HCSG 10-K & 10-Q changes, risk factors and insider trading

We have been, and may continue to be, adversely affected by inflationary and market fluctuations, including the impact of potential future tariffs, impacting the cost of products consumed in providing our services and our cost of labor. Additionally, we rely on a certain limited number of vendors for a substantial portion of HousekeepingEVS and Dietary supplies.

Dietary supplies, to a much greater extent than HousekeepingEVS supplies, are impacted by commodity pricing factors, including the impact of tariffs and diseases in livestock, which in many cases are unpredictable and outside of our control. We seek to pass on to customers such increased costs but sometimes we are unable to do so. Even when we are able to pass on such costs to our customers, from time to time, sporadic unanticipated increases in the costs of certain supply items due to market or economic conditions may result in a timing delay in passing on such increases to our customers. This type of spike and unanticipated increase in Dietary supplies costs could adversely affect Dietary’s operating performance, and the adverse effect could be greater if we are delayed in passing on such additional costs to our customers (e.g., where we may not be able to pass such increase on to our customers until the time of our next scheduled service billing review). We seek to mitigate the impact of an unanticipated increase in such supplies’ costs through consolidation of vendors,vendors and participation in group purchasing organizations, which increases our ability to obtain more favorable pricing.

A substantial number of our employees are hourly employees whose wage rates are affected by increases in the federal or state minimum wage rates, wage inflation or local job market adjustments. Also, at certain facilities that we service, our cost of labor may be influenced by changes in the respective collective bargaining agreements to which we are a party. As collective bargaining agreements are renegotiated, we may need to increase the wages paid to bargaining unit employees covered by such collective bargaining agreements. Although we have contractual rights to pass union and minimum wage increases through to our customers, we do not have a contractual right to automatically pass through all wage rate increases resulting from wage rate inflation or local job market adjustments, and we may be delayed in doing so. OurAny delay in passing or inability to pass such wage increases through to our customers could have a material adverse effect on our financial condition, results of operations and cash flows.

Pandemics, epidemics or outbreaks of a contagious illness have in the past and may in the future adversely affect our business, results of operations, financial condition, and/or cash flows.

Pandemics, epidemics or outbreaks of a contagious illness, and similar events, have caused and may in the future cause harm to us, our employees, customers, vendors, supply chain partners and financial institutions, which could have a material adverse effect on our business, results of operations, financial condition and/or cash flows. The impacts may include, but would not be limited to:

•Our abilityRequirements to meet more stringent, medically-required procedures, andstringent infection control requirements at customer facilities and provide for medical procedures for employees;

•New or additional measures required by national, state or local governments which may impact the availability of our employees and/or increase operating costs.costs;

War, terrorism, other acts of violence or natural or man-made disasters may affect the markets in which the Company operates, the Company’s customers, and could have a material adverse impact on our business, results of operations, financial condition and/or cash flows.

On July 9, 2025, Genesis Healthcare, Inc. (“Genesis”) filed for Chapter 11 bankruptcy protection in the Northern District of Texas. Genesis contributed 8.7%,7.3%, 10.9%8.7% and 10.0%10.9% of our total consolidated revenues for the years ended December 31, 2024,2025, 20232024 and 2022,2023, respectively. As of December 31, 2024, the Genesis outstanding accounts receivable and notes receivable were $46.1 million and $21.9 million, respectively. Although we expect to continue the relationship with Genesis, there can be no assurance thereof. Revenues generated from Genesis were included in both operating segments. Any extended discontinuance, or significant reduction, of revenues from this customer could, if not replaced, have a material impact on our operations. In addition, if Genesis fails to abide by current payment terms it could increase our accounts receivable balance and have a material adverse effect on our financial condition, results of operations,operations and cash flows. No other single customer or customer group represented more than 10% of consolidated revenues for the years ended December 31, 2024, 2023,2025 and 2022.2024, and no other single customer or customer group represented more than 10% of consolidated revenues for the year ended December 31, 2023.

Our customers are primarily concentrated in the healthcare industry, which is subject to changes in government regulation. Many of our customers rely on reimbursement from Medicare, Medicaid and other third-party payers. Rates from such payers may be altered or reduced, thus affecting our customers’ results of operations and cash flows.

We have a Paid Loss Retrospective Insurance Plan for auto, general liability andliability, workers’ compensation insurance.and other insurance coverages.

