Refer to Note 4—Allowance for Doubtful Accounts herein for further information.
The cumulative effect of initially applying the new ASC 326 guidance to the consolidated financial statements on January 1, 2020 was as follows:

Consolidated Statement of Financial PositionDecember 31, 2019Cumulative Impact from Adopting ASC 326 GuidanceJanuary 1, 2020
(in thousands)
Assets
Short-term accounts and notes receivable, less allowance for doubtful accounts$340,930  $(41,100) $299,830  
Notes receivable – long–term portion, less allowance for doubtful accounts$46,992  $(1,136) $45,856  
Allowance for doubtful accounts on short-term accounts and notes receivables$(45,726) $(41,100) $(86,826) 
Allowance for doubtful accounts on long-term notes receivables$(6,667) $(1,136) $(7,803) 
Deferred income taxes$20,364  $10,137  $30,501  
Stockholders’ equity
Retained earnings$195,455  $(32,099) $163,356  


Inventories and Supplies

Inventories and supplies include housekeeping, linen and laundry supplies, as well as food provisions and supplies. Non-linen inventories and supplies are stated on a first-in, first-out (FIFO) basis, and reduced as deemed necessary to approximate the lower of cost or net realizable value. Linen supplies are amortized on a straight-line basis over their estimated useful life of 24 months.

Revenue Recognition

The Company recognizes revenue from contracts with customers when or as the promised goods and services are provided to customers. Revenues are reported net of sales taxes that are collected from customers and remitted to taxing authorities.

The guidance under the FASB Accounting Standards Codification subtopic 606 Revenue from Contracts with Customers ("ASC 606") requires the Company to recognize revenue as the promised goods and services within the terms of the Company’s contracts are performed and satisfied. The amount of revenue recognized by the Company is based on the consideration to which the Company is entitled in exchange for providing the contracted goods and services. The adoption of this standard did not have a material impact on the Company’s accounting for revenue earned relating to the Housekeeping and Dietary segments. The Company also did not recognize an opening adjustment to retained earnings as a result of the adoption of the standard. Refer to Note 2—Revenue herein for further information.

Leases

The guidance under FASB Accounting Standards Codification subtopic ASC 842 Leases (“ASC 842”) became effective and was adopted by the Company as of January 1, 2019, by applying a modified retrospective transition approach which resulted in the capitalization of the Company’s existing operating leases as of January 1, 2019. As such, the Company records assets and liabilities on the balance sheet to recognize the rights and obligations arising from leasing arrangements with contractual terms greater than 12 months, as permitted by U.S. GAAP. A leasing arrangement includes any contract which entitles the Company to the right of use of an identified tangible asset where there are no restrictions as to the direct of use of the asset, and the Company obtains substantially all of the economic benefits from the right of use. As of March 31, 2020 and December 31, 2019, the Company was only the lessee of operating lease arrangements.
Refer to Note 7—Leases herein for further information.
Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Under this method, income tax expense or benefits are recognized for the amount of taxes payable or refundable for the current period. The Company accrues for probable tax obligations as required, based on facts and circumstances in various regulatory environments. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. When appropriate, valuation allowances are recorded to reduce deferred tax assets to amounts for which realization is more likely than not.

Uncertain income tax positions taken or expected to be taken in tax returns are reflected within the Company’s financial statements based on a recognition and measurement process.

Earnings per Common Share

Basic earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is computed using the weighted-average number of common shares outstanding and dilutive common shares, such as those issuable upon exercise of stock options and upon the vesting of restricted stock and restricted stock units.

Share-Based Compensation

The Company estimates the fair value of share-based awards on the date of grant using the Black-Scholes valuation model for stock options and using the share price on the date of grant for restricted stock and restricted stock units. The value of the award is recognized ratably as an expense in the Company’s Consolidated Statements of Comprehensive Income over the requisite service periods, with adjustments made for forfeitures as they occur.

Identifiable Intangible Assets and Goodwill

Identifiable intangible assets are amortized on a straight-line basis over their respective lives. Goodwill represents the excess of cost over the fair value of net assets of acquired businesses. Management reviews the carrying value of goodwill annually during the fourth quarter to assess for impairment, or more often if events or circumstances indicate that the carrying value may exceed its estimated fair value.

During the first quarter of 2020, the Company reviewed the carrying value of goodwill due to the events and circumstances surrounding the COVID-19 pandemic. No impairment loss on the Company’s intangible assets or goodwill during the three months ended March 31, 2020 was recorded as a result of such review. There was no impairment loss recognized on the Company’s intangible assets or goodwill during the three months ended March 31, 2019.

Concentrations of Credit Risk

The Company’s financial instruments that are subject to credit risk are cash and cash equivalents, marketable securities, deferred compensation funding and accounts and notes receivable. At March 31, 2020 and December 31, 2019, substantially all of the Company’s cash and cash equivalents and marketable securities were held in one large financial institution located in the United States. The Company’s marketable securities are fixed income investments which are highly liquid and can be readily purchased or sold through established markets.

The Company’s clients are concentrated in the healthcare industry and are primarily providers of long-term care. The revenues of many of the Company’s clients are highly reliant on Medicare, Medicaid and third party payors’ reimbursement funding rates. New legislation or changes in existing regulations could directly impact the governmental reimbursement programs in which the clients participate. As a result, the Company may not realize the full effects of such programs until these laws are fully implemented and governmental agencies issue applicable regulations or guidance.
v3.20.1
Fair Value Measurements (Tables)
3 Months Ended
Mar. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements
The following tables provide fair value measurement information for the Company’s marketable securities and deferred compensation fund investments as of March 31, 2020 and December 31, 2019:

As of March 31, 2020
Fair Value Measurement Using:
Carrying AmountTotal Fair ValueQuoted Prices in Active Markets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
(in thousands)
Financial Assets:
Marketable securities
Municipal bonds — available-for-sale$90,497  $90,497  $—  $90,497  $—  
Deferred compensation fund
Money Market 1
$1,152  $1,152  $—  $1,152  $—  
Balanced and Lifestyle8,250  8,250  8,250  —  —  
Large Cap Growth10,040  10,040  10,040  —  —  
Small Cap Growth2,935  2,935  2,935  —  —  
Fixed Income3,977  3,977  3,977  —  —  
International1,496  1,496  1,496  —  —  
Mid Cap Growth2,158  2,158  2,158  —  —  
Deferred compensation fund$30,008  $30,008  $28,856  $1,152  $—  
As of December 31, 2019
Fair Value Measurement Using:
Carrying
Amount
Total Fair
Value
Quoted Prices in Active Markets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
(in thousands)
Financial Assets:
Marketable securities
Municipal bonds — available-for-sale$90,711  $90,711  $—  $90,711  $—  
Deferred compensation fund
Money Market 1
$2,625  $2,625  $—  $2,625  $—  
Balanced and Lifestyle10,294  10,294  10,294  —  —  
Large Cap Growth11,369  11,369  11,369  —  —  
Small Cap Growth4,120  4,120  4,120  —  —  
Fixed Income4,072  4,072  4,072  —  —  
International1,932  1,932  1,932  —  —  
Mid Cap Growth2,835  2,835  2,835  —  —  
Deferred compensation fund$37,247  $37,247  $34,622  $2,625  $—  
1.The fair value of the money market fund is based on the net asset value (“NAV”) of the shares held by the plan at the end of the period. The money market fund includes short-term United States dollar denominated money market instruments and the NAV is determined by the custodian of the fund. The money market fund can be redeemed at its NAV at the measurement date as there are no significant restrictions on the ability to sell this investment.
Marketable Debt Securities
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair ValueOther-than-temporary Impairments
(in thousands)
March 31, 2020
Type of security:
Municipal bonds — available-for-sale$87,477  $3,347  $(327) $90,497  $—  
Total debt securities$87,477  $3,347  $(327) $90,497  $—  
December 31, 2019
Type of security:
Municipal bonds — available-for-sale$87,016  $3,695  $—  $90,711  $—  
Total debt securities$87,016  $3,695  $—  $90,711  $—  
Contractual Maturities of Available for Sale Investments
The following table summarizes the contractual maturities of debt securities held at March 31, 2020 and December 31, 2019, which are classified as marketable securities in the Consolidated Balance Sheets:

