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DATE

Wednesday, Oct. 21, 2026

CALL PARTICIPANTS

• Chief Executive Officer - Ted Wahl
• Chief Communications Officer - Matt McKee
• Executive Vice President and Chief Financial Officer - Vikas Singh

TAKEAWAYS

• Revenue -- $479.6 million, representing the ninth sequential top-line increase over the past 10 quarters.
• Environmental Services Segment -- $217.2 million in revenue with a segment margin of 13.3%, reflecting field-based operational execution and high retention rates.
• Dietary Services Segment -- $262.4 million in revenue with a segment margin of 8.7%, driven by management of food procurement and professional dietitian services.
• Cost of Services -- $399.2 million or 83.2% of revenue, benefiting from service execution and lower bad debt expense.
• Adjusted SG&A -- $49.1 million or 10.2% of revenue, after adjusting for a $600,000 decrease in deferred compensation.
• Net Income and EPS -- $24.9 million and $0.36 per diluted share, respectively, for the quarter ended Sept. 30, 2026.
• Adjusted Cash Flow from Operations -- $20.7 million, excluding a $9.5 million decrease in the payroll accrual.
• Cash and Marketable Securities -- $204.3 million as of the end of the third quarter, alongside an unutilized $300 million credit facility.
• Share Repurchases -- $11.7 million of common stock during the third quarter, bringing the year-to-date total to $56.6 million.
• NEXDINE Hospitality Acquisition -- $93.5 million upfront purchase price for the acquisition completed on Oct. 6, 2026.
• NEXDINE Financial Contribution -- over $150 million in expected annual revenue at margins comparable to the company's existing business.
• Genesis Bankruptcy Recovery -- $6.1 million estimated recovery of pre-petition claims, recorded as a bad debt offset in cost of services.
• Q4 Revenue Guidance -- $535 million to $545 million, reflecting organic business momentum and the acquisition of NEXDINE Hospitality.
• 2027 Revenue Growth Outlook -- low double digits, representing an increase from the previous mid-single-digit target.
• Bad Debt Expense -- $2.5 million for the quarter when excluding the Genesis assessment, which is less than 0.5% of revenue.
• Effective Tax Rate -- 26.2% for the third quarter, with management expecting a full-year 2026 rate of approximately 25%.
• Future Payroll Accrual Impacts -- $18 million estimated negative impact on Q4 2026 cash flow followed by a $19 million positive effect in Q1 2027.
• Long-term SG&A Target -- 8.5% to 9.5% of revenue, while the short-term management goal remains 9.5% to 10.5%.
• Remaining Share Authorization -- 7.7 million shares available under the current board repurchase authorization.

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RISKS

• Wahl stated, "Beyond our core industry trends, we continue to monitor the broader macro landscape, including sustained volatility in energy and supply markets," noting that vendor partnerships provide visibility to mitigate direct exposure.
• Singh warned that performance in any given quarter does not predict what will happen in the next one regarding bad debt, which he described as inherently lumpy.
• Singh stated that there will be an offset to net income due to the loss of interest income on approximately $90 million to $100 million of cash used for the NEXDINE acquisition.
• Singh indicated that an unpredicted spike in the number or severity of workers' compensation incidents could reverse the course of cost of sales improvements.
• Wahl noted that the final resolution of the Genesis case is subject to variables and contingencies that are not known and cannot be reasonably estimated.

SUMMARY

Healthcare Services Group, Inc. (HCSG +0.98%) reported third-quarter results and announced the acquisition of NEXDINE Hospitality to expand its presence in senior living and hospitality-driven markets. Management raised its revenue growth outlook for 2027, citing organic business momentum and a multi-decade demographic tailwind within the senior care environment. The company recorded an estimated recovery related to the Genesis restructuring and continued its $75 million share repurchase program. Financial targets for cost of services and administrative expenses remained consistent with previously stated goals, even as management cautioned regarding macro volatility and the timing of bad debt expenses.