We carry a high deductible auto, general liability andliability, workers’ compensation programand other insurance programs and therefore retain a substantial portion of the risk associated with the possible losses under such programs. Under our insurance plans for general liability and workers’ compensation,plans, predetermined loss limits are arranged with our insurance company to limit both our per occurrence cash outlay and annual insurance plan cost. We regularly evaluate our claims payout experience and other factors related to the nature of specific claims in arriving at the basis for our accrued insurance claims estimate. Our evaluation is based primarily on current information derived from reviewing our claims experience and industry trends. In the event that our known claims experience and/or industry trends result in an unfavorable change in initial estimates of costs to settle such claims resulting from, among other factors, the severity levels of reported claims and medical cost inflation, it would have an adverse effect on our consolidated results of operations, financial condition and cash flows. Although we engage third-party experts to assist us in estimating appropriate reserves, the determination of the required reserves is dependent upon significant actuarial judgments. Changes in our insurance reserves as a result of our periodic evaluation of the related liabilities may cause significant fluctuations in our consolidated results of operations.

We are subject to risks affecting the food industry generally including food spoilage and food contamination. Products we purchase and utilize in production are susceptible to contamination by disease-producing organisms, or pathogens, suchincluded, asbut not limited to, listeria monocytogenes, salmonella, campylobacter, hepatitis A, trichinosis and generic E. coli. Because these pathogens are generally found in the environment, there is a risk that these pathogens could be introduced to our products as a result of improper handling at the manufacturing, processing or food service level. Our suppliers’ manufacturing facilities and products are subject to extensive laws and regulations relating to health, food preparation, sanitation and safety standards. Difficulties or failures by these companies in obtaining any required licenses or approvals or otherwise complying with such laws and regulations could disrupt their operations which could adversely affect our operations. Furthermore, there can be no assurance that compliance with governmental regulations by our suppliers will eliminate the risks related to food safety. An outbreak of food related illness in any of our customer facilities could materially harm our business, consolidated results of operations and financial condition.

Failure to maintain appropriate and effective internal controls over our financial reporting could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities and could cause us to delay the filing of required reports with the SEC and our reporting of financial results. Any of these events could result in a decline in the market price of our Common Stock. Although we have taken steps to maintain our internal control structure as required, including remediating our material weakness, we cannot guarantee that a control deficiency will not result in a misstatement in the future.

We are subject to federal, state and local taxes in the United States. Significant judgment is required in determining the provision for income taxes. We believe our income tax estimates are reasonable, but such estimates assume no changes in current tax rates. In addition, if the Internal Revenue Service or other taxing authority disagrees on aan income tax position we have takentaken, including tax positions concerning the Employee Retention Tax Credit (“ERC”), and upon final adjudication we are required to change such position, we could incur additional tax liability, including interest and penalties. Such costs and expenses could have a material adverse impact on our financial condition, consolidated results of operations and cash flows. Additionally, the taxability of our services is subject to various interpretations within the taxing jurisdictions in which we operate. Consequently, in the ordinary course of business, a jurisdiction may contest our reporting positions with respect to the application of its tax code to our services. A conflicting position taken by a state or local taxation authority on the taxability of our services could result in additional tax liabilities and could negatively impact our competitive position in that jurisdiction. If we fail to comply with applicable tax laws and regulations, we could suffer civil or criminal penalties in addition to the delinquent tax assessment. In the taxing jurisdictions where our services have been determined to be subject to tax, the jurisdiction may increase the tax rate assessed on such services. We seek to pass through to our customers such tax increases. In the event we are not able to pass through any portion of the tax increase, our financial condition, consolidated results of operations and cash flows could be adversely impacted.

We are subject to certain federal and state rules covering ESG initiatives including mandated annual reporting and compliance with commonly accepted ESG frameworks. Laws and regulations in these areas continue to emerge and evolve, which may require us to undertake costly initiatives or operational changes in order to achieve compliance. Non-compliance with these emerging rules or standards or a failure to address regulator expectations may result in potential cost increases, litigation, fines, penalties, or otherwise adversely impact our business, results of operations, financial position and cash flows.

Risks Related to Technology, Cybersecurity andCybersecurity, Data Privacy and Artificial Intelligence

Although we have taken steps intended to mitigate the risks presented by potential cyber incidents, it is not possible to protect against every potential power loss, telecommunications failure, cybersecurity attack, data breach or similar event that may arise. Moreover, the safeguards we use are subject to human implementation and maintenance, technology evolutions and other uncertainties. Any of these cyber incidents may result in a violation of applicable laws or regulations (including privacy and other laws), damage our reputation, cause a loss of customers and give rise to legal claims, litigation, monetary fines and other penalties, each of which could have an adverse effect on our financial condition, results of operations and/or liquidity.cash flows.

