Healthcare Services Group Inc (HCSG) Q1 2021 Earnings Call Transcript

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Healthcare Services Group Inc (HCSG -1.96%)
Q1 2021 Earnings Call
Apr 21, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

The matters discussed on today's conference call include forward-looking statements about the business prospects of Healthcare Services Group, Inc. within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often preceded by words such as believes, expects, anticipates, plans, will, goal, may, intends, assumes or similar expressions. Forward-looking statements reflect management's current expectations as of the date of this conference call and involve certain risks and uncertainties. The forward-looking statements are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments, and other factors that we believe are appropriate under the circumstances.

As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances. Healthcare Services Group, Inc.'s actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors and the forward-looking statements are not guarantees of performance. Some of the factors that could cause future results to materially differ from recent results or those projected in forward-looking statements are included in our earnings press release issued prior to this call and in our filings with the Securities and Exchange Commission, including the SEC's ongoing investigation.

There can be no assurance that the SEC or another regulatory body will make no further regulatory inquiries or pursue further action that could result in significant costs and expenses including potential sanctions or penalties as well as distraction to management. The ongoing SEC investigation and/or any related litigation could adversely affect or cause variability in our financial results. We are under no obligation and expressly disclaim any obligation to update or alter the forward-looking statements, whether as a result of such changes, new information, subsequent events or otherwise.

Ladies and gentlemen, thank you for standing by, and welcome to the HCSG 2021 First Quarter Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to Mr. Ted Wahl, President and CEO. Please go ahead.

Ted Wahl -- President and Chief Executive Officer

Great. Thank you, Sharon, and good morning, everyone. Matt McKee and I appreciate you joining us today.

We released our Q1 results this morning and plan on filing our 10-Q by the end of the week. Overall, the vaccine rollout has been a real game changer for the industry, and a significant first step toward recovery, with new COVID cases among patients and residents dropping over 90% between Q1, Q4, and Q1. We've seen similarly positive new case trends among facility staff as well.

The success of the vaccine has led to stabilizing occupancy and has been a huge morale boost for frontline workers. As positive an impact as the vaccine has had, the reality is, the exact pace and even pathway of recovery is still uncertain. But we do feel good about the stabilization that's occurred [Technical Issues] used to be that it will happen, but we're looking at a 12-month to 18-month process with fits and starts along the way.

Ongoing federal and state agency funding and actions in support of providers will be crucial in ensuring as timely and orderly a recovery as possible. Even with all of the pandemic-related variables, we again delivered outstanding operational and financial outcomes in Q1. Again, similar to the themes of the past four quarters, we did a great job of controlling the controllables, around service execution, customer satisfaction and budget adherence, and we expect those positive trends to continue into Q2.

As far as topline growth, with the revenue puts and takes that remain in play, namely depressed census levels and facility access challenges coupled with our own more cautious approach during this most early stage of recovery, we continue to expect [Technical Issues] relative to Q1. So while COVID remains a near-term headwind on revenue, some of the recent more positive industry and customer data have provided us with improved topline visibility for potential growth opportunities in the back half of the year, which is really exciting for us to start to think about and plan for.

Before we move on to the discussions on Q1 results, I'd like to briefly touch on the SEC update we provided last quarter and again in this morning's release. As we previously highlighted, the company and the SEC have commenced discussions regarding a potential resolution to the investigation. We're pleased that the matter has moved into this phase and hope to continue to work with the SEC to reach a final resolution. As I'm sure all of you can appreciate beyond what we've disclosed previously and in this morning's release, we continue to be limited in what we can say about this matter, especially while these resolution discussions are active and ongoing.

So with those introductory comments, I'll turn the call over to Matt for a more detailed discussion on the quarter.

Matt McKee -- Chief Communications Officer

Thanks, Ted, and good morning, everyone. Revenue for the quarter was $407.8 million with housekeeping and laundry and dining & nutrition segment revenues of $215 [$215.1] million and $192.8 [$192.7 ] million, respectively. Revenue included $3.9 million of COVID-related supplemental billings, primarily related to employee pay premiums, which were initiated by and then passed through to our customers.