• CEO Wahl stated that the first baby boomers are turning 80 in 2026, which is "beginning to work its way into the broader senior care environments."
• Management reported that the NEXDINE acquisition is expected to be immediately accretive to earnings despite the loss of interest income on cash reserves.
• Organic growth is supported by a client retention rate exceeding 90% and the development of management candidates to support new business.
• CFO Singh noted that the company's bad debt expense, excluding the Genesis benefit, was at its lowest level in six quarters.
• The company is maintaining a administrative expense structure that is approximately half-fixed and half-variable to drive operating leverage over time.
• NEXDINE Hospitality contracts include provisions that allow for the pass-through of price increases encountered in food purchases.

INDUSTRY GLOSSARY

• Environmental Services: A segment of HCSG providing housekeeping, laundry, and facility maintenance to healthcare facilities.
• Dietary Services: A segment of HCSG managing food procurement, meal preparation, and dietitian services.
• Genesis: A client of HCSG that underwent a court-approved restructuring and sale to 101 West State Street.
• NEXDINE Hospitality: A recently acquired company focusing on senior living and hospitality-driven markets.
• CECL: Current Expected Credit Losses, an accounting standard for estimating credit losses on financial assets.
• Campus Services Group: A brand within the HCSG family focused on service delivery in campus environments.
• Meriwether Godsey: An HCSG brand specializing in dining services for the campus market.

Full Conference Call Transcript

Operator: Matters discussed on today's conference call include forward-looking statements about the business prospects of Healthcare Services Group Inc. For Healthcare Services Group Inc's most recent forward-looking statement notice, please refer to the press release issued this morning, which can be found on our website, www.hcsgcorp.com. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties, and important factors, including those discussed in the Risk Factors, MD&A, and other sections of the annual report on Form 10-K and Healthcare Services Group Inc's other SEC filings, and as indicated in our most recent forward-looking statements notice. Additionally, management will be discussing certain non-GAAP financial measures.

A reconciliation of these items to US GAAP can be found in this morning's press release. I will now hand the conference over to Ted Wahl, Chief Executive Officer. Please go ahead.

Ted Wahl: Good morning, everyone, and welcome to HCSG's third quarter 2026 earnings call. With me today are Matt McKee, our Chief Communications Officer, and Vikas Singh, our Chief Financial Officer. Earlier this morning, we released our third quarter results and plan on filing our 10-Q by the end of the week. Today, in my opening remarks, I'll discuss our Q3 highlights, share our perspective on the general business environment, and discuss our outlook for Q4 and 2027. Matt will then provide a more detailed discussion on our Q3 results, and Vikas will provide an update on our liquidity position and capital allocation progression. We will then open up the call for Q&A.

With that overview, I'd like to now discuss our Q3 highlights. Our strong third quarter results reflect the underlying strength of our business fundamentals and disciplined operational execution. New client wins and high retention rates drove our Q3 top-line growth, our ninth sequential revenue increase over the past 10 quarters, and our field-based team's operational excellence led to high-quality service outcomes and consistent margins. The acquisition of NEXDINE Hospitality on October 6 represents a significant milestone as it expands our footprint in the senior living and hospitality-driven markets and deepens our service capabilities across our family of brands. NEXDINE is expected to contribute over $150 million in annual revenue at comparable margins and be immediately accretive to earnings.

We are thrilled to partner with our NEXDINE colleagues in their next phase of growth and innovation. On October 14, the Bankruptcy Court approved the sale of Genesis to 101 West State Street. The outcome of the Genesis restructuring creates stronger, healthier HCSG client facilities, provides balance sheet clarity for our stakeholders, and enables future expansion opportunities with a growth-oriented client partner. Our current estimated recovery of pre-petition claims is $6.1 million. There remains a substantially higher potential upper-range recovery subject to certain variables and contingencies, the resolutions of which are not known and cannot be reasonably estimated at this time. I'd like to now share our perspective on the general business environment.

Overall industry fundamentals continue to gain strength, highlighted by the multi-decade demographic tailwind that is now beginning to work its way into the broader senior care environments. In 2026, the first of the baby boomers are turning 80, and by the year 2030, all 70 million+ boomers will be over the age of 65, with the oldest being in their mid-80s. We expect the demand and opportunities for senior care service providers in the health and hospitality space, especially for those with compelling value propositions, durable business models, and market-leading positions to only increase in the months and years ahead.