WeWhile arewe currentlyhave evaluating the potential use ofimplemented Gen AI technologyand acrossautomation departmentssolutions withinin certain areas of our business.business, Failure to properly manageno Gen AI technologytechnologies couldare impactused servicesfor provided,financial whichreporting couldpurposes adverselyor impactfor functions related to our business,internal controls over financial condition, results of operations and cash flows.reporting. Implementing additional Gen AI solutions could also lead to unauthorized access to sensitive information and could adversely impact our business. AtAdditionally, the same time, if we failfailure to keep pace with the rapid evolution of Gen AI technologies,technologies such delays could adversely impact our business. In addition,or the evolving regulatory landscape forcould Genresult AIin technologiesoperational requiresor continuouscompliance monitoringrisks that could adversely affect our business, financial condition, results of operations and adaptationcash to ensure compliance and to mitigate potential legal risks.flows.

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 consolidated financial statements as of December 31, 2024 and for the year thenyears ended December 31, 2025 and 2024 and the notes accompanying those financial statements.

We provide management, administrative and operating expertise and services to the housekeeping, laundry, linen, facility maintenance and dietary service departments of primarily healthcare facilities, including nursing homes, retirement complexes, rehabilitation centers and hospitals located throughout the United States. We provide such services to approximately 2,6002,800 facilities throughout the continental United States as of December 31, 2024.2025. We believe we are the largest provider of housekeeping, laundry and dietary management services to the long-term care industry in the United States.

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

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

HousekeepingEVS services were provided to approximately 2,2002,300 customer facilities at December 31, 20242025 and contributed approximately 44.6%44.9% or $765.4$824.7 million of our consolidated revenues for the year ended December 31, 2024.2025. Dietary services were provided to approximately 1,600 customer facilities at December 31, 20242025 and contributed approximately 55.4%55.1% or $950.3$1,012.5 million of our consolidated revenues for the year ended December 31, 2024.2025.

Our ability to acquire new customers, retain existing customers and increase revenues are affected by many factors. Competitive factors consist primarily of competing with potential customers’ use of in-house support staff, as well as a number of firms which compete with us in the regional and national markets in which we conduct business. We believe the primary revenue drivers of our business are our ability to obtain new customers and to provide additional services to existing customers. In addition, although there can be no assurance, we seek to pass through, by means of service billing increases, increases in our cost of providing the services, while also aiming to obtain modest annual revenue increases from our existing customers to attain desired profit margins at the facility level. The primary economic factor in acquiring new customers is our ability to demonstrate the cost-effectiveness of our services. The primary operational factor is our ability to demonstrate to potential customers the benefits of being relieved of the administrative and operational challenges related to the day-to-day management of their housekeeping and dietary operations. In addition, we must be able to assure new customers that we can improve the quality of service that they are providing to their residents. We believe the factors discussed above are equally applicable to each of our segments with respect to acquiring new customers and increasing revenues.

Our expenses can vary and may impact our operating performance. We review costs of labor, costs of supplies, bad debt expense and depreciation and amortization expense, along with other segment expenses, to evaluate our operating performance. The variability of these costs may impact each segment differently, as Housekeeping’sEVS’s percentage of revenue is more significantly impacted by costs of labor than that of Dietary, while Dietary’s percentage of revenue is is more significantly impacted by costs of supplies than Housekeeping.EVS. Bad debt expense impacts costs of services provided for each segment periodically depending on specific customer matters for each segment.

HousekeepingEVS labor costs accounted for approximately 78.4%78.3% of HousekeepingEVS revenues in 20242025 while Dietary labor costs accounted for approximately 56.6%58.8% of Dietary revenues in 2024.2025. Changes in wage rates as a result of legislative or collective bargaining actions, market factors, adjustments to staffing levels and other variations in our use of labor or managing labor costs can result in variability of these costs. Housekeeping supplies, including linen products, accounted for approximately 7.4%7.2% of HousekeepingEVS revenues in 2024.2025. In contrast, food supplies consumed in performing our Dietary services accounted for approximately 32.5%30.9% of Dietary revenues. Generally, fluctuations in these expenses are influenced by factors outside of our control and are unpredictable. HousekeepingEVS and Dietary supplies are principally commodity products and are affected by market conditions specific to the respective products.