Net income for the quarter came in at $24.7 million, and earnings per share was $0.33 per share. Direct cost of services was $336.6 million or 82.6%, well below the company's historical target of 86%. Housekeeping and laundry and dining & nutrition segment margins were 13.1% and 10.4%, respectively. SG&A was reported at $40 million or 9.8%, but after adjusting for the $1.3 million increase in deferred compensation, actual SG&A was $38.7 million or 9.5%. And during the quarter, SG&A was also impacted by about $2 million of legal and professional fees related to the previously announced SEC matter.

Longer-term, excluding any COVID or SEC related costs, the company's target remains 7.5%, with the primary leverage existing in topline growth. Investment and other income for the quarter was reported at $1.8 million, but after adjusting for the $1.3 million change in deferred compensation, actual investment income was about $0.5 million.

The company reported an effective tax rate of 25.2% and expected 2021 tax rate of 24% to 26%. Cash flow from operations for the quarter was $3.5 million. This includes a $30.7 million decrease in accrued payroll. And because we called out the timing of the payroll and the impact of the payroll accrual last year, we would point out that the 2021 payroll accruals should have a similar cadence to what we saw last year. Q1 had the lowest payroll accrual of four days; Q2 should be 11 days; Q3, five days; and then Q4, 13 days. And Q4 will also be impacted by one-half or $24 million, the CARES Act deferred payroll tax repayment. That compares to on the payroll accrual of three days, 10 days, four days, and 12 days that we had in 2020 during corresponding periods. But of course, the payroll accrual only relates to timing and the impact ultimately washes out through the full year.

We are pleased with the ongoing strength of the balance sheet and the ability to support the business, while continuing to return capital to HCSG's shareholders. We announced that the Board of Directors approved an increase in the dividend to $20.75 per share payable on June 25th. The cash flows and cash balances supported and with the dividend tax rate in place for the foreseeable future, the cash dividend program continues to be the most tax efficient way to get free cash flow and ultimately maximize return to shareholders. This will mark the 72nd consecutive cash dividend payment since the program was instituted in 2003, and the 71st consecutive quarterly increase, that's now an 18-year period, that's included four 3-for-2 stock splits.

We recognize that dividend is important to our shareholders and we have increased it in line with our performance track record. Additionally, the company remains authorized to repurchase 1.7 million shares of our common stock, pursuant to the previous Board of Directors' authorization and expect to repurchase up to 1 million shares through February of 2022.

And with those opening remarks, we'd like to now open up the call for questions.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Sean Dodge with RBC Capital Markets.

Sean Dodge -- RBC Capital Markets -- Analyst

Thanks, good morning. Maybe starting with the margins, real nice sequential improvement across both segments. Maybe if you can just talk about the drivers there? And then, Ted you mentioned the potential, that growth -- revenue growth resume later this year, and maybe the sustainability of these levels, so we expect to see margins come back in a bit here as you begin to ramp for investments to grow again?

Matt McKee -- Chief Communications Officer

Hey, good morning, Sean. You're right, we've talked a lot about managing the services we provide in our costs as efficiently as possible, especially in light of the census pressure that our clients continue to face. So, from a go-forward perspective, our expectation is to continue managing the staffing, the purchasing in the production based on census and maintain that focus census recovers.

As to the go-forward, there is a portion of that margin improvement that we expect will be sustainable. We're just not at a point yet where we're ready to quantify that, because exactly as you alluded you, with growth will bring some inefficiencies and margin pressure as we inherit the inefficiencies of an in-house operation that we're assuming it takes us some time to implement our systems and fully get those new opportunities on budget. So, 86%percent remains our target, but we are very much committed to ongoing management of the labor and supply cost, as well as cash collections. So, we do expect to maintain some of those improvements going forward, just not yet in the spot to quantify.

Ted Wahl -- President and Chief Executive Officer

Hey, Sean. And just to piggyback on to Matt's to answer as well. As you're well aware, there is a significant portion of that "margin" improvement that is just math, right. The revenue reductions and the corresponding cost reductions that as census recovers, which we expect over the next 12 months to 18 months, that math will work in the other direction. So, you have that coupled with the mix of business, right. And that changing, but as Matt highlighted, there's a portion with the operational imperative and what we've been focusing on even pre-pandemic that we believe to be sustainable.