Beyond our core industry trends, we continue to monitor the broader macro landscape, including sustained volatility in energy and supply markets. Our role as financial stewards for our clients remains our highest priority in this environment, and the depth of our longstanding vendor partnerships provides the critical visibility to pivot sourcing and mitigate direct exposure. Ultimately, our enhanced contractual frameworks allow us to pass through unavoidable cost increases, ensuring we are preserving our margins while continuing to deliver market-leading service. Looking ahead to Q4 in 2027, the organic growth inflection we planned for and are now delivering sets the stage for fourth quarter revenue in the range of $535 million-$545 million.

We expect to carry that positive momentum into 2027 and are raising our 2027 revenue growth outlook from the mid-single digits to low double digits. The strong demand for our services, our expanded operational expertise, and extraordinary team members give us great confidence in our growth trajectory across healthcare, senior living, and campus environments. With the industry at the beginning of a multi-decade demographic tailwind, our unified health and hospitality platform strategically positions us to fulfill our vision and drive sustained long-term value creation for our shareholders. With those introductory comments, I'll turn the call over to Matt.

Matt McKee: Thanks, Ted, and good morning, everyone. Revenue was reported at $479.6 million. Segment revenues and margins for Environmental Services were reported at $217.2 million and 13.3%. Segment revenues and margins for Dietary Services were reported at $262.4 million and 8.7%. As Ted mentioned in his remarks, we are expecting Q4 revenue in the $535 million to $545 million range and low double-digit revenue growth in 2027. Cost of services was reported at $399.2 million or 83.2%. Cost of services benefited from strong service execution and lower bad debt expense. Our goal is to manage the cost of services in the 86% range. SG&A was reported at $48.5 million.

After adjusting for the $600,000 decrease in deferred compensation, SG&A was $49.1 million or 10.2%. Our goal is to manage SG&A in the 9.5%-10.5% range with the longer-term goal of managing these costs into the 8.5%-9.5% range. Our effective tax rate was reported at 26.2%, and we expect our 2026 effective tax rate to be approximately 25%. Net income and diluted earnings per share were reported at $24.9 million and $0.36 per share. I'd now like to turn the call over to Vikas.

Vikas Singh: Thank you, Matt, and good morning, everyone. Starting with our liquidity and cash flows, our primary sources of liquidity are cash flows from operating activities, cash and cash equivalents, and our revolving credit facility. Cash flow from operations was reported at $30.2 million. After adjusting for the $9.5 million decrease in the payroll accrual, cash flow from operations was $20.7 million. As of the end of the third quarter, we had cash and marketable securities of $204.3 million and an unutilized $300 million credit facility. We continue to execute on our capital allocation priorities across organic growth, M&A, and share repurchases.

Our approach continues to be grounded in discipline, and our balance sheet provides us the flexibility to pursue all of these priorities in tandem. With regards to share repurchases, we announced plans in February 2026 to further accelerate the pace of our share buybacks and target $75 million of our common stock over 12 months. In the third quarter, we repurchased $11.7 million of our common stock, bringing our year-to-date total to $56.6 million. We now have 7.7 million shares remaining under our share repurchase authorization. With that, we will conclude our opening remarks and open up the call for Q&A.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question from the line of A.J. Rice with UBS. Your line is open. Please go ahead.

James: Hi, this is James on for A.J Rice. Congrats on the good quarter. I guess on the 2027 outlook, calling for low double-digit top-line growth, seems like that's embedding some mid-single-digit organic growth. If so, is there any likelihood that organic growth could accelerate potentially to the high single digits, just given that demographic tailwinds you've been pointing to in the nursing home industry and potential likelihood for that happening?

Ted Wahl: James, you are right in that our outlook of low double digits is inclusive of that mid-single-digit growth target organically as well as NEXDINE Hospitality. That organic growth outlook is grounded in the positive top-line momentum we expect to carry into the new year, along with the strength of our new business pipeline, and then our assessment of the timing considerations related to management capacity and client start date preference. We continue to successfully execute on the organic growth strategy by developing management candidates to support new business opportunities while retaining greater than 90% of our base business. So the momentum is very strong.