Our customers are concentrated in the healthcare industry and are primarily providers of long-term care. Many of our customers’ revenues are highly reliant on Medicare, Medicaid and third-party payers’ reimbursement funding. Legislation can significantly alter overall government reimbursement for nursing home services and such changes, as well as other trends in the long-term care industry, have affected and could adversely affect our customers’ cash flows, resulting in their inability to make payments to us in accordance with agreed-upon payment terms. The climate of legislative uncertainty has posed, and will continue to pose, both risks and opportunities for us:us. theThe risks are related to our customers’ cash flows and solvency, while the opportunities are related to our ability to offer our customers cost stability and efficiencies. A large portion of our revenues are derived from nursing home operators whose portfolio of facilities managed are in multiple states, and as such, the ultimate impact, including in terms of timing and scale, as a result of legislative changes can be difficult to predict. However, our customer’s obligation to pay the Company in accordance with the contract is not contingent upon the customer’s cash flow. Notwithstanding the Company’s efforts to minimize its credit risk exposure, the aforementioned factors, as well as other factors that impact customer cash flows or their ability to make timely payments, could have a material adverse effect on the Company’s results of operations and financial condition.

2.Represents selling, general and administrative expenseexpenses less amounts allocated to segments for labor and labor-related and other segment items.

Consolidated revenues increased 2.7%7.1% to $1.7$1,837.2 billionmillion for the year ended December 31, 20242025 compared to the corresponding period in 20232024 as a result of the factors discussed below under Reportable Segments.

HousekeepingEVS revenues decreasedincreased 0.2%7.7% while Dietary revenues increased 5.0%6.5% during the year ended December 31, 20242025 compared to the corresponding period in 2023.2024. HousekeepingEVS revenuesrevenue decreasedincreases duewere todriven aby declinean increase in facilities serviced,serviced offsetand increases in contractual pricing. Dietary revenue increases were driven by increasesorganic growth via expanding services performed for existing customers, increased pass-through costs to costscustomers which were passed on to customers. Dietary revenues increased resulting fromand increases toin contractual pass-throughs of labor and food costs, which have increased due to inflation and market factors.pricing.

Consolidated costs of services provided increased 2.1%7.4% to $1.5$1,597.8 billionmillion for the year ended December 31, 20242025 compared to the corresponding period in 20232024 as a result of the factors discussed below under Reportable Segments. Costs of services provided, as a percentage of revenues, improvedwas to 86.7%87.0% for the year ended December 31, 20242025 compared to 87.2%86.7% in the corresponding period in 2023.2024. TheDuring Company’sthe goalyear isended December 31, 2025, we recognized $34.2 million of income, recorded as a reduction to managecosts consolidatedof services provided, related to the receipt of ERC refunds for periods from the second quarter of 2020 through the second quarter of 2021, and we additionally recognized $63.9 million of bad debt expense within costs of services provided asassociated a percentage of revenues inwith the 86%Genesis range.bankruptcy.

We include certain expenses classified as selling, general and administrative expenses within segment expenses.expenses and exclude the benefit from ERC credits from segment performance. Segment expenses for Housekeeping,EVS, as a percentage of HousekeepingEVS revenues, decreasedincreased to 90.1%91.2% for the year ended December 31, 20242025 from 90.6%90.1% in the corresponding period in 2023.2024. Segment expenses for Dietary, as a percentage of Dietary revenues, increased to 95.2%97.5% for the year ended December 31, 20242025 from 95.1%95.2% in the corresponding period in 2023.2024.

1.Inclusive of certain expenses reported within selling, general and administrative expenseexpenses that are segment-specific.

1.Inclusive of certain expenses reported within selling, general and administrative expenseexpenses that are segment-specific.

Consolidated Selling, General and Administrative ExpenseExpenses

Selling, general and administrative expenseexpenses incurred at a segment-level isare discussed in the Reportable Segments section above. Also included in consolidated selling, general and administrative expenseexpenses are corporate expenses and gains and losses associated with changes in the value of investments undercomprising our deferred compensation liability. These investments represent the amounts held on behalf of the participating employees as changes in the value of these investments affect the amount of our deferred compensation liability. Gains on the plan investments during the years ended December 31, 20242025 and 20232024 increased our total selling, general and administrative expense.expenses.

Excluding the change in the deferred compensation plan described above, consolidated selling, general and administrative expenseexpenses increased $14.7$8.8 million or 9.2%5.0% for the year ended December 31, 20242025 compared to the corresponding period in 2023. The increase was2024, driven by increasesincreased in payroll, legal, travelpayroll and fleet-relatedpayroll-related expenses, all of which were impacted by inflationary measures.expenses.