Sean Dodge -- RBC Capital Markets -- Analyst

Perfect. Thanks. And then on the revenue outlook, kind of the more, including the outlook for the back half of the year. Can you walk us through what you need to see, what needs to happen for that to take place? You've got vaccination down. What are the kind of milestone or markers that you're looking for? Just begin moving forward with that plan to implement new facilities?

Ted Wahl -- President and Chief Executive Officer

And maybe Sean, from me, maybe to take a step back to your question and create some context, and then I'll maybe get into more of the detail on it. But you're right in the sense that the vaccine has had an impact, the tremendous impact, which was a critical first step. It's driving down cases and not just the RET [Phonetic] patients and residents, but also the front line staff by over 90%. So that, when you ask what are we looking for, that has led at least this past quarter to stability in census quarter-to-quarter. So, that's certainly early indicator of recovery. But as I highlighted in my opening remarks, the path and the pace of recovery is still TBD. And then even one step further removed, overall and longer-term -- why we have so much confidence around recovery is demographics. Ultimately, and may be we don't speak about that enough, but that instills in us the utmost confidence that census will recover with that mix slightly skewing more long-term resident rather than short-term patients for reasons we've talked about before.

When you think about occupancy recovery and how that relates to HCSG and to your question more specifically to revenue in this environment, I would think of revenue as a lagging indicator, meaning census first and then following would be cost and revenue, both on the way up and on the way down, cost and billings in the context of the customer. So, when we think about sector occupancy stabilizing in Q1 along with very modest new business adds and really modest facility exits, that's why I had mentioned Q2 being flattish, like we highlighted even on the previous call. But the back half of the year, the occupancy certainly, stabilization does give us more visibility into some customer opportunities in both EVS and dining, but especially dining, because when you think about dining, they are largely cross selling opportunities where some of the challenges I highlighted earlier around facility access are lessened and even our own customer assessments are more straightforward since we have that existing client relationship. So, feeling good without being able to pinpoint a number or dollar amount, we're feeling very good that we'll start seeing some sequential growth and maybe in the aggregate comparing first half of this year, the second half of this year.

Sean Dodge -- RBC Capital Markets -- Analyst

Okay. Sounds great. Thanks, again.

Ted Wahl -- President and Chief Executive Officer

Hey, thanks, Sean.

Operator

Next question comes from A.J. Rice with Credit Suisse.

Robert Moon -- Credit Suisse -- Analyst

Hi, this is Rob Moon on for A. J. Rice. Thanks for taking my question, guys. Around your largest customer Genesis, we've seen them divest out 40 facilities in 2020 and talk to at least 70 more in 2021. Just curious if those facilities rolling off in your kind of outlook for growth opportunities in the second half? And then also if you could talk to maybe the retention rate you guys generally have when a facility rolls off or even the process that takes place when a new operator comes in, and if you have a chance to go after that business or what those discussions look like?

Ted Wahl -- President and Chief Executive Officer

Yeah, good morning, Rob. I would say just sort of to speak at a very high level as to kind of the health of the Genesis partnership from the facility level up through the C-Suite that relationship, that partnership remains strong, and it's an important one, for, I would say both us and for Genesis. They've been a great partner. There's frequent and very open communication. And from our perspective, they continue to pay us within terms, which is an especially important marker as to the health of the relationship. And quite honestly, Genesis has continued to execute the plans that they've outlined both publicly and to us, right. And that's both their portfolio optimization plan and continuing to seek relief from landlords and leases, that portfolio optimization plan being an important part of it and rightsizing their holdings and really refining their operational focus. So, we expect to continue working with Genesis leadership and to deliver our services at the facility level as to those pending and perhaps even future facility transitions that you alluded to. As those details unfold, we expect that at a minimum we'll have a seat at the table. We'll have an opportunity to engage with the new operators and determine if maintaining a partnership at those facilities would be mutually beneficial. There is a process that unfolds. We largely treat those as a new business opportunity. Now, obviously we have insight into the inner workings from an operational perspective of those facilities. But we have to assess the financial health and well-being of that acquiring company to make sure that they're a partner with whom we feel comfortable working So, going into it, the company that Genesis has partnered with to date have yielded good results for us and we've been able to retain almost all, if not all of that business. So at a minimum, we expect to seat the table. We expect to have those conversations. And we're not assuming any loss of that business going forward. But if things change, we'll certainly keep you apprised of any of those developments.