As far as additional updates on 2027 pipeline developments, as the pipeline matures, we will most certainly share those updates. Very strong momentum heading into the new year.

Speaker 4: Okay, great. Thank you. Maybe just one more. On the Genesis, there was a $6.1 million recovery you mentioned. Did that have any flow-through impact to Q3 earnings, or expected to be a potential benefit in Q4? Then maybe on the upper-end range you called out, I think previously you had accounts receivable in the amount of $65 million. Would that be considered the top end of potential recoveries? Any color there would be great. Thank you.

Vikas Singh: Yeah. The $6.1 million is flowing through the P&L like any other bad debt expense. In this case, it is a bad debt offset. It is a benefit to our cost of sales, so it is flowing through the P&L and falling down to the net income line on a post-tax basis. In terms of the higher end, the number you quoted is closer to our total exposure, and we do not expect just about every other bankruptcy to have 100% recovery here. Our expectation is what we have recognized at $6.1 million basically takes our write-off from 100% down to a level that is in excess of 90%.

If we look back at our history of bankruptcies, it is fairly consistent in terms of what that percentage and number implies. Based on recent events, there is a possibility based on a number of contingencies that the number could go higher and our recoveries could improve, but we do not see a scenario where we will end up with 100% recoveries.

Speaker 4: Okay, great. Thanks for taking my questions.

Operator: Your next question from the line of Sean Dodge with BMO Capital Markets. Your line is open. Please go ahead.

Chris Charles: Hey, good morning. It's Chris Charles on for Sean here. Thanks for taking our questions. Maybe beginning on the cost. Cost of services was again well below the 86% target. Is there anything more you can share just on the strength from service execution versus the lower bad debt and how much of a benefit this was compared to the prior few quarters?

Matt McKee: Yeah, good morning, Chris. Just at a high level, as we previously stated, the primary driver, as you note, is the overall service execution, right? From our perspective, the recent positive trends in customer experience, systems adherence, which is critical both operationally and from a budgetary compliance perspective, that regulatory adherence and compliance and ultimately yielding budget discipline. All of those components are near-term margin drivers, and that carried into Q3. The expectation is that carries through the balance of 2026 and beyond. That's why we remain confident in our ability to continue to manage cost of services in that 86% range.

And we want to recognize the field-based management teams for executing to deliver on those expectations, and they certainly deserve a lot of credit for that execution. There's no guarantee, and it is a daily grind to deliver on all of those marks relative to the systems adherence, the compliance, the budgetary discipline, all of that yielding the great customer experience. That said, this has always been the case that there's going to be some movement month to month, quarter-to-quarter, and the timing of certain items can have an impact in any given quarter.

Vikas Singh: Yeah. Chris, to add on topics like bad debt expense. If you think about this quarter, the bad debt benefit, it was not an expense this quarter, was $3.6 million, and that was driven by our Genesis assessment. But even if you include the Genesis assessment, the benefit of $6.1 million, our bad debt expense for the quarter was only about $2.5 million or less than half a percent of revenue. That is much lower than what we've been doing in the recent past. That number by itself would have been our lowest bad debt number in the last six quarters.

So I think combined with the operational execution that Matt talked about, all the attempts and efforts we've been putting into managing bad debt have been yielding results. Now, obviously with bad debt, I constantly like to remind everyone that while we are very pleased with what we've achieved in the last few quarters, performance in any given quarter does not predict what will happen in the next one, and bad debt by its very nature can be a little more lumpy in terms of when we come across bad debt expenses. But keep in mind, our historical average in the pre-CECL era was between 1%-1.5% of revenue.

So the fact that without Genesis, we would've been sitting at half a percent of revenue in bad debt expense does provide a nice uplift to our cost of sales story in addition to the operational excellence.