The table below summarizes the changes in these components of selling, general and administrative expenseexpenses:

Investment and other incomeincome, net was a gain of $20.9 million for the year ended December 31, 2025 compared to a gain of $14.3 million for the corresponding 2024 period. Included in investment and other income, net was $5.3 million of interest income recognized on ERC refunds received during the year ended December 31, 20242025. comparedExcluding tothe a gainimpact of $12.9 million for the correspondingERC 2023refund, period,investment primarilyand other income, net increased due to marketincreased fluctuationsinterest income from cash, notes, and marketable securities, partially offset by a decline in theincome value of our trading security investments representing the funding for ourfrom deferred compensation plan and increased interest income on notes receivable.investments.

Consolidated interest expense decreasedwas to $6.4$1.6 million for the year ended December 31, 20242025 compared to $7.9$6.4 million for the corresponding 20232024 period dueas towe decreasedincurred short-termlower average borrowings on our line of credit during 20242025 compared to 2023.2024.

Our effective tax rate was 25.4%13.0% for the year ended December 31, 20242025 compared to 27.7%25.4% in 2023.2024. The decrease to our 20242025 tax rate compared to the corresponding 20232024 period was primarily impacteddriven by a year-over-year reduction in state and local incomepermanent tax expense.differences related to the our ERC receipts.

The Allowance is evaluated quarterly basedin uponaccordance ourwith ASC 326 and is determined using financial models whichdesigned considerto estimate lifetime expected credit losses. The models incorporate historical collectionscollection experience,experience and qualitative adjustments to factor the effects of current conditions (including market conditions,conditions and government funding of Medicare and Medicaid), andas reasonable and supportable economic forecasts to estimate lifetime expected credit losses.necessary. Portions of the Allowance are inherently more sensitive to fluctuations in management’s assumptions than others, particularly any adjustments made to reflect reasonable and supportable economic forecasts.others. Such qualitative assessments would be expected to have a greater effect on aged accounts receivable and notes receivable as compared to current receivables. Due to the prospective nature of the Allowance under ASC 326, Management continues to review our portfolio of accounts and notes receivable and any estimate of credit losses is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

We self-insure or carry high deductible insurance policies and therefore retain a substantial portion of the risk associated with expected losses under our general liability, workers’ compensation and autoother insurance programs, which comprise approximately 25.4%24.8% of our liabilities at December 31, 2024.2025. Under our insurance plans predetermined loss limits are arranged with our insurance company to limit both our per occurrence cash outlay and annual insurance plan cost. Our accounting for this plan utilizes current valuations from a third-party actuary, which include assumptions based on data such as historical claims and payout experience, demographic factors, industry trends, severity factors and other actuarial calculations. In the event that our claims experience and/or industry trends result in an unfavorable change in our assumptions or outcomes, it would have an adverse effect on our results of operations and financial condition. Recently, our claims experiences have been favorable as a result of our ongoing initiative to promote safety and accident prevention in the workplace and proactive management of workers’ compensation claims.

Our primary sources of liquidity are available cash and cash equivalents, available lines of credit under our revolving credit facility and cash flows from operating activities. At December 31, 2024, we had cash, cash equivalents, restricted cash equivalents, marketable securities and restricted marketable securities of $135.8 million and working capital of $364.1 million, compared to December 31, 2023 cash, cash equivalents and marketable securities of $147.5 million and working capital of $354.8 million. Our current ratio was 3.4 to 1 at December 31, 2025 and 2.9 to 1 at December 31, 2024 and 2.6 to 1 at December 31, 2023.2024. Marketable securities and restricted 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 HCSG Insurance to satisfy capital requirements of the state regulator related to captive insurance companies.

Our primary sources of cash from operating activities are the revenues generated from our HousekeepingEnvironmental Services 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. For the year ended December 31, 20242025 cash flow from operations included $39.5$59.1 million in net income, an increase of $1.1$19.6 million compared to 2023,2024, non-cash add-backs to net income of $61.5$126.5 million,million (primarily driven by bad debt expense), and a $70.2$40.5 million decrease in cash flows from changes in operating assets and liabilities,liabilities. drivenIncluded primarilywithin byoperating increasedcash outstandingflows accountswere receipts of ERC refunds of $51.8 million, of which $39.6 million was recorded within net income and notes$12.3 receivable.million Suchwas activitiesrecorded areas theDeferred primaryERC drivers of the period-over-period changes in net cash provided by operating activities.Credits.

Our principal uses of cash for investing activities are capital expenditures such as housekeeping and food service equipment, computer software and equipment, furniture and fixtures (see “Capital Expenditures” below for additional information), and purchases of marketable securities and restricted marketable securities. Such uses of cash are offset by proceeds from sales of marketable securities. For the year ended December 31, 2025, cash flow from investing activities included $5.8 million in cash used for capital expenditures, $18.7 million in cash used for purchases of marketable securities and restricted marketable securities, and $23.2 million in cash received from sales of marketable securities and restricted marketable securities.