Municipal Bonds — Available-for-Sale
Contractual maturity:March 31, 2020December 31, 2019
(in thousands)
Maturing in one year or less$1,133  $876  
Maturing in second year through fifth year21,489  16,071  
Maturing in sixth year through tenth year42,400  38,801  
Maturing after ten years25,475  34,963  
Total debt securities$90,497  $90,711  
v3.20.1
Consolidated Statements of Comprehensive Income - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Income Statement [Abstract]    
Revenues $ 449,150 $ 476,111
Operating costs and expenses:    
Costs of services provided 387,156 427,265
Selling, general and administrative expense 30,017 41,101
Other (expense) income:    
Investment and other income, net (4,827) 5,203
Interest expense (368) (1,056)
Income before income taxes 26,782 11,892
Income tax provision 6,592 2,736
Net income $ 20,190 $ 9,156
Per share data:    
Basic earnings per common share (in dollars per share) $ 0.27 $ 0.12
Diluted earnings per common share (in dollars per share) $ 0.27 $ 0.12
Weighted average number of common shares outstanding:    
Basic (in shares) 74,658 74,301
Diluted (in shares) 74,767 74,719
Comprehensive income:    
Net income $ 20,190 $ 9,156
Other comprehensive income:    
Unrealized (loss) gain on available-for-sale marketable securities, net of taxes (533) 1,416
Total comprehensive income $ 19,657 $ 10,572
v3.20.1
Earnings Per Common Share (Tables)
3 Months Ended
Mar. 31, 2020
Earnings Per Share [Abstract]  
Schedule of Weighted Average Number of Shares The table below reconciles the weighted-average basic and diluted common shares outstanding:
Three Months Ended March 31,
20202019
(in thousands)
Weighted average number of common shares outstanding - basic74,658  74,301  
Effect of dilutive securities 1
109  418  
Weighted average number of common shares outstanding - diluted74,767  74,719  
1.Certain outstanding equity awards are anti-dilutive and therefore were excluded from the calculation of the weighted average number of diluted common shares outstanding.
Schedule Anti-dilutive Outstanding Equity Awards Under Share Based Compensation Plans
Anti-dilutive outstanding equity awards under share based compensation plans were as follows:
Three Months Ended March 31,
20202019
(in thousands)
Anti-dilutive 2,090  1,146  
v3.20.1
Income Taxes
3 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes
Note 12—Income Taxes

The Company’s annual effective tax rate is impacted by the tax effects of option exercises and vested awards, which are treated as discrete items in the reporting period in which they occur, and therefore cannot be considered in the calculation of the estimated annual effective tax rate. The impact on the Company’s income tax provision through the three months ended March 31, 2020 for such discrete items was not material.
Differences between the effective tax rate and the applicable U.S. federal statutory rate arise primarily from the effect of state and local income taxes, share-based compensation and tax credits available to the Company. The actual 2020 effective tax rate will likely vary from the estimate depending on the actual operating income earned with availability of tax credits and the exercise of stock options and vesting of share-based awards. The Company’s estimate for the 2020 effective tax rate has not been adjusted for any impacts related to COVID-19.

The Company accounts for income taxes using the asset and liability method, which results in recognizing income tax expense based on the amount of income taxes payable or refundable for the current year. Additionally, the Company regularly evaluates the tax positions taken or expected to be taken resulting from financial statement recognition of certain items. Based on the evaluation, there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The evaluation was performed for the tax years ended December 31, 2016 through 2019 (with regard to U.S. federal income tax returns) and December 31, 2015 through 2019 (with regard to various state and local income tax returns), the tax years which remain subject to examination by major tax jurisdictions as of March 31, 2020.
The Company may from time to time be assessed interest or penalties by taxing jurisdictions, although any such assessments historically have been minimal. When the Company has received an assessment for interest and/or penalties, it will be classified in the financial statements as selling, general and administrative expense. In addition, any interest or penalties relating to recognized uncertain tax positions would also be recorded in selling, general and administrative expense.
v3.20.1
Other Intangible Assets
3 Months Ended
Mar. 31, 2020
Intangible Assets, Net (Excluding Goodwill) [Abstract]  
Other Intangible Assets
Note 8—Other Intangible Assets

The Company’s other intangible assets consist of customer relationships which were obtained through acquisitions and are recorded at their fair values at the date of acquisition. Intangible assets with determinable lives are amortized on a straight-line basis over their estimated useful lives. The customer relationships have a weighted-average amortization period of approximately 10 years.

The following table sets forth the estimated amortization expense for intangibles subject to amortization for the remainder of 2020, the following five fiscal years and thereafter:

Period/YearTotal Amortization Expense
(in thousands)
April 1 to December 31, 2020$3,124  
2021$4,165  
2022$4,165  
2023$3,169  
2024$2,035  
2025$2,035  
Thereafter$2,618  

Amortization expense for the three months ended March 31, 2020 and 2019 was $1.0 million and $1.1 million, respectively.
v3.20.1
Allowance for Doubtful Accounts
3 Months Ended
Mar. 31, 2020
Receivables [Abstract]  
Allowance for Doubtful Accounts Allowance for Doubtful Accounts
On January 1, 2020 (the "adoption date"), the Company replaced its previous incurred loss impairment model for estimating credit losses on accounts and notes receivables with an expected loss model prepared in accordance with ASC 326. While the incurred loss impairment model had the Company recognize credit losses when it was probable that a loss had been incurred, ASC 326 requires the Company to estimate future expected credit losses on such instruments before an impairment may occur. On the adoption date the Company recorded an initial increase of $42.2 million to the Company's allowance for doubtful accounts, with an offset recorded as an opening adjustment to retained earnings.