Chris Charles: Okay. Great. That's helpful. Is there anything else you can share on NEXDINE's profile? I appreciate the commentary on the comparable margins, but how should we think about the growth trajectory of this business or its cash conversion? Do the contracts here, do they have similar pass-through protections?

Matt McKee: Yeah. I would start with the premise of the opportunity as a natural extension of our dining offering that favorably positions us in a compelling way within senior living, healthcare, and the campus end market. Our businesses are highly complementary of one another, starting with our deeply aligned cultures in that we share a common belief system that is grounded in a greater purpose and serving which are foundational to behaviors and expectations. That is foundational to the partnership and to the acquisition.

NEXDINE Hospitality promotes an environment for an entrepreneurial spirit and promotion from within pathways very similar to HCSG, which then allows our differences in size scale, and end market focus to be a strength and a massive opportunity to learn from one another.

Ted Wahl: To share ideas and create even more possibilities for the future. We are thrilled to have them as a partner in their future growth journey and as part of our unified health and hospitality platform. I think specifically to the growth opportunities that lie ahead, we do see them as a double-digit growth opportunity as we evaluate it currently. So that will add to our family of brands, including Campus Services Group and Meriwether Godsey on the campus side, NEXDINE, with a focus more on the senior living and hospitality-driven markets, and then Healthcare Services, HCSG, is that core healthcare offering. So we are very well-positioned for future growth and we are excited about the possibilities.

Chris Charles: Great. [inaudible]

Vikas Singh: Yeah. On the contracts and the ability to pass along costs, NEXDINE Hospitality is similar to how we have modified and upgraded our contracts over the last few years. They have contracts in place that allow them to pass along any price increase they encounter, and that system has been working fairly well for them. If we look back over the last few years when there have been periods and pockets of elevated price movement with respect to food purchases.

Chris Charles: Great, thanks.

Operator: Your next question from the line of Ryan Daniels with William Blair. Your line is open. Please go ahead.

Matthew Mardula: Yeah. Hello, this is Matthew Mardula, I'm for Ryan. Thank you for taking all the questions. I want to talk about the Q4 revenue guidance. When I'm taking the midpoint of the Q4 revenue guidance, it implies roughly a $60 million sequential increase from Q3, compared with quarterly increases of about $8 million-$9 million over the past two quarters. How much of the Q4 increase is coming from the acquisition versus the organic segment? Then within the organic segment, it still seems like an increase compared to previous quarters, and of course, timing is going to be a big factor for revenue. With that accelerated growth for the organic segment, what's giving you that confidence for Q4?

Ted Wahl: Yeah. To your point, Matthew, as far as the Q4 breakdown, our revenue range, $535 million to 545 million, with NEXDINE Hospitality contributing annual revenues in excess of $150 million to that total. The remainder of that growth in Q4 is organic business momentum. As I mentioned earlier in the call, we have very strong momentum heading into Q4 and expect to carry that into the new year.

Matthew Mardula: Got it. With SG&A as a percentage of revenue coming within the short-term guidance range this quarter, as you look forward, what are the key drivers that could create maybe some additional operating leverage and the timing of that for SG&A? Then how should we think about the company reaching the maybe low end of that short-term guidance as a realistic 2027 opportunity? Or is this kind of more of a longer-term goal?

Vikas Singh: Yeah. On the SG&A front, from our perspective, as we think about the composition of how SG&A is built up for us, I would approximate it as something that's, call it half-fixed, half-variable. We have the growth momentum, and we have the discipline around how we manage our costs with respect to vendors, employees, and other programs that go within SG&A. So we see a natural cadence driven by organic growth, inorganic growth, such that SG&A comes down over time as a percentage of revenue. So that's the story to an improving profile. That said, we'll always have situations and quarters where the requisite investments in the business.

So in the past, we've talked about investments with respect to people, training, technology. Anytime we decide to make those decisions, it does put upward pressure on SG&A. So that's one counter to the improvement story. The other could be what we encountered this quarter, for example, which is we did see our SG&A number go up in the third quarter, and the key reason for that was an increase in professional fees such as legal fees and M&A related expenses. We do intend to continue down the path of inorganic growth driven by M&A.