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 primary uses of cash for financing activities are repayments of outstanding line of credit balances and repurchases of common stock. On February 14, 2023, our Board of Directors authorized the repurchase of up to 7.5 million outstanding shares of common stock (the “2023 Repurchase Plan”). We repurchased 4.0 million shares of our common stock for $61.6 million during the year ended December 31, 2025. We repurchased 0.4 million shares of our common stock for $5.0 million during the year ended December 31, 2024. We remain authorized to repurchase 6.02.0 million shares of our Common Stock pursuant to the 2023 Repurchase Plan.

At December 31, 2024,2025, we had a $300 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 the Term Secured Overnight Financing Rate (“SOFR”) rate plus 165 basis points. The Company’s line of credit was amended on November 22, 2022 to, among other things, provide for a five-year unsecured revolving loan facility in the aggregate amount of $300 million with, at the Company’s option, the ability to increase the revolving loan commitments to an aggregate amount not to exceed $500 million and to change the benchmark rate from the London Interbank Offered Rate (“LIBOR”) to SOFR. At December 31, 2024,2025, we had no borrowings under the line of credit.

At December 31, 20242025 and 2023,2024, we also had outstanding $50.8$47.7 million and $85.9$50.8 million, respectively, in irrevocable standby letters of credit, which relate to payment obligations under our insurance programs. In connection with the issuance of the letters of credit, the amountsamount available under the line of credit was reduced by $47.7 million to $252.3 million at December 31, 2025 and by $50.8 million to $249.2 million at December 31, 2024 and by $85.9 million to $189.1 million at December 31, 2023.2024. On December 24, 2024, January 16,8, 20252025, October 6, 2025, and January 22,20, 2025,2026, the letters of credit were renewed, and they all expire during the first quarter of 2026.2027.

Accounts and Notes ReceivableReceivable, Net

We self-insure or carry high deductible insurance plans and therefore retain a substantial portion of the risk associated with the expected losses under our general liability, workers’ compensation and autoother insurance programs. Under our insurance plans for general liabilityliability, workers’ compensation and workers’other compensation,programs, predetermined loss limits are arranged with our insurance company to limit both our per occurrence cash outlay and annual insurance plan cost. Our accounting for this plan is affected by various uncertainties, such as historical claims, pay-out experience, demographic factors, industry trends, severity factors and other actuarial assumptions calculated by a third-party actuary. Evaluations of our accrued insurance claims estimate as of the balance sheet date are based primarily on current information derived from our actuarial valuation which assists in quantifying and valuing these trends. In the event that our claims experience and/or industry trends result in an unfavorable change resulting from, among other factors, the severity levels of reported claims and medical cost inflation, as compared to historical claim trends, it would have an adverse effect on our results of operations and financial condition.

For general liability, workers’ compensation and auto,other insurance programs, we record a reserve for the estimated future cost of claims and related expenses that have been reported but not settled, including an estimate of claims incurred but not reported that are developed as a result of a review of our historical data and open claims, which is based on estimates provided by a third-party actuary.

As of MarchJune 31,30, 2026, there have been no material changes to the Risk Factors disclosed in “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025, except as set forth below.

Geopolitical instability, including conflicts in the Middle East and related disruptions in global energy and commodity markets, could result in increased volatility in fuel, transportation and other operating costs. Rising oil, natural gas and other commodity prices may also contribute to broader inflationary pressures affecting wages, food, supplies and other goods and services used in our operations. If we are unable to mitigate these cost increases through pricing actions, contractual pass-throughs, other contractual adjustments, procurement strategies, operating efficiencies or other measures, our costcosts of services, margins, results of operations and cash flows could be adversely affected. In addition, increased macroeconomic uncertainty could affect customer spending patterns and the overall business environment in which we operate. The extent, timing and duration of these developments remain uncertain, and their impact on our business, financial condition and results of operations could be material.

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 MarchJune 31,30, 2026 and December 31, 2025 and the notes accompanying those financial statements.

We provide management, administrative and operating expertise and services to the housekeeping, laundry, linen, facility maintenance and dietary service departments ofprimarily in healthcare facilities, including nursing homes, retirement complexes, rehabilitation centers and hospitals located throughout the United States. We provide such services to more than 2,5003,000 facilities throughout the continental United States as of MarchJune 31,30, 2026. We believe we are the largest provider of housekeeping, laundry and dietary management services to the long-term care industry in the United States.