In making the Company’s credit evaluations, management considers the general collection risk associated with trends in the long-term care industry. The Company establishes credit limits through payment terms with customers, performs ongoing credit evaluations and monitors accounts on an aging schedule basis to minimize the risk of loss. Despite the Company’s efforts to minimize credit risk exposure, clients could be adversely affected if future industry trends, including those related to COVID-19, change in such a manner as to negatively impact their cash flows. The full effects of COVID-19 on the Company’s clients are highly uncertain and cannot be predicted. As a result, the Company’s future collection experience can differ significantly from historical collection trends. If the Company’s clients experience a negative impact on their cash flows, it could have a material adverse effect on the Company’s results of operations and financial condition.

The Company evaluates its accounts and notes receivable for expected credit losses quarterly. Accounts receivables are evaluated based on internally developed credit quality indicators derived from the aging of receivables. Notes receivable are evaluated based on internally developed credit quality indicators derived from Management’s assessment of collection risk. The Company manages note receivable portfolios using a two tiered approach by disaggregating standard notes receivables, which are promissory notes in good standing, from those who have been identified by Management as having an elevated credit risk profile due to a trigger event such as bankruptcy. At the end of each period the Company sets a reserve for expected credit losses on standard notes receivable based on the Company’s historical loss rate. Notes receivable with an elevated risk profile, which are from customers who have filed bankruptcy, are subject to collections activity or are slow payers that are experiencing financial difficulties, are aggregated and evaluated to determine the total reserve for the class of receivable.

The guidance in ASC 326 permits entities to make an accounting policy election not to measure an estimate for credit losses on accrued interest if those entities write-off accrued interest deemed uncollectible in a timely manner. The Company follows an income recognition policy on all interest earned on notes receivable. Under such policy the Company accounts for all notes receivable on a non-accrual basis and defers the recognition of any interest income until receipt of cash payments. This policy was established, recognizing the environment of the long-term care industry, and not because such notes receivable are necessarily impaired. Accordingly, the Company does not record a credit loss adjustment for accrued interest. For the three months ended March 31, 2020, the Company recognized $0.6 million in interest income from notes receivables.
As part of the Company’s adoption of ASC 326, there are additional disclosures required to be made on a class of financing receivable basis. The following table presents the Company’s two tiers of notes receivable further disaggregated by year of origination as of March 31, 2020. The information is updated as of March 31, 2020:

Notes Receivable
Amortized Cost Basis by Origination Year
20202019201820172016PriorTotal
(in thousands)
Notes Receivable
Standard note receivable$6,810  $16,058  $17,745  $27,066  $1,989  $1,606  $71,274  
Elevated risk note receivable$—  $—  $397  $5,511  $—  $2,457  $8,365  
Current-period gross write-offs$—  $—  $—  $—  $—  $—  $—  
Current-period recoveries—  —  —  —  —  —  —  
Current-period net write-offs $—  $—  $—  $—  $—  $—  $—  

The following table provides information as to the status of payment on the Company’s notes receivable in the manner in which the Company evaluates credit risk amongst the portfolio:

 Age Analysis of Past-Due Note Receivable as of March 31, 2020
0-90 Days91 - 180 DaysGreater than 181 DaysTotal
(in thousands)
Notes Receivable
Standard notes receivable$872  $531  $2,540  $3,943  
Elevated risk notes receivable804  532  5,399  6,735  
$1,676  $1,063  $7,939  $10,678  

The following table provides a summary of the changes in the Company’s allowance for doubtful accounts on a portfolio segment basis for the three months ended March 31, 2020:

Allowance for doubtful accounts
Portfolio SegmentDecember 31,
2019
Cumulative effect of ASC 326 adoption1
Write-OffsBad Debt ExpenseMarch 31,
2020
(in thousands)
Accounts receivable$39,903  $36,709  $(4,409) $2,186  $74,389  
Note receivable
Standard notes receivable$6,667  $5,236  $—  $(249) $11,654  
Elevated risk notes receivable5,823  291  —  123  6,237  
Total notes receivable$12,490  $5,527  $—  $(126) $17,891  
Total accounts and notes receivable$52,393  $42,236  $(4,409) $2,060  $92,280  
1.Represents a one-time adjustment to the Company’s 2020 opening retained earnings balance in accordance with the adoption of the accounting guidance.
v3.20.1
Segment Information - Schedule of Information of Reportable Segments (Details)
$ in Thousands
3 Months Ended
Mar. 31, 2020
USD ($)
segment
Mar. 31, 2019
USD ($)
Segment Reporting [Abstract]    
Number of reportable segments | segment 2  
Segment Reporting Information [Line Items]    
Revenues $ 449,150 $ 476,111
Income before income taxes 26,782 11,892
Corporate and eliminations    
Segment Reporting Information [Line Items]    
Income before income taxes (11,488) (30,040)
Housekeeping    
Segment Reporting Information [Line Items]    
Revenues 224,293 233,134
Housekeeping | Operating Segments    
Segment Reporting Information [Line Items]    
Income before income taxes 23,941 26,507
Dietary    
Segment Reporting Information [Line Items]    
Revenues 224,857 242,977
Dietary | Operating Segments    
Segment Reporting Information [Line Items]    
Income before income taxes $ 14,329 $ 15,425
v3.20.1
Fair Value Measurements - Contractual Maturities of Debt Securities (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Fair Value Disclosures [Abstract]    
Maturing in one year or less $ 1,133 $ 876
Maturing in second year through fifth year 21,489 16,071
Maturing in sixth year through tenth year 42,400 38,801
Maturing after ten years 25,475 34,963
Total debt securities $ 90,497 $ 90,711
v3.20.1
Other Intangible Assets - Estimated Amortization Expense For Intangibles Subject To Amortization (Details)
$ in Thousands
Mar. 31, 2020
USD ($)
Intangible Assets, Net (Excluding Goodwill) [Abstract]  
April 1 to December 31, 2020 $ 3,124
2021 4,165
2022 4,165
2023 3,169
2024 2,035
2025 2,035
Thereafter $ 2,618
v3.20.1
Income Taxes (Details)
Mar. 31, 2020
USD ($)
Income Tax Disclosure [Abstract]  
Unrecognized tax benefits $ 0
v3.20.1
Share-Based Compensation - Deferred Compensation Plan (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]    
SERP expense $ 1,973 $ 1,838
SERP    
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]    
SERP expense 170 169
Unrealized (loss) gain recorded in SERP liability account $ (5,728) $ 3,418
v3.20.1
Share-Based Compensation - Assumptions for Fair Value of Options Granted (Details)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Share-based Payment Arrangement [Abstract]    
Risk-free interest rate 1.80% 2.50%
Weighted average expected life 6 years 7 months 6 days 5 years 8 months 12 days
Expected volatility 26.50% 22.60%
Dividend yield 3.20% 1.90%
v3.20.1
Allowance for Doubtful Accounts - Additional Information (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Jan. 01, 2020
Dec. 31, 2019
New Accounting Pronouncements or Change in Accounting Principle [Line Items]      
One-time adjustment $ 92,280   $ 52,393
Interest income $ 600    
Cumulative Impact from Adopting ASC 326 Guidance      
New Accounting Pronouncements or Change in Accounting Principle [Line Items]      
One-time adjustment   $ 42,236  
v3.20.1
Changes in Accumulated Other Comprehensive Income by Component - Summary (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Accumulated other comprehensive income    
Beginning balance $ 460,305 $ 440,780
Other comprehensive (loss) income before reclassifications (542) 1,419
Losses (Gains) reclassified from other comprehensive income 9 (3)
Net current period other comprehensive (loss) income (533) 1,416
Ending balance 438,179 442,549
Realized loss (less than $0.1 million for 2020) 100  
Realized gain (less than $0.1 million for 2019)   100
Changes in other comprehensive (loss) income, tax expense (benefit) (100) 400
Accumulated Other Comprehensive Income, net of taxes    
Accumulated other comprehensive income    
Beginning balance 2,919 158
Ending balance $ 2,386 $ 1,574
v3.20.1
Allowance for Doubtful Accounts (Tables)
3 Months Ended
Mar. 31, 2020
Receivables [Abstract]  
Notes Receivable Disaggregated by Vintage Year The following table presents the Company’s two tiers of notes receivable further disaggregated by year of origination as of March 31, 2020. The information is updated as of March 31, 2020:
Notes Receivable
Amortized Cost Basis by Origination Year
20202019201820172016PriorTotal
(in thousands)
Notes Receivable
Standard note receivable$6,810  $16,058  $17,745  $27,066  $1,989  $1,606  $71,274  
Elevated risk note receivable$—  $—  $397  $5,511  $—  $2,457  $8,365  
Current-period gross write-offs$—  $—  $—  $—  $—  $—  $—  
Current-period recoveries—  —  —  —  —  —  —  
Current-period net write-offs $—  $—  $—  $—  $—  $—  $—  
Age Analysis of Past-Due Note Receivable
The following table provides information as to the status of payment on the Company’s notes receivable in the manner in which the Company evaluates credit risk amongst the portfolio:

 Age Analysis of Past-Due Note Receivable as of March 31, 2020
0-90 Days91 - 180 DaysGreater than 181 DaysTotal
(in thousands)
Notes Receivable
Standard notes receivable$872  $531  $2,540  $3,943  
Elevated risk notes receivable804  532  5,399  6,735  
$1,676  $1,063  $7,939  $10,678  
Schedule of Cumulative Effect of Initially Applying New Guidance
The cumulative effect of initially applying the new ASC 326 guidance to the consolidated financial statements on January 1, 2020 was as follows:

Consolidated Statement of Financial PositionDecember 31, 2019Cumulative Impact from Adopting ASC 326 GuidanceJanuary 1, 2020
(in thousands)
Assets
Short-term accounts and notes receivable, less allowance for doubtful accounts$340,930  $(41,100) $299,830  
Notes receivable – long–term portion, less allowance for doubtful accounts$46,992  $(1,136) $45,856  
Allowance for doubtful accounts on short-term accounts and notes receivables$(45,726) $(41,100) $(86,826) 
Allowance for doubtful accounts on long-term notes receivables$(6,667) $(1,136) $(7,803) 
Deferred income taxes$20,364  $10,137  $30,501  
Stockholders’ equity
Retained earnings$195,455  $(32,099) $163,356  
The following table provides a summary of the changes in the Company’s allowance for doubtful accounts on a portfolio segment basis for the three months ended March 31, 2020:

Allowance for doubtful accounts
Portfolio SegmentDecember 31,
2019
Cumulative effect of ASC 326 adoption1
Write-OffsBad Debt ExpenseMarch 31,
2020
(in thousands)
Accounts receivable$39,903  $36,709  $(4,409) $2,186  $74,389  
Note receivable
Standard notes receivable$6,667  $5,236  $—  $(249) $11,654  
Elevated risk notes receivable5,823  291  —  123  6,237  
Total notes receivable$12,490  $5,527  $—  $(126) $17,891  
Total accounts and notes receivable$52,393  $42,236  $(4,409) $2,060  $92,280  
1.Represents a one-time adjustment to the Company’s 2020 opening retained earnings balance in accordance with the adoption of the accounting guidance.
Accounts Receivable, Allowance for Doubtful Accounts
The following table provides a summary of the changes in the Company’s allowance for doubtful accounts on a portfolio segment basis for the three months ended March 31, 2020:

Allowance for doubtful accounts
Portfolio SegmentDecember 31,
2019
Cumulative effect of ASC 326 adoption1
Write-OffsBad Debt ExpenseMarch 31,
2020
(in thousands)
Accounts receivable$39,903  $36,709  $(4,409) $2,186  $74,389  
Note receivable
Standard notes receivable$6,667  $5,236  $—  $(249) $11,654  
Elevated risk notes receivable5,823  291  —  123  6,237  
Total notes receivable$12,490  $5,527  $—  $(126) $17,891  
Total accounts and notes receivable$52,393  $42,236  $(4,409) $2,060  $92,280  
1.Represents a one-time adjustment to the Company’s 2020 opening retained earnings balance in accordance with the adoption of the accounting guidance.
Allowance for Doubtful Accounts
The following table provides a summary of the changes in the Company’s allowance for doubtful accounts on a portfolio segment basis for the three months ended March 31, 2020:

Allowance for doubtful accounts
Portfolio SegmentDecember 31,
2019
Cumulative effect of ASC 326 adoption1
Write-OffsBad Debt ExpenseMarch 31,
2020
(in thousands)
Accounts receivable$39,903  $36,709  $(4,409) $2,186  $74,389  
Note receivable
Standard notes receivable$6,667  $5,236  $—  $(249) $11,654  
Elevated risk notes receivable5,823  291  —  123  6,237  
Total notes receivable$12,490  $5,527  $—  $(126) $17,891  
Total accounts and notes receivable$52,393  $42,236  $(4,409) $2,060  $92,280  
1.Represents a one-time adjustment to the Company’s 2020 opening retained earnings balance in accordance with the adoption of the accounting guidance.
v3.20.1
Subsequent Events
3 Months Ended
Mar. 31, 2020
Subsequent Events [Abstract]  
Subsequent Events
Note 16—Subsequent Events

The Company evaluated all subsequent events through the filing date of this Form 10-Q. There were no events or transactions occurring during this subsequent reporting period which require recognition or additional disclosure in these financial statements.
v3.20.1
Share-Based Compensation - Assumptions For Employee Stock Purchase Plan (Details)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Risk-free interest rate 1.80% 2.50%
Weighted average expected life (years) 6 years 7 months 6 days 5 years 8 months 12 days
Expected volatility 26.50% 22.60%
Dividend yield 3.20% 1.90%
Employee Stock Purchase Plan    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Risk-free interest rate 1.60% 2.60%
Weighted average expected life (years) 1 year 1 year
Expected volatility 42.00% 30.80%
Dividend yield 3.30% 1.90%
v3.20.1
Share-Based Compensation - Summary of Stock Options Outstanding (Details)
shares in Thousands
3 Months Ended
Mar. 31, 2020
$ / shares
shares
Number of Shares  
Beginning of period (in shares) | shares 2,107
Granted (in shares) | shares 210
Exercised (in shares) | shares (92)
Forfeited (in shares) | shares (9)
Expired (in shares) | shares (12)
End of period (in shares) | shares 2,204
Weighted Average Exercise Price  
Beginning of period (in dollars per share) | $ / shares $ 32.99
Granted (in dollars per share) | $ / shares 24.43
Exercised (in dollars per share) | $ / shares 17.55
Forfeited (in dollars per share) | $ / shares 37.64
Expired (in dollars per share) | $ / shares 32.58
End of period (in dollars per share) | $ / shares $ 32.80
v3.20.1
Dividends - Cash Dividends per Common Share (Details) - $ / shares
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Equity [Abstract]    
Dividends declared (in dollars per share) $ 0.2025 $ 0.1975
v3.20.1
Allowance for Doubtful Accounts - Notes Receivable Disaggregated by Vintage Year (Details)
$ in Thousands
3 Months Ended
Mar. 31, 2020
USD ($)
Financing Receivable, Credit Quality Indicator [Line Items]  
Current-period gross write-offs $ 0
Current-period recoveries 0
Current-period net write-offs 0
Standard note receivable  
Financing Receivable, Credit Quality Indicator [Line Items]  
2020 6,810
2019 16,058
2018 17,745
2017 27,066
2016 1,989
Prior 1,606
Financing Receivable, before Allowance for Credit Loss, Total 71,274
Current-period gross write-offs 0
Elevated risk note receivable  
Financing Receivable, Credit Quality Indicator [Line Items]  
2020 0
2019 0
2018 397
2017 5,511
2016 0
Prior 2,457
Financing Receivable, before Allowance for Credit Loss, Total 8,365
Current-period gross write-offs $ 0
v3.20.1
Changes in Accumulated Other Comprehensive Income by Component - Reclassification Adjustments (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]    
Tax benefit (expense) $ (6,592) $ (2,736)
Net income 20,190 9,156
Realized Gains (Losses) on Sale of Available-for-sale Securities | Amounts Reclassified from Accumulated Other Comprehensive Income    
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]    
(Losses) gains from the sale of available-for-sale securities (11) 4
Tax benefit (expense) 2 (1)
Net income $ (9) $ 3
v3.20.1
Accounts and Notes Receivable (Tables)
3 Months Ended
Mar. 31, 2020
Receivables [Abstract]  
Schedule of Accounts and Notes Receivable
The Company’s accounts and notes receivable balances consisted of the following as of March 31, 2020 and December 31, 2019:
March 31, 2020December 31, 2019
(in thousands)
Short-term
Accounts and notes receivable$391,257  $386,656  
Allowance for doubtful accounts1
(87,453) (45,726) 
Total net short-term accounts and notes receivable$303,804  $340,930  
Long-term
Notes receivable$54,293  $53,659  
Allowance for doubtful accounts1
(4,827) (6,667) 
Total net long-term notes receivable$49,466  $46,992  
Total net accounts and notes receivable$353,270  $387,922  
1.Effective January 1, 2020, the Company adopted ASC 326 and recorded a one-time adoption adjustment of $42.2 million
v3.20.1
Other Contingencies
3 Months Ended
Mar. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Other Contingencies
Note 15—Other Contingencies

Line of Credit

At March 31, 2020, the Company had a $475 million bank line of credit on which to draw for general corporate purposes. Amounts drawn under the line of credit are payable upon demand and generally bear interest at a float rate, based on the Company’s leverage ratio, and starting at LIBOR plus 115 basis points (or if LIBOR becomes unavailable, the higher of the Overnight Bank Funding Rate, plus 50 basis points and the Prime Rate). As of March 31, 2020 and December 31, 2019 there were $50.0 million and $10.0 million in borrowings under the line of credit, respectively. The line of credit requires the Company to satisfy two financial covenants, with which the Company is in compliance as of March 31, 2020 and expects to remain in compliance. The line of credit expires on December 21, 2023.

At March 31, 2020, the Company also had outstanding $64.9 million in irrevocable standby letters of credit, which relate to payment obligations under the Company’s insurance programs. In connection with the issuance of the letters of credit, the amount available under the line of credit was reduced by $64.9 million to $360.1 million at March 31, 2020. The letters of credit expire on January 2, 2021. Besides the $64.9 million letters of credit there are no other restrictions as to the amount which the Company can draw upon the $475 million line of credit.

Tax Jurisdictions and Matters

The Company provides services throughout the continental United States and is subject to numerous state and local taxing jurisdictions. In the ordinary course of business, a jurisdiction may contest the Company’s reporting positions with respect to the application of its tax code to the Company’s services, which could result in additional tax liabilities.

The Company has tax matters with various taxing authorities. Because of the uncertainties related to both the probable outcomes and amount of probable assessments due, the Company is unable to make a reasonable estimate of a liability. The Company does not expect the resolution of any of these matters, taken individually or in the aggregate, to have a material adverse effect on the consolidated financial position or results of operations based on the Company’s best estimate of the outcomes of such matters.

Legal Proceedings

The Company is subject to various claims and legal actions in the ordinary course of business. Some of these matters include payroll and employee-related matters and examinations by governmental agencies. As the Company becomes aware of such claims and legal actions, the Company records accruals for any exposures that are probable and estimable. If adverse outcomes of such claims and legal actions are reasonably possible, Management assesses materiality and provides financial disclosure, as appropriate.

As previously disclosed, the Securities and Exchange Commission (“SEC”) is conducting an investigation into the Company’s earnings per share (“EPS”) calculation practices. Following receipt of a letter from the SEC in November 2017 regarding its inquiry into those practices followed by a subpoena in March 2018, the Company authorized its outside counsel to conduct an internal investigation, under the direction of the Company’s Audit Committee, into matters related to the SEC subpoena. This investigation was completed in March 2019 and the Company continues to cooperate with the SEC’s investigation and document requests.

On March 22, 2019, a putative shareholder class action lawsuit was filed against the Company and its Chief Executive Officer in the U.S. District Court for the Eastern District of Pennsylvania. The initial complaint, which was filed by a plaintiff purportedly on behalf of all purchasers of the Company’s securities between April 11, 2017 and March 4, 2019 (the "Class Period"), alleges violations of the federal securities laws in connection with the matters related to the Company’s EPS calculation practices. On September 17, 2019, the complaint was amended to, among other things, extend the Class Period to cover the period between April 8, 2014 and March 4, 2019, and to name additional individuals affiliated with the Company as defendants. The lead plaintiff seeks unspecified monetary damages and other relief on behalf of the plaintiff class.

While the Company is vigorously defending against all litigation claims asserted, this litigation—along with the ongoing SEC investigation—could result in substantial costs to the Company and a diversion of the Company’s management’s attention and resources, which could harm its business. In addition, the uncertainty of the pending lawsuit or potential filing of additional lawsuits could lead to more volatility and a reduction in the Company’s stock price. At this time the Company is unable to reasonably estimate possible losses or form a judgment that an unfavorable outcome is either probable or remote. It is not
currently possible to assess whether or not the outcome of these proceedings may have a material adverse effect on the Company.

Government Regulations
The Company’s clients are concentrated in the healthcare industry and are primarily providers of long-term care many of whom have been significantly impacted by COVID-19. For those clients who were impacted, the pandemic has resulted in increased operating costs, reductions in new resident admitants, and reduced census. The revenues of many of the Company’s clients are highly reliant on Medicare, Medicaid and third party payors’ reimbursement funding rates. New legislation or additional changes in existing regulations could directly impact the governmental reimbursement programs in which the clients participate. There have been several enacted and proposed federal and state relief measures as a result of COVID-19 which should provide support for these clients during this pandemic, however, the full benefit of any such programs would not be realized until these programs are fully implemented, government agencies issue applicable regulations or guidance and such relief is provided.
v3.20.1
Cover Page - shares
shares in Thousands
3 Months Ended
Mar. 31, 2020
Apr. 23, 2020
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Mar. 31, 2020  
Document Transition Report false  
Entity File Number 0-12015  
Entity Registrant Name HEALTHCARE SERVICES GROUP, INC.  
Entity Incorporation, State Code PA  
I.R.S. Employer Identification No. 23-2018365  
Entity Address, Address Line One 3220 Tillman Drive  
Entity Address, Address Line Two Suite 300  
Entity Address, City or Town Bensalem  
Entity Address, State or Province PA  
Entity Address, Postal Zip Code 19020  
City Area Code 215  
Local Phone Number 639-4274  
Title of 12(b) Security Common Stock, $.01 par value  
Trading Symbol HCSG  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   74,416
Entity Central Index Key 0000731012  
Amendment Flag false  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
Current Fiscal Year End Date --12-31  
v3.20.1
Share-Based Compensation (Tables)
3 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement [Abstract]  
Schedule of Stock-based Compensation Expense
The components of the Company’s shared-based compensation expense for the three months ended March 31, 2020 and 2019 are as follows:
Three Months Ended March 31,
20202019
(in thousands)
Stock options$521  $664  
Restricted stock and restricted stock units1,301  992  
Employee Stock Purchase Plan151  182  
Total pre-tax share-based compensation expense charged against income1
$1,973  $1,838  
1.Share-based compensation expense is recorded in cost of services and selling, general and administrative expense in the Company’s Consolidated Statements of Comprehensive Income.
Summary of Other Information of Stock Option Plans
A summary of stock options outstanding under the Plan as of December 31, 2019 and changes during the three months ended March 31, 2020 is as follows:
Stock Options Outstanding
Number of SharesWeighted Average Exercise Price
(in thousands)
December 31, 20192,107  $32.99  
Granted210  $24.43  
Exercised(92) $17.55  
Forfeited(9) $37.64  
Expired(12) $32.58  
March 31, 20202,204  $32.80  
Assumption For Fair Value of Options Granted
The fair value of stock option awards granted in 2020 and 2019 was estimated on the date of grant using the Black-Scholes option valuation model with the following assumptions:
Three Months Ended March 31,
20202019
Risk-free interest rate1.8 %2.5 %
Weighted average expected life6.6 years5.7 years
Expected volatility26.5 %22.6 %
Dividend yield3.2 %1.9 %
Summarized Information of Stock Options Outstanding
The following table summarizes other information about the stock options at March 31, 2020:
March 31, 2020
(amounts in thousands, except per share data)
Outstanding:
Aggregate intrinsic value$1,340  
Weighted average remaining contractual life5.8 years
Exercisable:
Number of options1,483  
Weighted average exercise price$31.04  
Aggregate intrinsic value$1,340  
Weighted average remaining contractual life4.6 years
Summary of Outstanding Restricted Stock Units and Restricted Stock
A summary of the outstanding restricted stock units and restricted stock as of December 31, 2019 and changes during the three months ended March 31, 2020 is as follows:
Restricted Stock Units and Restricted Stock
NumberWeighted Average Grant Date Fair Value
(in thousands)
December 31, 2019362  $43.24  
Granted307  $24.43  
Vested(93) $42.30  
Forfeited(8) $32.68  
March 31, 2020568  $33.36  
Options Granted Estimated Expense Valuation Assumptions
The expense associated with the options granted under the ESPP during the three months ended March 31, 2020 and 2019 was estimated on the date of grant using the Black-Scholes option valuation model with the following assumptions:

Three Months Ended March 31,
20202019
Risk-free interest rate1.6%2.6%
Weighted average expected life (years)1.01.0
Expected volatility42.0%30.8%
Dividend yield3.3%1.9%
Summary of ESPP Annual Offerings
The following table summarizes information about the SERP during the three months ended March 31, 2020 and 2019:
Three Months Ended March 31,
 20202019
(in thousands)
SERP expense 1
$170  $169  
Unrealized (loss) gain recorded in SERP liability account$(5,728) $3,418  
1.Both the SERP match and the deferrals are included in the selling, general and administrative caption in the Consolidated Statements of Comprehensive Income.
v3.20.1
Description of Business and Significant Accounting Policies (Details)
3 Months Ended
Mar. 31, 2020
USD ($)
financial_institution
segment
Mar. 31, 2019
USD ($)
Dec. 31, 2019
financial_institution
Schedule of Accounting Policies [Line Items]      
Renewal term 1 year    
Number of reportable segments | segment 2    
Amortization period of inventories and supplies 24 months    
Goodwill and intangible asset impairment $ 0 $ 0  
Number of financial institutions holding cash and cash equivalents and marketable securities | financial_institution 1   1
Revenue $ 449,150,000 476,111,000  
Costs of services provided 387,156,000 427,265,000  
Investment and other income, net $ (4,827,000) $ 5,203,000  
Minimum      
Schedule of Accounting Policies [Line Items]      
Cancellation notice period 30 days    
Initial period preceding cancellation notice 60 days    
Revenue, Performance Obligation, Payment Terms 1 year    
Maximum      
Schedule of Accounting Policies [Line Items]      
Cancellation notice period 90 days    
Initial period preceding cancellation notice 120 days    
Revenue, Performance Obligation, Payment Terms 3 years    
v3.20.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash flows from operating activities:    
Net income $ 20,190 $ 9,156
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 3,556 3,489
Bad debt provision 2,060 18,470
Share-based compensation expense 1,973 1,838
Amortization of premium on marketable securities 450 382
Unrealized loss (gain) on deferred compensation fund investments 5,761 (3,445)
Changes in operating assets and liabilities:    
Accounts and notes receivable (9,645) (25,986)
Inventories and supplies (421) 300
Prepaid expenses and other assets (4,574) (323)
Deferred compensation funding 1,478 744
Accounts payable and other accrued expenses (379) (5,322)
Accrued payroll, accrued and withheld payroll taxes (4,626) 18,465
Income taxes payable 2,480 (5,730)
Accrued insurance claims 1,379 2,622
Deferred compensation liability (6,994) 2,917
Net cash provided by operating activities 12,688 17,577
Cash flows from investing activities:    
Disposals of fixed assets 129 64
Additions to property and equipment (788) (1,336)
Purchases of marketable securities (2,670) (4,277)
Sales of marketable securities 1,757 3,539
Net cash used in investing activities (1,572) (2,010)
Cash flows from financing activities:    
Dividends paid (15,033) (14,588)
Reissuance of treasury stock pursuant to Dividend Reinvestment Plan 23 24
Proceeds from the exercise of stock options 1,724 1,913
Proceeds from short-term borrowings 40,000 0
Payments of statutory withholding on net issuance of restricted stock units (661) (579)
Net cash provided by (used in) financing activities 26,053 (13,230)
Net change in cash and cash equivalents 37,169 2,337
Cash and cash equivalents at beginning of the period 27,329 26,025
Cash and cash equivalents at end of the period $ 64,498 $ 28,362
v3.20.1
Revenue
3 Months Ended
Mar. 31, 2020
Revenue from Contract with Customer [Abstract]  
Revenue
Note 2—Revenue

The Company presents its consolidated revenues disaggregated by reportable segment, as Management evaluates the nature, amount, timing and uncertainty of the Company’s revenues by segment. Refer to Note 13—Segment Information herein as well as the information below regarding the Company’s reportable segments.
Housekeeping

Housekeeping accounted for $224.3 million and $233.1 million of the Company’s consolidated revenues for the three months ended March 31, 2020 and 2019, respectively, which represented approximately 49.9% and 49.0% of the Company’s revenues in each respective period. The Housekeeping services include managing clients’ housekeeping departments, which are principally responsible for the cleaning, disinfecting and sanitizing of resident rooms and common areas of the clients’ facilities, as well as the laundering and processing of the bed linens, uniforms, resident personal clothing and other assorted linen items utilized at the clients’ facilities. Upon beginning service with a client facility, the Company will typically hire and train the employees previously employed by such facility and assign an on-site manager to supervise and train the front-line personnel and coordinate housekeeping services with other facility support functions in accordance with client requests. Such management personnel also oversee the execution of various cost and quality-control procedures including continuous training and employee evaluation.

Dietary

Dietary services accounted for $224.9 million and $243.0 million of the Company’s consolidated revenues for the three months ended March 31, 2020 and 2019, respectively, which represented approximately 50.1% and 51.0% of the Company’s revenues in each respective period. Dietary services consist of managing clients’ dietary departments which are principally responsible for food purchasing, meal preparation and professional dietitian services, which include the development of menus that meet the dietary needs of residents. On-site management is responsible for all daily dietary department activities, with regular support provided by a District Manager specializing in dietary services. The Company also offers clinical consulting services to facilities which if contracted is a service bundled within the monthly service provided to clients. Upon beginning service with a client facility, the Company will typically hire and train the employees previously employed by such facility and assign an on-site manager to supervise and train the front-line personnel and coordinate dietitian services with other facility support functions in accordance with client requests. Such management personnel also oversee the execution of various cost and quality-control procedures including continuous training and employee evaluation.

Revenue Recognition

All of the Company’s revenues are derived from contracts with customers. The Company accounts for revenue from contracts with customers in accordance with ASC 606, and as such, the Company recognizes revenue to depict the transfer of promised goods and services to customers in amounts that reflect the consideration to which the Company is entitled in exchange for those goods and services. The Company’s costs of obtaining contracts are not material.

The Company performs services and provides goods in accordance with its contracts with its customers. Such contracts typically provide for a renewable one year service term, cancellable by either party upon 30 to 90 days’ notice, after an initial period of 60 to 120 days. A performance obligation is the unit of account under ASC 606 and is defined as a promise in a contract to transfer a distinct good or service to the customer. The Company’s Housekeeping and Dietary contracts relate to the provision of bundles of goods, services or both, which represent a series of distinct goods and services that are substantially the same and that have the same pattern of transfer to the customer. The Company accounts for the series as a single performance obligation satisfied over time, as the customer simultaneously receives and consumes the benefits of the goods and services provided. Revenue is recognized using the output method, which is based upon the delivery of goods and services to the clients’ facilities. In limited cases, the Company provides goods, services or both, before the execution of a written contract. In these cases, the Company defers the recognition of revenue until a contract is executed. The amount of such deferred revenue was not material as of March 31, 2020 and December 31, 2019. Additionally, substantially all such revenue amounts deferred as of December 31, 2019 were subsequently recognized as revenue during the three months ended March 31, 2020.

The transaction price is the amount of consideration to which the Company is entitled in exchange for transferring promised goods or services to its customers. The transaction price does not include taxes assessed or collected. The Company’s contracts detail the fees that the Company charges for the goods and services it provides. For certain contracts which contain a variable component to the transaction price, the Company is required to make estimates of the amount of consideration to which the Company will be entitled, based on variability in resident and patient populations serviced, product usage or quantities consumed. The Company recognizes revenue related to such estimates only when the Company determines that there will not be a significant reversal in the amount of revenue recognized. The Company’s contracts generally do not contain significant financing components, as payment terms are less than one year.
The Company allocates the transaction price to each performance obligation, noting that the bundle of goods, services or goods and services provided under each Housekeeping and Dietary contract represents a single performance obligation that is satisfied over time. The Company recognizes the related revenue when it satisfies the performance obligation by transferring a bundle of promised goods, services or both to a customer. Such recognition is on a monthly or weekly basis, as goods are provided and services are performed. In some cases, the Company requires customers to pay in advance for goods and services to be provided. As of March 31, 2020 and December 31, 2019, the value of the contract liabilities associated with customer prepayments was not material. Additionally, substantially all such revenue amounts deferred as of December 31, 2019 were subsequently recognized as revenue during the three months ended March 31, 2020.

Transaction Price Allocated to Remaining Performance Obligations

The Company recognizes revenue as it satisfies the performance obligations associated with contracts with customers, which due to the nature of the goods and services provided by the Company, are satisfied over time. Contracts may contain transaction prices that are fixed, variable or both. The Company’s contracts with customers typically provide for an initial term of one year, with renewable one year service terms, cancellable by either party upon 30 to 90 days’ notice after an initial period of 60 to 120 days.

At March 31, 2020, the Company had $612.9 million related to performance obligations that were unsatisfied or partially unsatisfied for which the Company expects to recognize revenue. The Company expects to recognize revenue on approximately 25.6% of the remaining performance obligations over the next 12 months, with the balance to be recognized thereafter. These amounts exclude variable consideration primarily related to performance obligations that consists of a series of distinct service periods with revenues based on future performance that cannot be estimated at contract inception. The Company also has elected to apply the practical expedient that permits exclusion of information about the remaining performance obligations with original expected durations of one year or less.
v3.20.1
Leases
3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
Leases
Note 7—Leases

The Company recognizes ROU Assets and lease liabilities (“Lease Liabilities”) for automobiles, office buildings, IT equipment, and small storage units for the temporary storage of operational equipment. The Company’s leases have remaining lease terms ranging from less than 1 year to 10 years, and have extension options ranging from 1 year to 5 years. Most leases include the option to terminate the lease within 1 year.

Upon adopting ASC 842, the Company made accounting policy elections using practical expedients offered under the guidance to combine lease and non-lease components within leasing arrangements and to recognize the payments associated with short-term leases in earnings on a straight-line basis over the lease term, with the cost associated with variable lease payments recognized when incurred. These accounting policy elections impact the value of the Company’s ROU Assets and Lease Liabilities. The value of the Company’s ROU Assets is determined as the non-depreciated fair value of its leasing arrangements and is recorded to Property and Equipment, net on the Company’s Consolidated Balance Sheets. The value of the Company’s Lease Liabilities is the present value of fixed lease payments not yet paid, discounted using either the rate implicit in the lease contract if that rate can be determined, or the Company’s incremental borrowing rate ("IBR") and is recorded in Other accrued expenses and Lease liability — long-term portion on the Company’s Consolidated Balance Sheets. Any future lease payments that are not fixed based on the terms of the lease contract, or fluctuate based on a factor other than an index or rate, are considered variable lease payments and are not included in the value of the Company’s ROU Assets or Lease Liabilities. The Company’s IBR is determined as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

Components of lease expense required by ASC 842 are presented below for the three months ended March 31, 2020 and 2019.
Three Months Ended March 31
20202019
(in thousands)
Lease cost
Operating lease cost$1,355  $1,214  
Short-term lease cost129  221  
Variable lease cost146  153  
Total lease cost$1,630  $1,588  

Supplemental information required by ASC 842 is presented below for the three months ended March 31, 2020 and 2019.
Quarter ended March 31,
20202019
(dollar amounts in thousands)
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$1,380  $1,307  
Weighted-average remaining lease term — operating leases5.9 years6.9 years
Weighted-average discount rate — operating leases4.7 %4.7 %

During the three months ended March 31, 2020 and 2019, the Company’s ROU Assets and Lease Liabilities were both reduced by $0.2 million and $0.1 million, respectively, due to lease cancellations which are accounted for as noncash transactions.
The following is a schedule by calendar year of future minimum lease payments under operating leases that have remaining terms as of March 31, 2020:

Period/YearOperating Leases
(in thousands)
April 1 to December 31, 2020$4,131  
20214,390  
20223,137  
20231,274  
20241,295  
20251,311  
Thereafter4,204  
Total minimum lease payments$19,742  
v3.20.1
Accounts and Notes Receivable
3 Months Ended
Mar. 31, 2020
Receivables [Abstract]  
Accounts and Notes Receivable
Note 3—Accounts and Notes Receivable

The Company’s accounts and notes receivable balances consisted of the following as of March 31, 2020 and December 31, 2019:
March 31, 2020December 31, 2019
(in thousands)
Short-term
Accounts and notes receivable$391,257  $386,656  
Allowance for doubtful accounts1
(87,453) (45,726) 
Total net short-term accounts and notes receivable$303,804  $340,930  
Long-term
Notes receivable$54,293  $53,659  
Allowance for doubtful accounts1
(4,827) (6,667) 
Total net long-term notes receivable$49,466  $46,992  
Total net accounts and notes receivable$353,270  $387,922  
1.Effective January 1, 2020, the Company adopted ASC 326 and recorded a one-time adoption adjustment of $42.2 million

The Company makes credit decisions on a case-by-case basis after reviewing a number of qualitative and quantitative factors related to the specific client as well as current industry variables that may impact that client. There are a variety of factors that impact a client’s ability to pay in accordance with the Company’s contracts. These factors include, but are not limited to, fluctuating census numbers, litigation costs and the client’s participation in programs funded by federal and state governmental agencies. Deviations in the timing or amounts of reimbursements under those programs can impact the client’s cash flows and its ability to make timely payments. However, the client’s obligation to pay the Company in accordance with the contracts are not contingent upon the client’s cash flow. Notwithstanding the Company’s efforts to minimize its credit risk exposure, the aforementioned factors, as well as other factors that impact client cash flows or ability to make timely payments, could have an indirect, yet material adverse effect on the Company’s results of operations and financial condition.
Fluctuations in net accounts and notes receivable are generally attributable to a variety of factors including, but not limited to, the timing of cash receipts from customers and the inception, transition, modification or termination of client relationships. The Company deploys significant resources and has invested in tools and processes to optimize Management’s credit and collections efforts. When appropriate, the Company utilizes interest-bearing promissory notes to enhance the collectability of amounts due, by instituting definitive repayment plans and providing a means by which to further evidence the amounts owed. In addition, the Company may amend contracts from full service to management-only arrangements, or adjust contractual payment terms, to accommodate clients who have in good faith established clearly-defined plans for addressing cash flow issues. These efforts are intended to minimize the Company’s collections risk.
v3.20.1
Dividends
3 Months Ended
Mar. 31, 2020
Equity [Abstract]  
Dividends
Note 11—Dividends

During the three months ended March 31, 2020, the Company paid regular quarterly cash dividends totaling approximately $15.0 million as follows:
Quarter Ended
March 31, 2020
Cash dividend paid per common share$0.20125  
Total cash dividends paid$15,033  
Record dateFebruary 28, 2020
Payment dateMarch 27, 2020

Additionally, on April 21, 2020, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.20250 per common share, which will be paid on June 26, 2020, to shareholders of record as of the close of business on May 22, 2020.

Cash dividends declared for the periods presented were as follows:
Three Months Ended March 31,
20202019
Cash dividends declared per common share0.2025  0.1975  
v3.20.1
Earnings Per Common Share - Schedule of Weighted Average Number of Shares (Details) - shares
shares in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Earnings Per Share [Abstract]    
Weighted average number of common shares outstanding - basic (in shares) 74,658 74,301
Effect of dilutive securities (in shares) 109 418
Weighted average number of common shares outstanding - diluted (in shares) 74,767 74,719
v3.20.1
Fair Value Measurements - Marketable Debt Securities (Details) - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Fair Value, Investments, Entities that Calculate Net Asset Value Per Share [Line Items]    
Amortized Cost $ 87,477 $ 87,016
Gross Unrealized Gains 3,347 3,695
Gross Unrealized Losses (327) 0
Estimated Fair Value 90,497 90,711
Other-than-temporary Impairments 0 0
Municipal bonds — available-for-sale    
Fair Value, Investments, Entities that Calculate Net Asset Value Per Share [Line Items]    
Amortized Cost 87,477 87,016
Gross Unrealized Gains 3,347 3,695
Gross Unrealized Losses (327) 0
Estimated Fair Value 90,497 90,711
Other-than-temporary Impairments $ 0 $ 0
v3.20.1
Other Intangible Assets - Additional Information (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Finite-Lived Intangible Assets [Line Items]    
Amortization of intangible assets $ 1.0 $ 1.1
Customer Relationships    
Finite-Lived Intangible Assets [Line Items]    
Useful life 10 years