We don't have a fixed number of deals we want to do each year or each quarter, but we will remain active in evaluating those situations and moving ahead with situations that seem like the best fit. That obviously adds to some expenses with respect to advisors and legal and other M&A related fees. So you will see that element be present as well. But we do think over a period of time, without committing to a time frame, we will look to bring SG&A down. That said, we will not let that objective come in the way of appropriate investments, be it people, be it technology, be it M&A.

We'll try and create the balance between the two objectives there.

Matthew Mardula: Great. Thank you so much for taking my questions, and nice job on the quarter.

Operator: Your next question from the line of Ryan Halsted with RBC Capital Markets. Your line is open. Please go ahead.

Ryan Halsted: Morning. Thanks for taking my questions. Maybe just to come back to the NEXDINE acquisition, just to clarify the first point, are there specific integration milestones that we should be looking out for, or is the assumption that it's fully integrated effective the October 6th close date?

Vikas Singh: Yeah. From our perspective, obviously, we do have a very comprehensive integration plan in place that applies at the broader corporate level for NEXDINE Hospitality, but then goes down to each department and touches just about every individual in the organization. But from an external and reporting perspective, I think you should take the integration as a done deal the moment we announce. Again, I think we say that not because we don't prioritize integration. It is very important, but we also want to be cognizant of the fact that we're talking about a transaction that is less than 10% of our top line.

So it is an important milestone, but it is not a size and scale such that we will put out milestones for integration. That said, internally, we are working through different departments in terms of speed of integration. Some departments will get integrated much faster. Accounting and finance and reporting, that integration is well underway. There will be other integrations which will be on a more spread out timeline, but our expectation is those milestones, internal milestones, will all be hit by the end of the year.

Ryan Halsted: Got it. Great. Just on the strategic rationale, just in terms of potential synergies. I think you called out that you are looking at it as having a NEXDINE Hospitality having a double-digit growth opportunity. Are there revenue synergy opportunities contemplated in that goal? Is that also inclusive of some of the commentary that you made about continuing to pursue inorganic growth opportunities? Is that assuming you are going to continue to grow around the senior housing opportunity and the NEXDINE Hospitality platform? Appreciate it.

Ted Wahl: Yeah. Nothing planned on the M&A or inorganic side presently with NEXDINE Hospitality, but certainly, it gets back to my thoughts and comments around team play. We are going to proactively, in a collaborative way, leverage existing client relationships to the extent they exist, vendor partnerships, even industry organizations. Then certainly there is an opportunity among and between HCSG, CSG, Meriwether Godsey on the Campus side, and then NEXDINE Hospitality to share ideas and create possibilities and opportunities for the future. In terms of the day-to-day that is happening in the field with our clients, they will continue with their brand identity and people culture, which is aligned with the broader health and hospitality platform we have created.

Beyond that, the lines of communication are wide open, and there is plenty of opportunity to leverage one another's best ideas, share best practices, and continue on our growth journey.

Ryan Halsted: Great. Maybe just one last one from me. Good to see the update on the Genesis case, and the recovery. Is there a potential updated timing on a final resolution? How should we think about the remainder?

Ted Wahl: That's TBD. Vikas spoke to the key variables and contingencies that remain, certainly for HCSG, but really any general unsecured creditor as part of the distribution process. Claim allowances are one part of it and how they're determined, the ultimate amount of claims filed, and then the amount of assets available for distribution. The resolutions of those variables, Ryan, are just not known, and that's why we aren't able to specify a time period or an amount that can be reasonably estimated beyond what we've recorded for the quarter.

Ryan Halsted: Got it. Congrats on the NEXDINE acquisition and the quarter. Thanks.

Ted Wahl: Thank you, Ryan.

Operator: Your next question from the line of Andy Wittmann with Baird. Your line is open. Please go ahead.

Andy Wittmann: Great. Thanks. Good morning, guys. I just wanted to ask some questions to help understand the quarter and maybe kind of the model here. First one here, Vikas, the $6.1 million benefit that you took, can you talk about the split by segment so we can just understand underlying what those segments reported in gross margins?