Environmental Services consistconsists of managing ourthe customers’ housekeeping departments, which are principally responsible for the cleaning, disinfecting and sanitizing of resident rooms and common areas of thea customers’customer’s facilities,facility, as well as the laundering and processing of the bed linens, uniforms, resident personal clothing and other assorted linen items utilized at thea customers’customer facilities.facility. Upon beginning service with a customer facility, we typically hire and train the employees previously employed by such facility and assign an on-site manager to supervise the front-line personnel and coordinate housekeeping services with other facility support functions in accordance with customer requests. Such management personnel also oversee the execution of various cost and quality control procedures including continuous training and employee evaluation. On-site management is responsible for all daily customer housekeeping department activities with regular support provided by a District Manager specializing in such services.

EVS services were provided to approximately 2,300 customer facilities at MarchJune 31,30, 2026 and contributed approximately 45.0%45.1% or $208.3$421.5 million of our consolidated revenues for the threesix months ended MarchJune 31,30, 2026. Dietary services were provided at approximately 1,600 customer facilities at MarchJune 31,30, 2026, generating approximately 55.0%54.9% or $254.5$512.1 million of our total revenues for the threesix months ended MarchJune 31,30, 2026.

Three Months Ended MarchJune 31,30, 2026 and 2025

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 MarchJune 31,30, 2026 and 2025.

EVS and Dietary revenues represented approximately 45.0%45.3% and 55.0%54.7% of consolidated revenues for the three months ended MarchJune 31,30, 2026, respectively.

Consolidated revenues increased 3.4%2.7% to $462.8$470.8 million during the three months ended MarchJune 31,30, 2026 compared to $447.7$458.5 million for the corresponding period in 2025 as a result of the factors discussed below under Reportable Segments.

EVS revenues increased 6.1%3.6% and Dietary revenues increased 1.3%1.9% during the three months ended MarchJune 31,30, 2026 compared to the corresponding period in 2025. The increase in revenues was driven by client wins and retention, driven by consistent service execution across our customer facilities, contractual price increases,increases and increased pass-through costs to customers.

Consolidated costs of services provided increaseddecreased by 1.9%13.1% to $386.9$396.0 million for the three months ended MarchJune 31,30, 2026 compared to $379.7$455.5 million for the corresponding period in 2025 as a result of the factors discussed below under Reportable Segments and due to the timing of actuarialcustomer restructurings and adjustments to our self-insuranceactuarial liabilities.liabilities during each period. Costs of services provided, as a percentage of revenues, was 83.6%84.1% for the three months ended MarchJune 31,30, 2026 compared to 84.8%99.4% for the same period in 2025. During the three months ended MarchJune 31,30, 2026,2025, we recognized $61.2 million of bad debt expense within costs of services provided due to large customer bankruptcies. During the three months ended June 30, 2026 and 2025, updates to our loss estimates for workers’ compensation and general liability reduced costs of services provided during the three months ended March 31, 2026 by $4.7$1.3 million.million and $6.2 million, respectively.

We include certain expenses classified as selling, general and administrative expenses within segment expenses. Segment expenses for EVS, as a percentage of EVS revenues, decreased to 87.8%86.7% for the three months ended MarchJune 31,30, 2026 from 89.2%99.2% in the corresponding period in 2025. Segment expenses for Dietary, as a percentage of Dietary revenues, decreased to 91.0%92.5% for the three months ended MarchJune 31,30, 2026 from 92.4%110.1% in the corresponding period in 2025.

Variations within these key indicators relate to the provision of services at new facilities, changes in the mix of customers for whom we provide supplies or do not provide supplies, changes in the services provided to certain customers,customers and changes in bad debt expense. 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, and has also evaluated the impact of recent tariff and trade policy changes, which to date have not had a material impact on our operations or financial results as such costs are generally passed through to customers. The decrease in labor and labor-related costs across both segments is driven primarily by reductions in workers’ compensation expense.

Selling, general and administrative expense incurred at a segment-level is discussed in the Reportable Segments section above. Also included in consolidated selling, general and administrative expense are corporate expenses and gains and losses associated with changes in the value of investments in the deferred compensation plan. These investments represent the amounts held on behalf of the participating employees as changes in the value of these investments affect the amount of our deferred compensation liability. LossesGains on the plan investments during the three months ended MarchJune 31,30, 2026 and 2025 decreasedincreased our total selling, general and administrative expense for each period.