Robert Moon -- Credit Suisse -- Analyst

Great, thank you. And I guess just one follow-on. Your customer base in general -- occupancy does seem to be stabilizing in a positive trajectory from here, but it seems the advanced Medicare payments are still meeting to be payback in the payroll taxes. Just curious as to how you guys are thinking about a potential increase in bad debt expense at some point? Or are we kind of out of the woods on that? Or is there still some risk in the next few quarters in the customer base? What are you seeing there?

Ted Wahl -- President and Chief Executive Officer

Well, I think with -- certainly with the weekly payment design we've implemented now going on two years, there's -- we have improved visibility and I think predictability in terms of payment. And again, if you look back over the past couple of years, eight of the nine last quarters we collected what we built. So, for us it's a matter of daily, weekly, monthly execution on that. So, we're never never out of the woods regardless of how stable or unstable the times may be. But again, with that weekly payment initiative and continued focus that we have around that part of the business, we feel confident moving forward and being able to deliver and achieve our goals.

Having said that, you mentioned that the repayment of the Medicare accelerated and advance payment program. We're going to continue to monitor what exact -- what government, both federal and state actions are on the comm. We're taking a bit of a wait and see approach. I think in the prior administration, there was a pretty clear line of visibility into how they were thinking of everything. And I think the new administration with some of the new appointees, its still wait and see. I think some of the early dialog has been positive. But whether it's the repayment of the accelerated and advance payments, the Medicare three-day will waiver CARES Act. Now that that's completed in some of the new legislation, that's on the horizon. We're going to monitor that closely and see what impact that could have positive or negative on our customer base, and that obviously will determine certain courses of action we would take with our customers.

Robert Moon -- Credit Suisse -- Analyst

Great. Thanks guys, and good job on the quarter.

Ted Wahl -- President and Chief Executive Officer

Oh, thank you.

Matt McKee -- Chief Communications Officer

Thanks, Rob.

Operator

Next question comes from Andy Wittmann with Baird.

Andrew Wittmann -- Baird -- Analyst

Okay, great. I guess, I just wanted to drill in a little bit more in some of the prior questions and around that growth outlook, Ted. It sounded unlike stabilizing occupancy is one of the core reasons if not the most important reason for the second half, more positive outlook that you can feel in here today. But just in terms of new facilities -- excuse me -- So, if you could just comment on what the outlook is on the potential for net new facilities, recognizing that the industry is deconsolidating? Your track record of retaining them is excellent. There might be some that due to slides of the cracks, just given the amount of deconsolidation. So, can you just like talk about kind of the pluses and minuses on potential for adding new facilities, not just occupancy?

Ted Wahl -- President and Chief Executive Officer

Yeah, well I guess, when we think of back half of the year and just to be clear, I was more highlighting census just for the purposes of thinking about revenue and the impact that that has had over the past six to 12 months and will likely have as a tailwind to any revenue growth over the next six to 12 months. But most of my -- what I was intending to comment around, Andy, was more greenfield opportunities or cross-selling opportunity, so actual net facility growth as you call it. So, that's when I talked about having additional visibility into the back half of the year. I'm specifically talking about net new facility growth, not just census recovery, and as a result some tailwind to the revenue growth.

Matt McKee -- Chief Communications Officer

And I think, Andy, to your point on the deconsolidation within the industry, we view that really neutrally, right. I mean, if you look at our customer base, it really does and has always mirrored the industry at large between, like a large national type operators, the regional players and then the smaller independent operators or even non-for profit facilities, and certainly, that middle bucket, the regional type player is the bucket that we're seeing with the most growth potential going forward. So, that's a good thing for us. And it really doesn't change the way that we target the business or sell the business or execute from an operational perspective, in that -- we obviously need to assess each facility as its own unique opportunity regardless of the ownership structure or whether that one facility is part of a multi-hundred facility chain or it's a stand-alone facility, because it's important for us to understand in serving that facility, how we would staff the building, how we would supply it, what our cost structure looks like specific to that facility. Assuming that we will honor the facility specific conditions of employment as far as wage rates benefits, etc. So, in that sense it doesn't change our prospecting prospects, our sales process, nor our operational efforts. So, we're happy to continue to play along as the industry evolves.

Andrew Wittmann -- Baird -- Analyst

Got it. Great. Then I guess, my follow-up question that I just wanted to touch on, just haven't heard your response to this one in a while, not directly related to anything here in the quarter, but just kind of bigger picture, and that's about. Ted, you've talked, kind of dabbled a little bit in other classes of senior living including we've talked about that there might be an opportunity in assisted living dining, maybe even other parts of the continuum for senior care and senior living. This with so much change happening in the swift [Phonetic] world. I was just wondering if you had any updated thoughts about your desire or interest in growing that business out if you've done anything to milestone and or if you've been really hunkered down until with the present day challenges of COVID in the core business? So just kind of wanted to an update there.

Ted Wahl -- President and Chief Executive Officer

Yeah, that we're always evaluating, always assessing, and I've talked about before how one of the great benefits we have as a company and being designed in almost a franchise-like way with an entrepreneurial spirit throughout the organization is that we are able to trial, evaluate, and even commit on a trial basis when we're interested in, whether it's a new service line as you said, or a new initiative. I'd say for the moment that Andy, we've had our hands full of this and focusing on the task at hand, which has been COVID within our niche, but still continuing to evaluate new opportunities, and there have been new opportunities or new situations that we were proposed to pursue with all of the changes just in society and certainly within cleaning and sanitization that have been brought our way. So, we're going to continue to explore those opportunities. But for the moment, our focus is almost exclusively dedicated to the niche and navigating our way through with our customers this situation and the pandemic.

Andrew Wittmann -- Baird -- Analyst

Okay. Thanks a lot, guys. Have a good day.

Ted Wahl -- President and Chief Executive Officer

You too, Andy.

Matt McKee -- Chief Communications Officer

Thanks, Andy.

Operator

Next question comes from Ryan Daniels with William Blair.

Nick Spiekhout -- William Blair -- Analyst

Hey, guys, Nick Spiekhout in for Ryan. Congrats on the quarter and thanks for taking my question. I guess, first I will be going on in the sales process [Technical Issues] update on how SNFs are kind of allowing you guys come in? Are you guys on site? Or is it still kind of a little bit of the COVID era process going on.

Matt McKee -- Chief Communications Officer

Yeah, Ted touched on it a bit earlier, Nick. But I would say that for sure the sales opportunities that are more imminent for us would be the cross-sell of dining services with our existing housekeeping customers. It's -- we haven't spoken about this quite a bit in some time. But we're still less than 50% penetrated in providing dining services to our existing housekeeping customers. So, given the lack of access that has been prevalent throughout the industry over the past 13 months or so, and there has been a great opportunity to advance those discussions with our housekeeping and laundry customers, some of whom have been waiting for us to provide dining services in their facilities for years now, and it's just been a capacity issue, where we've not yet been able to expand and provide those services. So, that although the kind of the shifting paradigm with as it relates to infection prevention and infection control, has certainly got a lot of attention from an environmental services perspective, housekeeping and laundry perspective, I'd say most imminent from a growth perspective has been the access allowed to explore those dining opportunities. Beyond that, there is an access issue that remains in place and it varies geographically and it varies by customer group. But our sales folks have absolutely continued to initiate dialog and field those inbound requests to cultivate the opportunities such that when we are able to access the facilities, we can do so in a swift manner, and of course, that has to be coordinated with the local operations teams from a management capacity perspective to make sure that we're doing a thorough analysis of the facility to make sure that operationally we can implement our systems and operate it according to our budgetary expectations, all the while conducting that exceedingly thorough financial analysis of that would be partner. That's always been a really important part of our sales process, and obviously, in this moment continues to be more important than ever. So, it's that current assessment of their financial wherewithal, their view of contract integrity and the light in which they would view our partnership, their ability to pay us and just as much their intention to pay us on time and in full. So, as is always the case, there's a lot that goes into it, but certainly we're beginning to see loosening of the access, sort of limitations that we had faced over the past 13 months and are optimistic that feeding into the back half of the year, we should be well positioned to begin exploring new business adds.

Nick Spiekhout -- William Blair -- Analyst

Great, thanks. And then kind of as we're moving into a little bit more kind of growth, more normal growth in the second half, I'm assuming kind of given the margin profile, there is not a large pipeline of the management cum trainees way to go at the moment. Is that something that you are starting to kind of buildup now? And will it be the type of the -- at the ground running type of thing as we get into H2 as those management have been trained up and ready to go?

Ted Wahl -- President and Chief Executive Officer

Yeah, it's actually a bit different than how you -- what you presupposed in the sense that we are actually more in a business as usual environment with respect to management development and including the recruiting of the managers. So, that part is spread out throughout the country and there's different areas that has different stages of management development and have -- it's always the most important part of the business and one of the things that we're always trying to do a better job at. But we are essentially normal course of business and management development. I would not characterize our thoughts on the second half of the year in the growth opportunities as being normal course just yet, or business as usual. I think that's something we're going to continue to evaluate. However, we do feel good that directionally and from a visibility perspective, we are going to have some opportunities to expand our footprint.

Nick Spiekhout -- William Blair -- Analyst

Okay, great, thanks guys for some color.

Ted Wahl -- President and Chief Executive Officer

Thank you.

Operator

Next question comes from Brian Tanquilut with Jefferies.

Brian Tanquilut -- Jefferies -- Analyst

Hey guys, congrats on the quarter. I guess...

Ted Wahl -- President and Chief Executive Officer

Thank you.

Brian Tanquilut -- Jefferies -- Analyst

Yeah, definitely. And just to clarify your comment on the revenue expectation for Q2 in the back half of the year. So on the Genesis assets that are being transferred to ProMedica, are you assuming that they will stay with you through the whole year? Is that what your thinking about that?

Ted Wahl -- President and Chief Executive Officer

Well, for us, when we're talking about growth, we're not looking at it just on a net basis, right. That's -- there's certain unknowns. So, what I talked about in terms of growth and what we're comfortable talking about is our view on adding new clients, whether they be greenfield or adding additional services through a cross-selling of dining services to an existing EVS client, that's where our our conviction has increased as a result of that visibility. But in terms of trying to predict the future with any customer transition, whether it be an independent mom-and-pop or otherwise, the best I think data point to look toward would be our past experience where we're typically successful in retaining greater than 90% of any sort of customer transition.

And for us, and Matt alluded to it earlier, that's foundational to our growth, as still we're in a constant state of transition with customers and clients, whether it be at the administrator level or owner-operator level. And we've proven adept at developing those new relationships and then when the situations present themselves, leveraging those relationships for expanding the company or for growing with that new customer. So, conviction -- high conviction and with improved visibility that we should see some sequential growth back half of the year compared to first half of the year, and with just 0.2 past being prologue in terms of our expectations around retaining whether it'd be administrator or principal or owner transitions, Genesis or otherwise.

Brian Tanquilut -- Jefferies -- Analyst

Got it. And then I guess, just a follow-up to the question on consolidation versus deconsolidation. As we see some of these new players emerge, like a ProMedica, for example. How do you see -- what are your relationships with the emerging new consolidators? I mean, are these existing relationships already or are these new opportunities for you guys as things open up in this space?

Matt McKee -- Chief Communications Officer

It's interesting, Brian. This is an industry that tends to be fairly [Indecipherable] and certainly exceptionally highly networked, right. So whether you're talking about a new regional player or a mom-and-pop that's building some momentum, it tends to be that we either are familiar with the principles or if we don't know them directly, we know someone who knows them. So, it has been fairly fluid for us to gain introductions and to begin to build relationships with some of the newer operators that are getting more aggressively into the space.

But I would again sort of point back to the paradigm for us, which is that regardless of the ownership structure or the complexity of the organizational design, the size of their holdings, it has to be a bottoms-up approach for us in both our targeting and our sales efforts and even ultimately in our contracting, and then certainly, very clearly in our operational pull-through and execution. So, regardless of that top side ownership structure, management structure, we certainly want to make sure that we are comfortable with and develop relationships with the C-suite and as much as that's applicable, but much more important for us is the grassroots efforts, and that holds within our district and regional structures, Ted alluded to the element of that that relates to management development, but it also holds for business development, where our local operators are responsible to cultivate their relationships and use those relationships as an opportunity and an avenue for future growth. So, very much more bottoms-up than a top-down process for us as it relates to new business opportunities.

Brian Tanquilut -- Jefferies -- Analyst

Got it. And then Matt, just real quick for me, just sort of clarification on the cost of revenue lin. Any call out this quarter?. Workers comp, bad debt, [Indecipherable] that's your way?

Matt McKee -- Chief Communications Officer

No, nothing as noteworthy as the work comp that you called out from last quarter.

Brian Tanquilut -- Jefferies -- Analyst

Okay, got it. Thank you.

Matt McKee -- Chief Communications Officer

Thanks, Brian.

Operator

Last question comes from Mitra Ramgopal with Sidoti.

Mitra Ramgopal -- Sidoti & Company -- Analyst

Yes, hi, good morning. Thanks for taking the question. Folks, just on the financial health of your clients and just the industry in general. I believe you've talked about in the past $5 billion being allocated toward the industry to help through the pandemic, and I'm just curious if your clients have followed using up funding or still waiting on that?

Ted Wahl -- President and Chief Executive Officer

Yeah, I would say Mitra, census recovery is going to be over the next 12 to 18 months. The most critical part of -- as it relates to the -- let's say the business recovery if the clinical crisis is behind us with the success of the vaccine, the business challenges vis-a-vis funding and operating at these still depressed census levels anywhere from 10 to 15 points below where they were prior to the pandemic is going to be the most critical part of that. And I mentioned it in some of my commentary and responses to the questions, but we're going to keep a close eye on both federal as well as state actions, administrative and otherwise over the coming months to see the commitment levels, because whether it's the three-day waiver -- three-day full waiver, whether it's the accelerated and advance payment program, that's in the process of being repaid. There is the 1.3% increase in Medicare Part A payments, which is right now being considered. CMS is also at least thinking about recalibrating PDPM. So, there's a lot of moving parts that we're going to keep a close watch on, but census ultimately will be the driving force behind stability financially as well as operationally for the industry.

Mitra Ramgopal -- Sidoti & Company -- Analyst

Okay. Now, that's great. And then just on the vaccine rollout, I saw recently a article that highlighted that maybe about 90% of the nursing home residents could be vaccinated, but maybe only about 60% of the healthcare workers within those facilities. And is that disconnect impacting the ability to maybe see a quicker recovery than we might have seen otherwise?

Matt McKee -- Chief Communications Officer

I don't think so, Mitra. I think the most important population in that setting who needs to be immunized would be the residents, very clearly. And I think there is not been data that I've seen that have sort of parsed the lower vaccination rates among employees relative to those who have had a COVID infection previously and would thus be naturally immune versus those who have flat out. I've not seen any really compelling data that show that the disconnect between resident vaccination rates as compared to staffing will be negative impact on tamping down infections within the facility because certainly the data that we show with respect to COVID infections among both the resident and the employee populations have gone down far greater than 90%. So, we're seeing that very much effective immunization levels within the facilities.

Now interestingly, to your point, when we have seen some community outbreaks, there has been some level of corresponding facility level outbreaks [Technical Issues] certainly some credence to the notion that you floated. But generally speaking, I would say the predominant focus has been on the residents, that's for sure.

Mitra Ramgopal -- Sidoti & Company -- Analyst

Okay, that's great. Thanks for taking the question.

Operator

And at this time, I will turn the call over to the presenter.

Ted Wahl -- President and Chief Executive Officer

Thank you, Sharon. We know 2021 will still have its share of pandemic-related challenges, but the early success of the vaccine coupled with learnings and innovations of the past year is cause for optimism. As the industry continues its gradual shift from crisis mode to a state of recovery, our commitment to internal investment underscores our positive longer-term growth outlook and creates value for all stakeholders. So, on behalf of Matt and all of us at HCSG, I wanted to again thanks Sharon for hosting the call today, and thank you to everyone for participating.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Ted Wahl -- President and Chief Executive Officer

Matt McKee -- Chief Communications Officer

Sean Dodge -- RBC Capital Markets -- Analyst

Robert Moon -- Credit Suisse -- Analyst

Andrew Wittmann -- Baird -- Analyst

Nick Spiekhout -- William Blair -- Analyst

Brian Tanquilut -- Jefferies -- Analyst

Mitra Ramgopal -- Sidoti & Company -- Analyst

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