Vikas Singh: It's near about even. That split did not fluctuate the segment margins in a significant fashion one way or the other, Andy.

Andy Wittmann: Okay. Even if you take that $6.1 million and add it back and you look at your underlying, you kind of talked about this earlier, but you're still better than the 86%. I don't know, and this isn't new, but are you protecting in case bad debt steps up again? Is that the swing factor? Is there something else that we should think about that would take you to that 86% level? Again, just wondering if there's anything else there in the delta between the target and even the adjusted actual here that we should be considering as we think about the go forward.

Vikas Singh: Yeah. No, that's a very fair question, Andy. Look, we've been fortunate to deliver the kind of performance we've delivered year to date or on a LTM basis. But the way we look at these metrics and goalposts is on a more longer-term basis before we implement any change. Just to put it in context, if we look at the three-year average prior to 2026 for where cost of sales has been, that number is closer to 87%. So we are trending in the right direction. Look, with the passage of time, if we keep delivering this kind of performance, we will want to go back, revisit that number.

But for now, we don't have enough historical data to suggest that we need to move off the 86%. If you were to look at the data in an alternative fashion, strip out bad debt expense, strip out the workers' comp benefit from cost of sales, then look at the cost of sales number exclusive of those two factors, our LTM percentage for that metric is very much comparable to the three-year average.

Andy Wittmann: Okay.

Vikas Singh: Again, we have improved operationally. It is making a difference, but there is also the unpredictable and lumpy workers' comp and bad debt elements to it. Now, we feel we are doing whatever we can to contain bad debt in terms of internal resources, people, technology, how much time we spend with clients, how we interact with them. But that will not guarantee that. There could be clients who could intentionally or unintentionally face challenges, and performance in the first three quarters gives us no ability to predict what will happen in the next quarter. That remains a variable. I know workers' comp, we have talked about extensively in the past with you on the last call as well.

We are trying our best to taper that number off. But again, when you talk about an organization with close to 40,000 employees, and workers' comp being a metric that is driven by number of incidents and the severity, all the efforts we have put into managing that expense down through education, through safety procedures are valid. But you could always find yourself in a situation where there is an unpredicted spike in incidents and severity, which reverses the course for us on cost of sales. So your question is completely valid. It is just that we just do not have the right data points to go back and say 86% should be something else.

Andy Wittmann: Yeah. Okay, that is a totally fair answer. I appreciate you running me through that. Next, I wanted to ask a little bit more on NEXDINE Hospitality here. Just maybe Vikas, I know you have only owned this thing for a couple of weeks here, but to the extent you can help us, I think it help you to get the street numbers right here. So a couple of the questions that come up is, you said comparable margins, so we can do that math. But just in terms of where it falls, what do you think the SG&A impact could be in terms of maybe like a quarterly run rate?

Because obviously, there is going to be some of the costs that are going to fall there. I would be also curious to an initial view that you might have on the increase in intangible amortization. You did say that you expect the deal to be immediately accretive and that amort number, obviously non-cash, but has an effect there. Just wanted to get a first view from you on that one. Keeping going on this kind of trend here, you're going to have to put a liability on your balance sheet for your expected payment of an earn-out. I think you'd mentioned that there was an earn-out associated with this.

So maybe if you give us ballpark what that liability on the balance sheet's going to be, so we could think about it like you're thinking about it, would be some of the questions as it relates to NEXDINE Hospitality accounting. Thanks.

Vikas Singh: Yeah, fair enough. So again, as we think about the P&L margin impact, I think the best way to model this out would be, again, if this was a company with revenues of $500 million or $1 billion, the assessment and analysis would be a little different. But given the size and scale, I think from a modeling perspective, looking at the revenue guidance we've given, that this is a $150 million-odd revenue company and the margin profile is similar. I think as you decide to model out the future P&Ls for us, you can keep using the existing company-wide margin profile. Am I saying that their SG&A percentage is identical to ours? No, we are not.

But that said, even if the SG&A for NEXDINE Hospitality is different from our percentage, on a blended basis, it cannot move the needle given its limited size. And we feel comfortable that our current guidance around margins in the aggregate will continue to hold. The story with NEXDINE Hospitality will be more about how we can combine with them, give them the infrastructure resources to grow faster than what they've done. It will not be a story about how our margin profile got altered because of NEXDINE Hospitality. So I think that's the best way to think about the margin profile for now.

In terms of elements such as the contingent payment or the intangible, we're working through those numbers right now. I think it'll be appropriate, perhaps, to touch upon that topic in our next earnings call when NEXDINE Hospitality will get picked up in our reported numbers. But we don't have much to share on that topic right now. And to give you an example, the intangible assessment typically takes a few weeks after transaction close. So we are working through that. It's not a number that is available yet, but again, if you think about what the company does, it's a services company, and at the end of the day, it's not asset heavy.

So you can use some ballparks if you want to, but we are still working through those numbers, and we'll share those. The one caveat I will add as you model out the P&L and look at the accretion impact would be, yes, their margin profile is similar to ours, does uplift our net income and EPS numbers, but there is also the offset. We've basically used $90 million+ of our own cash that was earning interest in money market mutual funds and the likes, which will no longer be at our disposal. There will be an offset to net income from basically losing interest income on close to $90 million-$100 million of cash that was providing interest income.

But other than that, we don't have much other color to add on the margin profile beyond saying very similar, very consistent to the overall company profile.

Andy Wittmann: All right. But just to be clear here, you expect it to be accretive to EPS even including the penalty of not having the interest income. Is that correct?

Vikas Singh: Yes.

Andy Wittmann: It's going to earn more than the outcome. Just want to make sure.

Vikas Singh: Absolutely.

Andy Wittmann: Yep. Okay. And then, Matt, just on the accrual days, can you just remind us how many days accrual is in 4Q? And then I think where all of us are going to be flipping to look more closely at 2027. And so maybe people are going to want to try to get the seasonality for cash flows dialed in for 2027, maybe a little bit closer here. Can you just take us through 2027 and the days accruals and maybe remind for everyone's benefit what each day is currently worth at this new run rates of revenue at the stepped-up level here?

Matt McKee: Yeah. If we look at the fourth quarter, it is going to be a six-day increase from 11 days in the third quarter to five days in the fourth quarter. Rough numbers, the change in the accrual will have about an $18 million negative impact on the reported cash flow. Looking ahead to 2027 Q1, it will be about a $19 million positive effect. It is a six-day increase from five days in Q4 to 11 days in Q1. Q2 should have about a -$9 million effect on reported cash flow. That is a two-day decrease from 11 days in Q1 to nine days in Q2. Q3 will be about a $13 million positive effect on reported cash flow.

That is a two-day increase from nine days in Q2 to 11 days in Q3. In Q4 of 2027, it should have an $18 million or so negative effect on reported cash flow. That is a five-day decrease from 11 days in Q3 to six days in Q4. Obviously, Andy, as we continue to grow the business and grow payroll, there will be modest impact as to the effect of a particular day of payroll. Directionally, hopefully this is helpful for you from a modeling perspective.

Andy Wittmann: Yes. I wanted to make sure I captured that correctly with the NEXDINE Hospitality acquisition contributing more revenue now. That is why I wanted the refresh there. I knew you would be ready for us on that one too, so I definitely appreciate that. Have a great day, guys.

Operator: There are no further questions at this time. I will now turn the call back to Ted Wahl for closing.

Ted Wahl: Okay, great. Thank you, Ben. As we enter the fourth quarter of our 50th anniversary year, the company's underlying fundamentals are more robust than ever. Our leadership and team members, our enhanced value proposition, our business model, and the visibility we have into that business model, our positive KPI and key business trends, and our strong balance sheet and ROIC profile. With the industry at the beginning of a multi-decade demographic tailwind, our unified health and hospitality services platform strategically positions us to fulfill our vision and drive sustained long-term value creation for our shareholders.

On behalf of Matt, Vikas, and all of us at Healthcare Services Group, Ben, thank you for hosting the call today, and thank you again to everyone for joining us.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.