Excluding the change in the deferred compensation plan described above, consolidated selling, general and administrative expense decreasedincreased $2.9$1.2 million or 6.2%2.6% for the three months ended MarchJune 31,30, 2026 compared to the corresponding period in 2025. Decreases were driven by discipline in execution and leveraging our topline growth to gain efficiencies.

Investment and other income, net was a gain of $1.1 million and $1.3$9.4 million for the three months ended MarchJune 31,30, 2026 andcompared 2025,to respectively.$4.7 Interestmillion in the corresponding 2025 period, respectively, driven by increases in interest income from outstanding cash and marketable securities increased, offset by a reduction in interest received on notes receivable (driven by a reduction in the notes receivable balance) and increased lossesgains recognized on deferred compensation plan investments.

Consolidated interest expense was $0.6 million and $0.4 million for each of the three months ended MarchJune 31,30, 2026 and 2025.2025, Asrespectively. During the three months ended June 30, 2026, we didrecognized not$0.3 havemillion significant borrowings during either period,in interest expense is limitedrelated to accessaccelerated feesamortization of financing costs associated with the amendment of our line of credit and letters of credit from our Credit Agreement.credit.

During the three months ended MarchJune 31,30, 2026, we recognized a provision for income taxes of $8.5$8.3 million, or 24.6%26.8% effective tax rate, versus a provisionbenefit for income taxes of $6.7$9.5 million, or 27.9%22.7% effective tax rate, for the same period in 2025. The effective tax rate change is based on the impact of discrete items in each quarter combined with the impact of our full year income estimate on the tax provision.

The actual annual effective tax rate will be impacted by the tax effects of option exercises orand vested awards, which are treated as discrete items in the reporting period in which they occur and may vary based on our common stock price at exercise and the volume of such exercises; therefore, these are not considered in the calculation of the estimated annual effective tax rate. The impact on our income tax provision for each of the three months ended MarchJune 31,30, 2026 and 2025 for such discrete items was a gain of $0.4 million and an expense of $0.8$0.3 million, respectively.million.

Our primary sources of liquidity are available cash and cash equivalents, available lines of credit under our revolvingbank line of credit facility(the “Credit Agreement”) and cash flows from operating activities. The following table includes the balances of our primary sources of liquidity at MarchJune 31,30, 2026 and December 31, 2025:

Our current ratio was 3.13.0 to 1.0 at MarchJune 31,30, 2026, and 3.4 to 1.0 at December 31, 2025. Marketable securities and restricted 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 the Company’s captive insurance company to satisfy capital requirements of the state regulator of our captive insurance company.

For the threesix months ended MarchJune 31,30, 2026 and 2025, our cash flows were as follows:

Our primary sources of cash from operating activities are the revenues generated from our Environmental 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. For the threesix months ended MarchJune 31,30, 2026, cash flow from operations included $26.1$48.8 million in net income, non-cash add-backs to net income of $12.7$14.4 million, and a $5.0$2.4 million increase in cash flows from changes in operating assets and liabilities.

Our principal uses of cash for investing activities are acquisitions and other strategic investments, capital expenditures such as EVS and food service equipment, computer software and equipment, furniture and fixtures (see “Capital Expenditures” below for additional information) and purchases of marketable securities and restricted marketable securities. Such uses of cash are offset by proceeds from sales of marketable securities.securities and disposals of equipment.

During the three months ended MarchJune 31,30, 2026 and 2025, under the Repurchase Plans we repurchased 1.21.0 million and 0.70.5 million shares of our common stock for $24.2$20.1 million and $7.0$7.6 million, respectively, including commissions and taxes. During the six months ended June 30, 2026 and 2025, we repurchased 2.2 million and 1.2 million shares of our common stock for $44.3 million and $14.6 million, respectively, including commissions and taxes. We remain authorized to repurchase up to 9.28.3 million shares of our common Stock pursuant to the 2026 Repurchase Plan.

For the threesix months ended MarchJune 31,30, 2026 and the year ended December 31, 2025, our quarterly repurchases of common stock were as follows:

At MarchJune 31,30, 2026, wethe had a $300 million banktotal line of credit (available under the “Credit Agreement”) onwas which$300 to draw for general corporate purposes.million. 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 the Term Secured Overnight Financing Rate (“SOFR”) rate plus 165 basis points. OurThe lineCredit of creditAgreement also provides, at our discretion, the ability to increase the revolving loan commitments to an aggregate amount not to exceed $500 million. At MarchJune 31,30, 2026, we had no borrowings under the lineCredit of credit.Agreement.

The lineCredit of creditAgreement requires us to satisfy two financial covenants. The covenants and their respective status at MarchJune 31,30, 2026 were as follows: