SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

þ☑

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

¨☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Exact name of registrant as specified in its charter)


Pennsylvania						23-2018365
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

~~3220 Tillman Drive, Suite 300, Bensalem, PA~~

3220 Tillman Drive, Suite 300, Bensalem, Pennsylvania

(Address of principal executive office)

Registrant’s telephone number, including area code:

Former name, former address and former ﬁscal year, if changed since last report:

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value	HCSG	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ~~YES~~Yes þ NONo ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ~~YES~~Yes þ NONo ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ~~YES~~Yes ¨☐ NONo þ

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. Common Stock, $.01 par value: ~~74,074,000~~74,416,000 shares outstanding as of ~~May 1, 2019.~~

Healthcare Services Group, Inc.

This report and documents incorporated by reference into it may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are not historical facts but rather are based on current expectations, estimates and projections about our business and industry, and our beliefs and assumptions. Words such as “believes,” “anticipates,” “plans,” “expects,” “will,” “goal,” and similar expressions are intended to identify forward-looking statements. The inclusion of forward-looking statements should not be regarded as a representation by us that any of our plans will be achieved. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Such forward-looking information is also subject to various risks and uncertainties. Such risks and uncertainties include, but are not limited to, risks arising from our providing services exclusively to the healthcare industry, primarily providers of long-term care; the impact of and future effects of the COVID-19 pandemic or other potential pandemics; having a significant portion of our consolidated revenues contributed by one customer during the three months ended March 31, ~~2019;~~2020; credit and collection risks associated with the healthcare industry; ~~risks associated with the ongoing Securities and Exchange Commission investigation into our earnings per share calculation practices and related litigation;~~ our claims experience related to workers’ compensation and general liability insurance; the effects of changes in, or interpretations of laws and regulations governing the healthcare industry, our workforce and services provided, including state and local regulations pertaining to the taxability of our services and other labor-related matters such as minimum wage increases; the ~~Company's~~Company’s expectations with respect to selling, general, and administrative expense; continued realization of tax benefits arising from our corporate reorganization and self-funded health insurance program; the impact of the Securities and Exchange Commission investigation and related class action lawsuit; risks associated with the reorganization of our corporate structure; ~~realization of our expectations regarding the impact of the Tax Cuts and Jobs Act on our tax rates and financial results;~~ and the risk factors described in Part I of our Form 10-K for the fiscal year ended December 31, ~~2018~~2019 and the risk factors described in Part I of our Form 10-K for the fiscal year ended December 31, 2019 under “Government Regulation of Clients,” ~~“Competition” and~~ “Service Agreements and Collections,” and “Competition,” and under Item IA. “Risk Factors” in such Form 10-K and ~~under Item IA. "Risk Factors" in~~ this Form 10-Q.

These factors, in addition to delays in payments from clients and/or clients in bankruptcy, ~~or clients with which we are in litigation to collect payment,~~ have resulted in, and could continue to result in, significant additional bad debts in the near future. Additionally, our operating results would be adversely affected if unexpected increases in the costs of labor and labor-related costs, materials, supplies and equipment used in performing services (including the impact of potential ~~tariffs)~~tariffs and COVID-19) could not be passed on to our clients.

In addition, we believe that to improve our financial performance we must continue to obtain service agreements with new clients, retain and provide new services to existing clients, achieve modest price increases on current service agreements with existing clients ~~and~~and/or maintain internal cost reduction strategies at our various operational levels. Furthermore, we believe that our ability to sustain the internal development of managerial personnel is an important factor impacting future operating results and the successful execution of our projected growth strategies.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

See accompanying ~~notes.~~notes to consolidated financial statements.

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Healthcare Services Group, Inc.

Consolidated Statements of Comprehensive Income

(in thousands, except per share amounts)

(Unaudited)


		Three Months Ended March 31,							Three Months Ended March 31,
		2019		2018			2020		2019
Revenues	Revenues	$	476,111	$	500,562	Revenues	$	449,150	$	476,111
Operating costs and expenses:	Operating costs and expenses:					Operating costs and expenses:
Costs of services provided	Costs of services provided	427,265		469,252		Costs of services provided	387,156		427,265
Selling, general and administrative expense	Selling, general and administrative expense	41,101		33,777		Selling, general and administrative expense	30,017		41,101
Other income (expense):
Other (expense) income:						Other (expense) income:
Investment and other income, net	Investment and other income, net	5,203		1,796		Investment and other income, net	(4,827)		5,203
Interest expense	Interest expense	(1,056)		(724)		Interest expense	(368)		(1,056)
Income before income taxes						Income before income taxes	26,782		11,892

Income (loss) before income taxes		11,892		(1,395)

Income tax provision (benefit)		2,736		(1,467)
Income tax provision						Income tax provision	6,592		2,736
Net income	Net income	$	9,156	$	72	Net income	$	20,190	$	9,156

Per share data:	Per share data:					Per share data:
Basic earnings per common share	Basic earnings per common share	$	0.12	$	0.00	Basic earnings per common share	$	0.27	$	0.12
Diluted earnings per common share	Diluted earnings per common share	$	0.12	$	0.00	Diluted earnings per common share	$	0.27	$	0.12

Weighted average number of common shares outstanding:	Weighted average number of common shares outstanding:					Weighted average number of common shares outstanding:
Basic	Basic	74,301		73,913		Basic	74,658		74,301
Diluted	Diluted	74,719		74,725		Diluted	74,767		74,719

Comprehensive income:	Comprehensive income:					Comprehensive income:
Net income	Net income	$	9,156	$	72	Net income	$	20,190	$	9,156
Other comprehensive income:	Other comprehensive income:					Other comprehensive income:
Unrealized gain (loss) on available-for-sale marketable securities, net of taxes		1,416		(1,138)
Total comprehensive income (loss)		$	10,572	$	(1,066)
Unrealized (loss) gain on available-for-sale marketable securities, net of taxes						Unrealized (loss) gain on available-for-sale marketable securities, net of taxes	(533)		1,416
Total comprehensive income						Total comprehensive income	$	19,657	$	10,572

~~See accompanying notes.~~

6See accompanying notes to consolidated financial statements.

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Healthcare Services Group, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


		Three Months Ended March 31,							Three Months Ended March 31,
		2019		2018			2020		2019
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	9,156	$	72	Net income	$	20,190	$	9,156
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	3,489		2,410		Depreciation and amortization	3,556		3,489
Bad debt provision	Bad debt provision	18,470		37,137		Bad debt provision	2,060		18,470
Stock-based compensation expense		1,838		1,569
Share-based compensation expense						Share-based compensation expense	1,973		1,838
Amortization of premium on marketable securities	Amortization of premium on marketable securities	382		339		Amortization of premium on marketable securities	450		382
Unrealized gain on deferred compensation fund investments		(3,445)		(300)
Unrealized loss (gain) on deferred compensation fund investments						Unrealized loss (gain) on deferred compensation fund investments	5,761		(3,445)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts and notes receivable	Accounts and notes receivable	(25,986)		(16,769)		Accounts and notes receivable	(9,645)		(25,986)
Inventories and supplies	Inventories and supplies	300		119		Inventories and supplies	(421)		300
Prepaid expenses and other assets	Prepaid expenses and other assets	(323)		(3,483)		Prepaid expenses and other assets	(4,574)		(323)
Deferred compensation funding	Deferred compensation funding	744		(259)		Deferred compensation funding	1,478		744
Accounts payable and other accrued expenses	Accounts payable and other accrued expenses	(5,322)		(5,478)		Accounts payable and other accrued expenses	(379)		(5,322)
Accrued payroll, accrued and withheld payroll taxes	Accrued payroll, accrued and withheld payroll taxes	18,465		18,546		Accrued payroll, accrued and withheld payroll taxes	(4,626)		18,465
Income taxes payable	Income taxes payable	(5,730)		(14,439)		Income taxes payable	2,480		(5,730)
Accrued insurance claims	Accrued insurance claims	2,622		3,443		Accrued insurance claims	1,379		2,622
Deferred compensation liability	Deferred compensation liability	2,917		1,024		Deferred compensation liability	(6,994)		2,917
Net cash provided by operating activities	Net cash provided by operating activities	17,577		23,931		Net cash provided by operating activities	12,688		17,577
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Disposals of fixed assets	Disposals of fixed assets	64		63		Disposals of fixed assets	129		64
Additions to property and equipment	Additions to property and equipment	(1,336)		(1,335)		Additions to property and equipment	(788)		(1,336)
Purchases of marketable securities	Purchases of marketable securities	(4,277)		(5,397)		Purchases of marketable securities	(2,670)		(4,277)
Sales of marketable securities	Sales of marketable securities	3,539		2,467		Sales of marketable securities	1,757		3,539
Net cash used in investing activities	Net cash used in investing activities	(2,010)		(4,202)		Net cash used in investing activities	(1,572)		(2,010)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Dividends paid	Dividends paid	(14,588)		(14,149)		Dividends paid	(15,033)		(14,588)
Reissuance of treasury stock pursuant to Dividend Reinvestment Plan	Reissuance of treasury stock pursuant to Dividend Reinvestment Plan	24		24		Reissuance of treasury stock pursuant to Dividend Reinvestment Plan	23		24
Proceeds from the exercise of stock options	Proceeds from the exercise of stock options	1,913		5,005		Proceeds from the exercise of stock options	1,724		1,913
Net repayments from short-term borrowings		—		(9,382)
Proceeds from short-term borrowings						Proceeds from short-term borrowings	40,000		—
Payments of statutory withholding on net issuance of restricted stock units	Payments of statutory withholding on net issuance of restricted stock units	(579)		(295)		Payments of statutory withholding on net issuance of restricted stock units	(661)		(579)
Net cash used in financing activities		(13,230)		(18,797)
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	26,053		(13,230)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	2,337		932		Net change in cash and cash equivalents	37,169		2,337
Cash and cash equivalents at beginning of the period	Cash and cash equivalents at beginning of the period	26,025		9,557		Cash and cash equivalents at beginning of the period	27,329		26,025
Cash and cash equivalents at end of the period	Cash and cash equivalents at end of the period	$	28,362	$	10,489	Cash and cash equivalents at end of the period	$	64,498	$	28,362

See accompanying ~~notes.~~notes to consolidated financial statements.

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Healthcare Services Group, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands)

(Unaudited)


		For the three months ended March 31, 2019																													For the three months ended March 31, 2020
		Common Stock					Additional Paid-in Capital		Accumulated Other Comprehensive Income, net of taxes		Retained Earnings		Treasury Stock				Stockholders’ Equity	Common Stock								Additional Paid-in Capital		Accumulated Other Comprehensive Income, net of taxes			Retained Earnings				Treasury Stock		Stockholders’ Equity
		Shares	Amount																			Shares			Amount					Additional Paid-in Capital			Accumulated Other Comprehensive Income, net of taxes			Retained Earnings		Treasury Stock	Stockholders’ Equity
Balance, December 31, 2018		75,344	$	753	$	259,440	$	158	$	190,092	$	(9,663)	$	440,780
Balance, December 31, 2019															Balance, December 31, 2019	75,557		$	756	$	270,614		$	2,919		$	195,455	$	(9,439)				$	460,305
Adjustment to adopt credit-loss guidance¹															Adjustment to adopt credit-loss guidance¹	—		—		—			—			(32,099)		—			(32,099)
Balance, January 1, 2020															Balance, January 1, 2020	75,557		$	756	$	270,614		$	2,919		$	163,356	$	(9,439)		$	428,206
Comprehensive income:	Comprehensive income:														Comprehensive income:
Net income for the period	Net income for the period	—	—		—		—		9,156		—		9,156		Net income for the period	—		—		—			—			20,190		—			20,190
Unrealized gain on available-for-sale marketable securities, net of taxes		—	—		—		1,416		—		—		1,416
Unrealized loss on available-for-sale marketable securities, net of taxes															Unrealized loss on available-for-sale marketable securities, net of taxes	—		—		—			(533)			—		—			(533)
Comprehensive income for the period	Comprehensive income for the period	—	—		—		—		—		—		$	10,572	Comprehensive income for the period																$	19,657
Exercise of stock options and other stock-based compensation, net of shares tendered for payment		115	2		1,911		—		—		—		1,913
Exercise of stock options and other share-based compensation, net of shares tendered for payment															Exercise of stock options and other share-based compensation, net of shares tendered for payment	162		1		1,723			—			—		—			1,724
Payment of statutory withholding on issuance of restricted stock and restricted stock units	Payment of statutory withholding on issuance of restricted stock and restricted stock units	—	—		(579)		—		—		—		(579)		Payment of statutory withholding on issuance of restricted stock and restricted stock units	—		—		(661)			—			—		—			(661)
Share-based compensation expense — stock options, restricted stock and restricted stock units	Share-based compensation expense — stock options, restricted stock and restricted stock units	—	—		1,656		—		—		—		1,656		Share-based compensation expense — stock options, restricted stock and restricted stock units	—		—		1,822			—			—		—			1,822
Treasury shares issued for Deferred Compensation Plan funding and redemptions	Treasury shares issued for Deferred Compensation Plan funding and redemptions	—	—		535		—		—		1		536		Treasury shares issued for Deferred Compensation Plan funding and redemptions	—		—		417			—			—		111			528
Shares issued pursuant to Employee Stock Plan	Shares issued pursuant to Employee Stock Plan	—	—		1,781		—		—		349		2,130		Shares issued pursuant to Employee Stock Plan	—		—		1,329			—			—		506			1,835
Dividends paid and accrued		—	—		—		—		(14,656)		—		(14,656)
Dividends paid and accrued, $0.20 per share															Dividends paid and accrued, $0.20 per share	—		—		—			—			(15,142)		—			(15,142)
Shares issued pursuant to Dividend Reinvestment Plan	Shares issued pursuant to Dividend Reinvestment Plan	—	—		18		—		—		5		23		Shares issued pursuant to Dividend Reinvestment Plan	—		—		16			—			—		7			23
Other	Other	6	—		174		—		—		—		174		Other	6		—		187			—			—		—			187
Balance, March 31, 2019		75,465	$	755	$	264,936	$	1,574	$	184,592	$	(9,308)	$	442,549
Balance, March 31, 2020															Balance, March 31, 2020	75,725		$	757	$	275,447		$	2,386		$	168,404	$	(8,815)		$	438,179

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

8See accompanying notes to consolidated financial statements.

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For the three months ended March 31, 2018
Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss), net of taxes Retained Earnings Treasury Stock Stockholders’ Equity
Shares Amount
Balance, December 31, 2017 74,960 $ 750 $ 244,363 $ 837 $ 163,860 $ (9,858) $ 399,952
Comprehensive income:
Net income for the period — — — — 72 — 72
Unrealized loss on available-for-sale marketable securities, net of taxes — — — (1,138) — — (1,138)
Comprehensive loss for the period $ (1,066)
Exercise of stock options and other stock-based compensation, net of shares tendered for payment 205 2 5,003 — — — 5,005
Payment of statutory withholding on issuance of restricted stock and restricted stock units — — (295) — — — (295)
Share-based compensation expense — stock options, restricted stock and restricted stock units — — 1,408 — — — 1,408
Treasury shares issued for Deferred Compensation Plan funding and redemptions — — 514 — — (34) 480
Shares issued pursuant to Employee Stock Plan — — 2,474 — — 346 2,820
Dividends paid and accrued — — — — (14,189) — (14,189)
Shares issued pursuant to Dividend Reinvestment Plan — — 20 — — 4 24
Other 4 — 205 — — — 205
Balance, March 31, 2018 75,169 $ 752 $ 253,692 $ (301) $ 149,743 $ (9,542) $ 394,344


	For the three months ended March 31, 2019
	Common Stock					Additional Paid-in Capital		Accumulated Other Comprehensive Income, net of taxes		Retained Earnings		Treasury Stock		Stockholders’ Equity
	Shares	Amount
Balance, December 31, 2018	75,344	$	753	$	259,440	$	158	$	190,092	$	(9,663)	$	440,780
Comprehensive income:
Net income for the period	—	—		—		—		9,156		—		9,156
Unrealized gain on available-for-sale marketable securities, net of taxes	—	—		—		1,416		—		—		1,416
Comprehensive income for the period												$	10,572
Exercise of stock options and other share-based compensation, net of shares tendered for payment	115	2		1,911		—		—		—		1,913
Payment of statutory withholding on issuance of restricted stock and restricted stock units	—	—		(579)		—		—		—		(579)
Share-based compensation expense — stock options, restricted stock and restricted stock units	—	—		1,656		—		—		—		1,656
Treasury shares issued for Deferred Compensation Plan funding and redemptions	—	—		535		—		—		1		536
Shares issued pursuant to Employee Stock Plan	—	—		1,781		—		—		349		2,130
Dividends paid and accrued, $0.20 per share	—	—		—		—		(14,656)		—		(14,656)
Shares issued pursuant to Dividend Reinvestment Plan	—	—		18		—		—		5		23
Other	6	—		174		—		—		—		174
Balance, March 31, 2019	75,465	$	755	$	264,936	$	1,574	$	184,592	$	(9,308)	$	442,549

See accompanying ~~notes.~~notes to consolidated financial statements.

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Healthcare Services Group, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1—Description of Business and Significant Accounting Policies

Nature of Operations

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

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

The Company is organized into ~~two~~2 reportable segments: housekeeping, laundry, linen and other services (“Housekeeping”), and dietary department services (“Dietary”).

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

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

Unaudited Interim Financial Data

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, these consolidated financial statements do not include all of the information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows. However, in the Company’s opinion, all adjustments which are of a normal recurring nature and are necessary for a fair presentation have been reflected in these consolidated financial statements. The balance sheet shown in this report as of December 31, ~~2018~~2019 has been derived from ~~and does not includ~~e ~~all of~~,the ~~disclosures contained in the~~audited financial statements for the year ended December 31, ~~2018.~~2019. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. The results of operations for the three months ended March 31, ~~2019~~2020 are not necessarily indicative of the results that may be expected for any future period.

Use of Estimates in Financial Statements

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

Principles of Consolidation

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

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Cash and Cash Equivalents

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

Accounts and Notes Receivable

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

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

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

Allowance for Doubtful Accounts

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

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

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


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

Inventories and Supplies

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

Revenue Recognition

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

The guidance under the ~~Financial Accounting Standards Board (~~"FASB") Accounting Standards Codification subtopic 606 Revenue from Contracts with Customers ("("ASC ~~606~~"606") ~~became effective and was adopted by the Company as of January 1, 2018 by applying the modified retrospective method for contracts that were not completed as of January 1, 2018. The standard~~ requires the Company to recognize revenue as the promised goods and services within the terms of the Company’s contracts are performed and satisfied. The amount of revenue recognized by the Company is based on the consideration to which the Company ~~expects to be~~is entitled in exchange for providing the contracted goods and services. The adoption of this standard did not have a material impact on the ~~Company's~~Company’s accounting for revenue earned relating to the Housekeeping and Dietary segments. The Company also did not recognize an opening adjustment to retained earnings as a result of the adoption of the standard. Refer to Note 2—Revenue herein for further information.

Leases

The guidance under FASB Accounting Standards Codification subtopic ASC 842 Leases (“ASC 842”) became effective and was adopted by the Company as of January 1, 2019, by applying a modified retrospective transition approach which resulted in the capitalization of the ~~Company's~~Company’s existing operating leases as of January 1, 2019. As such, the Company records assets and liabilities on the balance sheet to recognize the rights and obligations arising from leasing arrangements with contractual terms greater than ~~twelve (12)~~12 months, as permitted by U.S. GAAP. A leasing arrangement includes any contract which entitles the Company to the right of use of an identified tangible asset where there are no restrictions as to the direct of use of the asset, and the Company obtains substantially all of the economic benefits from the right of use. As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company was only the lessee of operating lease arrangements.

~~The Company did not recognize an opening adjustment to retained earnings as a result of the adoption of ASC 842, and prior period amounts continue to be reported in accordance with previous guidance.~~

Refer to Note 7—Leases herein for further information.

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Income Taxes

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

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

Earnings per Common Share

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

Share-Based Compensation

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

Identifiable Intangible Assets and Goodwill

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

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

~~Reclassification~~

Certain prior period amounts have been reclassified to conform to current year presentation. The Company has modified its presentation of interest expense, which is now presented separately in the Consolidated Statements of Comprehensive Income.

~~Correction of Immaterial Errors~~

In the first quarter of 2019, the Company updated its presentation of the tax benefit from equity compensation plans in the Consolidated Statements of Cash Flows. The tax benefit from equity compensation plans is now reflected as a component of the change in income taxes payable, as opposed to an offset to stock-based compensation expense. There was no impact to the Company's net cash provided by operating activities as a result of the correction in the Consolidated Statement of Cash Flows. Additionally, the Company updated its presentation of the income and costs associated with the Company's wholly-owned captive insurance company. Historically, such income and costs were reflected in the Company's revenues and costs of services provided within the Housekeeping segment. Such income and costs are now presented in "Investment and other income, net" in the Consolidated Statements of Comprehensive Income and for segment reporting purposes, those amounts are reflected in Corporate and eliminations. Prior period information has been revised to reflect the changes, which resulted in a $1.2 million and $0.7 million reduction of revenue and costs of services, respectively, in the first quarter 2018 Consolidated Statement of Comprehensive Income, with a corresponding increase of $0.5 million to Investment and other income, net. There was no impact to the Company's net income as a result of the historical errors or the corrections.

~~Table of Contents~~

Concentrations of Credit Risk

The ~~Company's~~ Company’s financial instruments that are subject to credit risk are cash and cash equivalents, marketable securities, deferred compensation funding and accounts and notes receivable. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, substantially all of the Company’s cash and cash equivalents and marketable securities were held in ~~one~~1 large financial institution located in the United States. The Company’s marketable securities are fixed income investments which are highly liquid and can be readily purchased or sold through established markets.

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

~~Recent Accounting Pronouncements~~

In June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments ("ASC 326"). The standard significantly changes how entities will measure credit losses for most financial assets~~, including accounts and notes receivables.~~ ~~The standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses.~~ Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The standard is effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently assessing the impact of adopting this standard on the Company’s financial statements and related disclosures.

Note 2—Revenue

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

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Housekeeping

Housekeeping accounted for ~~$233.1~~$224.3 million and ~~$245.2~~$233.1 million of the Company’s consolidated revenues forthe three months ended March 31, 2020 and 2019, ~~and 2018,~~ respectively,, which represented approximately 49.9% and 49.0% of the ~~Company's~~Company’s revenues in each ~~period~~.respective period. The Housekeeping services ~~provided under this segment~~ include managing clients’ housekeeping departments, which are principally responsible for the cleaning, disinfecting and sanitizing of resident rooms and common areas of the clients’ facilities, as well as the laundering and processing of the bed linens, uniforms, resident personal clothing and other assorted linen items utilized at the clients’ facilities. Upon beginning service with a client facility, the Company will typically hire and train the employees previously employed by such facility and assign an on-site manager to supervise and train the front-line personnel and coordinate housekeeping services with other facility support functions in accordance with client requests. Such management personnel also oversee the execution of various cost and ~~quality control~~quality-control procedures including continuous training and employee ~~evaluation, and on-site testing for infection control.~~evaluation.

Dietary

Dietary services accounted for $224.9 million and $243.0 ~~millionand $255.4~~ million of the Company’s consolidated revenues for the three months ended March 31, 2020 and 2019, ~~and 2018,~~ respectively,, which represented approximately 50.1% and 51.0% of the ~~Company's~~Company’s revenues in each ~~period~~.respective period. Dietary services consist of managing clients’ dietary departments which are principally responsible for food purchasing, meal preparation and professional dietitian services, which include the development of menus that meet the dietary needs of residents. On-site management is responsible for all daily dietary department activities, with regular support ~~being~~ provided by a District Manager specializing in dietary ~~services, as well as a registered dietitian.~~services. The Company also offers clinical consulting services to facilities which if contracted is a service bundled within the monthly service provided to clients. Upon beginning service with a client facility, the Company will typically hire and train the employees previously employed by such facility and assign an on-site manager to supervise and train the front-line personnel and coordinate dietitian services with other facility support functions in accordance with client requests. Such management personnel also oversee the execution of various ~~cost-~~cost and quality-control procedures including continuous training and employee evaluation.

~~Table of Contents~~

Revenue Recognition

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

The Company performs services and provides goods in accordance with its ~~service agreement~~ contracts with its customers. Such ~~service agreement~~ contracts typically provide for a renewable one year service term, cancellable by either party upon 30 to 90 ~~days'~~days’ notice, after an initial period of 60 to 120 days. A p~~erformance~~performance obligation is the unit of account under ASC 606 and isdefined as a promise in a contract to transfer a distinct good or service to the ~~customer ASC 606.~~customer. The Company’s Housekeeping and Dietary contracts relate to the provision of bundles of goods, services or both, which represent a series of distinct goods and services ~~and~~ that are substantially the same and that have the same pattern of transfer to the customer. TheThe Company accounts for the series as a single performance obligation satisfied over time, as the customer simultaneously receives and consumes the benefits of the goods and services provided. Revenue is recognized using the output method, which is based upon the delivery of goods and services to the clients’ facilities. In limited cases, the Company provides goods, services or both, before the execution of a written contract. In these cases, the Company defers the recognition of revenue until a contract is executed. The amount of such deferred revenue was ~~not~~0t material as of March 31, ~~2019~~2020 and December 31, ~~2018.~~2019. Additionally, substantially all such revenue amounts deferred as of December 31, ~~2018~~2019 were subsequently recognized as revenue during the three months ended March 31, ~~2019.~~ 2020.

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

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The Company allocates the transaction price to each performance obligation, noting that the bundle of goods, services or goods and services provided under each Housekeeping and Dietary contract represents a single performance obligation that is satisfied over time. The Company recognizes the related revenue when it satisfies the performance obligation by transferring a bundle of promised goods, services or both to a customer. Such recognition is on a monthly or weekly basis, as goods are provided and services are performed. In some cases, the Company requires customers to pay in advance for goods and services to be provided. As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the value of the contract liabilities associated with customer prepayments was ~~not~~0t material. Additionally, substantially all such revenue amounts deferred as of December 31, ~~2018~~2019 were subsequently recognized as revenue during the three months ended March 31, ~~2019.~~2020.

Transaction Price Allocated to Remaining Performance Obligations

The Company recognizes revenue as it satisfies the performance obligations associated with contracts with customers, which due to the nature of the goods and services provided by the Company, are satisfied over time. ~~Contract's~~Contracts may contain transaction prices that are fixed, variable or both. The ~~significant majority of the~~ Company’s contracts with customers ~~have~~typically provide for an initial term of one year, ~~or less,~~ with renewable one year service terms, cancellable by either party upon 30 to 90 ~~days~~'days’ notice after an initial period of60 to 120 days. ~~For~~

At March 31, 2020, the ~~purpose of disclosing the transaction price allocated~~Company had $612.9 million related to ~~remaining~~ performance obligations that were unsatisfied or partially unsatisfied for which the Company ~~elected~~expects to ~~apply practical expedients available under the guidance in ASC 606~~recognize revenue. The Company expects to ~~exclude from the calculation future revenues~~ ~~related to~~ ~~contracts with variable consideration that are for a term~~recognize revenue on approximately 25.6% of ~~one yearor less. As of March 31, 2019, the revenue expected to be recognized~~ ~~for~~ ~~the fixed transaction price associated with~~ the remaining performance obligations ~~under~~over the ~~Company’s existing contracts~~next 12 months, with the balance to be recognized thereafter. These amounts exclude variable consideration primarily related to performance obligations that consists of a ~~term greater than~~series of distinct service periods with revenues based on future performance that cannot be estimated at contract inception. The Company also has elected to apply the practical expedient that permits exclusion of information about the remaining performance obligations with original expected durations of one year ~~is $135.7 million for the remainder of 2019, $181.0 million for 2020, $181.0 million for 2021, $181.0 million for 2022, $181.0 million for 2023 and $30.2 million thereafter.~~or less.

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Note 3—Accounts and Notes Receivable

The Company’s accounts and notes receivable balances consisted of the following as of March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:


		March 31, 2019		December 31, 2018			March 31, 2020		December 31, 2019
		(in thousands)							(in thousands)
Short-term	Short-term					Short-term
Accounts and notes receivable	Accounts and notes receivable	$	411,736	$	389,047	Accounts and notes receivable	$	391,257	$	386,656
Allowance for doubtful accounts		(58,630)		(47,209)
Allowance for doubtful accounts¹						Allowance for doubtful accounts¹	(87,453)		(45,726)
Total net short-term accounts and notes receivable	Total net short-term accounts and notes receivable	$	353,106	$	341,838	Total net short-term accounts and notes receivable	$	303,804	$	340,930
Long-term	Long-term					Long-term
Notes receivable	Notes receivable	$	49,291	$	53,043	Notes receivable	$	54,293	$	53,659
Allowance for doubtful accounts		(10,000)		(10,000)
Allowance for doubtful accounts¹						Allowance for doubtful accounts¹	(4,827)		(6,667)
Total net long-term notes receivable	Total net long-term notes receivable	$	39,291	$	43,043	Total net long-term notes receivable	$	49,466	$	46,992
Total net accounts and notes receivable	Total net accounts and notes receivable	$	392,397	$	384,881	Total net accounts and notes receivable	$	353,270	$	387,922

1.Effective January 1, 2020, the Company adopted ASC 326 and recorded a one-time adoption adjustment of $42.2 million

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

~~The Company’s net current accounts and notes receivable balance increased from December 31, 2018.~~ Table of Contents

Fluctuations in net accounts and notes receivable are generally attributable to a variety of factors including, but not limited to, the timing of cash receipts from customers and the inception, transition, modification or termination of client relationships. The Company deploys significant resources and has invested in tools and processes to optimize Management’s credit and collections efforts. When appropriate, the Company utilizes interest-bearing promissory notes ~~as an alternative to accounts receivable~~ to enhance the collectability of amounts due, by instituting definitive repayment ~~plan~~splans and providing a means by which to further evidence the amounts owed. ~~As of March 31, 2019 and December 31, 2018, the Company had~~ ~~promissory notes outstanding~~ ~~$57.2 million and $63.3 million,~~ ~~respectively,~~ ~~net of reserves.~~ In addition, the Company may ~~assist clients who are adjusting to changes in their cash flows by amending the Company’s agreements~~amend contracts from ~~full-service~~full service to management-only arrangements, or ~~by modifying~~adjust contractual payment terms, to accommodate clients who have in good faith established clearly-defined plans for addressing cash flow issues. These efforts are intended to minimize the Company’s collections ~~risk while maintaining relationships with the clients.~~risk.

Note 4—4 - Allowance for Doubtful Accounts

~~The~~On January 1, 2020 (the "adoption date"), the Company replaced its previous incurred loss impairment model for estimating credit losses on accounts and notes receivables with an expected loss model prepared in accordance with ASC 326. While the incurred loss impairment model had the Company recognize credit losses when it was probable that a loss had been incurred, ASC 326 requires the Company to estimate future expected credit losses on such instruments before an impairment may occur. On the adoption date the Company recorded an initial increase of $42.2 million to the Company's allowance for doubtful accounts, is established when the Company determines that it is probable that receivables have been impaired and the Company can reasonably estimate the amount of the losses. The related provision for bad debts is chargedwith an offset recorded as an opening adjustment to costs of services provided in the Company’s Consolidated Statements of Comprehensive Income. The allowance for doubtful accounts is evaluated based on the Company’s ongoing review of accounts and notes receivable and is inherently subjective as it requires estimates susceptible to significant revision as more information becomes available.retained earnings.

The Company has had varying collections experience with respect to its accounts and notes receivable. The Company has sometimes extended the period of payment for certain clients beyond contractual terms. In order to provide for such collection issues and the general risk associated with the granting of credit terms, the Company recorded bad debt provisions (in Allowance for Doubtful Accounts) of ~~$18.5 million~~ ~~and~~ ~~$37.1 million~~ ~~for the three months ended March 31, 2019 and 2018, respectively.~~ ~~The increase in the allowance for the first quarter 2019 over the Company's normal bad debt provision is related primarily to the restructuring of a Northeast based operator.~~ ~~The decrease in the provision for bad debts period-over-period is primarily related to~~ ~~the provision recognized in the first quarter 2018 related to the~~ ~~corporate restructurings of two privately-held, multi-state operators.~~

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

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

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

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


	Notes Receivable
	Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Total
	(in thousands)
Notes Receivable
Standard note receivable	$	6,810	$	16,058	$	17,745	$	27,066	$	1,989	$	1,606	$	71,274
Elevated risk note receivable	$	—	$	—	$	397	$	5,511	$	—	$	2,457	$	8,365

Current-period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Current-period recoveries	—		—		—		—		—		—		—
Current-period net write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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


	Age Analysis of Past-Due Note Receivable as of March 31, 2020
	0-90 Days		91 - 180 Days		Greater than 181 Days		Total
	(in thousands)
Notes Receivable
Standard notes receivable	$	872	$	531	$	2,540	$	3,943
Elevated risk notes receivable	804		532		5,399		6,735
	$	1,676	$	1,063	$	7,939	$	10,678

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


	Allowance for doubtful accounts
Portfolio Segment	December 31, 2019		Cumulative effect of ASC 326 adoption¹		Write-Offs		Bad Debt Expense		March 31, 2020
	(in thousands)
Accounts receivable	$	39,903	$	36,709	$	(4,409)	$	2,186	$	74,389

Note receivable
Standard notes receivable	$	6,667	$	5,236	$	—	$	(249)	$	11,654
Elevated risk notes receivable	5,823		291		—		123		6,237
Total notes receivable	$	12,490	$	5,527	$	—	$	(126)	$	17,891
Total accounts and notes receivable	$	52,393	$	42,236	$	(4,409)	$	2,060	$	92,280

1.Represents a one-time adjustment to the Company’s 2020 opening retained earnings balance in accordance with the adoption of the accounting guidance.

Note 5—Changes in Accumulated Other Comprehensive Income by Component

Accumulated other comprehensive income consists of unrealized gains and losses from the Company’s available-for-sale marketable securities. The following table provides a summary of the changes in accumulated other comprehensive income for the three months ended March 31, ~~2019~~2020 and ~~2018:~~2019:

Unrealized Gains and Losses on Available-for-Sale Securities¹
Three Months Ended March 31,
2019 2018
(in thousands)
Accumulated other comprehensive income — beginning balance $ 158 $ 837
Other comprehensive income (loss) before reclassifications 1,419 (1,208)
(Gains) losses reclassified from other comprehensive income²
(3) 70
Net current period other comprehensive income (loss)³
1,416 (1,138)
Accumulated other comprehensive income (loss) — ending balance $ 1,574 $ (301)


	Unrealized Gains and Losses on Available-for-Sale Securities¹
	Three Months Ended March 31,
	2020		2019
	(in thousands)
Accumulated other comprehensive income — beginning balance	$	2,919	$	158
Other comprehensive (loss) income before reclassifications	(542)		1,419
Losses (Gains) reclassified from other comprehensive income²	9		(3)
Net current period other comprehensive (loss) income³	(533)		1,416
Accumulated other comprehensive income — ending balance	$	2,386	$	1,574

1.All amounts are net of tax

2.Realized gains and losses were recorded pre-tax under “Investment and other income” in ~~our~~the Consolidated Statements of Comprehensive Income. For the three months ended March 31, 2020, the Company recorded less than $0.1 million of realized losses from the sale of available-for-sale securities. For the three months ended March 31, 2019, the Company recorded less than $0.1 million of realized gains from the sale of available-for-sale securities. ~~For the three months ended March 31, 2018, the Company recorded $0.1 million of realized losses from the sale of available-for-sale securities.~~ Refer to Note 9—Fair Value Measurements herein for further information.

3.For the three months ended March 31, 2020, the changes in other comprehensive income were net of a tax benefit of $0.1 million. For the three months ended March 31, 2019, ~~and 2018,~~ the changes in other comprehensive income ~~(loss)~~ were net of a tax expense of $0.4 ~~million and a benefit of $0.3 million, respectively.~~million.

Amounts Reclassified from Accumulated Other Comprehensive Income
2019 2018
(in thousands)
Three Months Ended March 31,
Gains (losses) from the sale of available-for-sale securities $ 4 $ (89)
Tax (expense) benefit (1) 19
Net gain (loss) reclassified from accumulated other comprehensive income (expense) $ 3 $ (70)


	Amounts Reclassified from Accumulated Other Comprehensive Income
	2020		2019
	(in thousands)
Three Months Ended March 31,
(Losses) gains from the sale of available-for-sale securities	$	(11)	$	4
Tax benefit (expense)	2		(1)
Net (loss) gain reclassified from accumulated other comprehensive income	$	(9)	$	3

Note 6—Property and Equipment

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

The following table sets forth the amounts of property and equipment by each class of depreciable asset as of March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:

Operating lease — right-of-use assets¹

1.Upon the adoption of ASC 842 the Company recognized ~~right of use~~right-of-use assets pertaining to leases in Property and Equipment, net. ~~Prior period amounts continue to be reported in accordance with previous guidance.~~

2.Includes furniture and fixtures, leasehold improvements and autos and trucks including auto leases.

Depreciation expense for the three months ended March 31, 2020 and 2019 ~~and 2018~~ was ~~$2.4~~ $2.5 million and ~~$1.3~~$2.4 million, respectively. Of the depreciation expense recorded for the three months ended March 31, 2020 and 2019, $1.4 million and $1.2 million related to the depreciation of the ~~Company's~~Company’s operating lease - right-of-use ~~assets.~~ assets ("ROU Assets"), respectively.

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

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

Components of lease expense ~~as well as supplemental information~~ required by ASC 842 are presented below for the three months ended March 31, 2020 and 2019.


	Three Months Ended March 31
	2020		2019
	(in thousands)
Lease cost
Operating lease cost	$	1,355	$	1,214
Short-term lease cost	129		221
Variable lease cost	146		153
Total lease cost	$	1,630	$	1,588


	~~Three Months Ended March 31, 2019~~
	~~(in thousands)~~
~~Lease cost~~¹
~~Operating lease cost~~	$	~~1,214~~
~~Short-term lease cost~~	~~221~~
~~Variable lease cost~~	~~153~~
~~Total lease cost~~	$	~~1,588~~

~~Other information~~
~~Cash paid for amounts included in the measurement of lease liabilities~~
~~Operating cash flows from operating leases~~	$	~~1,307~~
~~Weighted-average remaining lease term — operating leases~~	~~6.9 years~~
~~Weighted-average discount rate — operating leases~~	~~4.7~~		%

1.Supplemental information required by ASC 842 ~~was adopted as of January 1, 2019. As such, prior period numbers remain unadjusted and in accordance with prior U.S. GAAP. Lease expense~~is presented below for the three months ended March 31, ~~2018 was $0.9 million.~~2020 and 2019.


	Quarter ended March 31,
	2020			2019
	(dollar amounts in thousands)
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,380		$	1,307
Weighted-average remaining lease term — operating leases	5.9 years			6.9 years
Weighted-average discount rate — operating leases	4.7		%	4.7		%

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

The following is a schedule by calendar year of future minimum lease payments under operating leases that have remaining terms as of March 31, ~~2019:~~2020:

Note 8—Other Intangible Assets

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

The following table sets forth the estimated amortization expense for intangibles subject to amortization for the remainder of ~~2019,~~2020, the following five fiscal years and thereafter:

Amortization expense for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 was $1.0 million and $1.1 million, respectively.

Note 9—Fair Value Measurements

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

The Company’s marketable securities consist of tax-exempt municipal bonds, which are classified as available-for-sale and are reported at fair value. Unrealized gains and losses associated with these investments are included in other comprehensive income (net of tax) within the Consolidated Statements of Comprehensive Income. The fair value of these marketable securities is classified within Level 2 of the fair value hierarchy, as these securities are measured using quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable. Such valuations are determined by a third-party pricing service. For the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, the Company recorded unrealized losses of $0.5 million and unrealized gains of $1.4 million ~~and unrealized~~ ~~losses~~ ~~of $1.1 million~~ on marketable securities, respectively.

For the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, the Company received total proceeds, less the amount of interest received, of ~~$3.5~~$1.8 million and ~~$2.4~~$3.5 million, respectively, from sales of available-for-sale municipal bonds. For the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, these sales resulted in realized ~~gains~~losses of less than $0.1 million and realized ~~losses~~gains of less than $0.1 million, respectively, which were recorded in “Other income ~~net~~ – Investment and ~~interest~~other income,” net” in the Consolidated Statements of Comprehensive Income. The basis for the sale of these securities was the specific identification of each bond sold during the period.

The investments under the funded deferred compensation plan are accounted for as trading securities and unrealized gains or losses are included in earnings. The fair value of these investments are determined based on quoted market prices (Level 1). For the three months ended March 31, 2020 and 2019, ~~and 2018,~~ the ~~Company's~~Company’s recognized unrealized losses of $5.8 million and unrealized gains of $3.4 million, respectively, related to equity securities still held at the respective reporting ~~date of $3.4 million and $0.3 million, respectively.~~dates.

The following tables provide fair value measurement information for the Company’s marketable securities and deferred compensation fund investments as of March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:

1.The fair value of the money market fund is based on the net asset value (“NAV”) of the shares held by the plan at the end of the period. The money market fund includes short-term United States dollar denominated money market instruments and the NAV is determined by the custodian of the fund. The money market fund can be redeemed at its NAV at the measurement date as there are no significant restrictions on the ability to sell this investment.

The following table summarizes the contractual maturities of debt securities held at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, which are classified as marketable securities in the Consolidated Balance Sheets:

Note 10—~~Stock-Based~~Shared-Based Compensation

The components of the Company’s ~~stock-based~~shared-based compensation expense for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 are as follows:

Total pre-tax stock-based compensation expense charged against income ¹

Total pre-tax share-based compensation expense charged against income¹

1.~~Stock-based~~Share-based compensation expense is recorded in cost of services and selling, general and administrative expense in the Company’s Consolidated Statements of Comprehensive Income.

At March 31, ~~2019,~~2020, the unrecognized compensation cost related to unvested stock options and awards was ~~$21.7~~$22.4 million. The weighted average period over which these awards will vest is approximately ~~3.2~~3.4 years.

2012 Equity Incentive Plan

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

As of March 31, ~~2019, 3.6~~2020, 3.1 million shares of common stock were reserved for issuance under the Plan, including ~~0.6~~0.3 million shares available for future grant. No stock award will have a term in excess of10 years. All awards granted under the Plan become vested and exercisable ratably over a ~~5 years~~five year period on each yearly anniversary of the grant date.

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

A summary of stock options outstanding under the Plan as of December 31, ~~2018~~2019 and changes during the three months ended March 31, ~~2019~~2020 is as follows:

The weighted average grant-date fair value of stock options granted during the three months ended March 31, 2020 and 2019 was $4.62 and ~~2018 was~~ $8.18 ~~and $10.48~~ per common share, respectively. The total intrinsic value of stock options exercised during the three months ended March 31, 2020 and 2019 ~~and 2018~~ was ~~$0.9~~$0.8 million and ~~$4.2~~$0.9 million, respectively.

The fair value of stock option awards granted in ~~2019~~2020 and ~~2018~~2019 was estimated on the date of grant using the Black-Scholes option valuation model with the following assumptions:

The following table summarizes other information about the stock options at March 31, ~~2019:~~2020:


	March 31, ~~2019~~2020
	(amounts in thousands, except per share data)
Outstanding:
Aggregate intrinsic value	$	~~9,137~~1,340
Weighted average remaining contractual life	~~6.0~~5.8 years
Exercisable:
Number of options	~~1,364~~1,483
Weighted average exercise price	$	~~27.84~~31.04
Aggregate intrinsic value	$	~~8,912~~1,340
Weighted average remaining contractual life	~~4.8~~4.6 years

Restricted Stock Units and Restricted Stock

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

During the three months ended March 31, ~~2018, the Company granted 0.1 million restricted stock units with a weighted average grant date fair value of $52.06 per share.~~

~~During the three months ended March 31,~~2020 and 2019, ~~and~~ ~~2018~~, the Company did ~~not~~0t grant any restricted stock.

A summary of the outstanding restricted stock units and restricted stock as of December 31, ~~2018~~2019 and changes during the three months ended March 31, ~~2019~~2020 is as follows:

Employee Stock Purchase Plan

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

Under the ESPP, the Company is authorized to issue up to 4.1 million shares of its common stock to its employees. Pursuant to such authorization, there are ~~2.2~~2.1 million shares available for future grant at March 31, ~~2019.~~2020.

The expense associated with the options granted under the ESPP during the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 was estimated on the date of grant using the Black-Scholes option valuation model with the following assumptions:

Three Months Ended March 31,
2019 2018
Risk-free interest rate 2.57% 1.89%
Weighted average expected life (years) 1.0 1.0
Expected volatility 30.8% 20.8%
Dividend yield 1.9% 1.4%


	Three Months Ended March 31,
	2020	2019
Risk-free interest rate	1.6%	2.6%
Weighted average expected life (years)	1.0	1.0
Expected volatility	42.0%	30.8%
Dividend yield	3.3%	1.9%

Deferred Compensation Plan

The Company offers a Supplemental Executive Retirement Plan (“SERP”) for executives and certain key employees. The SERP allows participants to defer a portion of their earned income on a pre-tax basis and as of the last day of each plan year, each participant will be credited with a match of a portion of their deferral in the form of the Company’s common stock based on the then-current market value. Under the SERP, the Company is authorized to issue 1.0 million shares of its common stock to its employees. Pursuant to such authorization, the Company has 0.4 million shares available for future grant at March 31, ~~2019.~~2020. At the time of issuance, such shares are accounted for at cost as treasury stock.

The following table summarizes information about the SERP during the three months ended March 31, ~~2019~~2020 and ~~2018:~~2019:

1.Both the SERP match and the deferrals are included in the selling, general and administrative caption in the Consolidated Statements of Comprehensive Income.

During the three months ended March 31, ~~2019,~~2020, the Company paid regular quarterly cash dividends totaling approximately ~~$14.6~~$15.0 million as follows:


	Quarter Ended
		March 31, ~~2019~~2020
	~~(in thousands, except per share data)~~
Cash dividend paid per common share		$	~~0.19625~~0.20125
Total cash dividends paid		$	~~14,588~~15,033
Record date		February ~~15, 2019~~28, 2020
Payment date		March ~~22, 2019~~27, 2020

Additionally, on April ~~30, 2019,~~21, 2020, the Company’s Board of Directors declared a regular quarterly cash dividend of ~~$0.19750~~$0.20250 per common share, which will be paid on June ~~28, 2019,~~26, 2020, to shareholders of record as of the close of business on May ~~24, 2019.~~22, 2020.

Cash dividends declared for the periods presented were as follows:

Three Months Ended March 31,
2019 2018
Cash dividends declared per common share $ 0.19750 $ 0.19250


	Three Months Ended March 31,
	2020	2019
Cash dividends declared per common share	0.2025	0.1975

Note 12—Income Taxes

The ~~2019 estimated~~Company’s annual effective tax rate is ~~expected to be approximately 21% to 23%. 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 therefore cannot be considered in the calculation of the estimated annual effective tax rate. The impact on the Company’s income tax provision ~~for~~through the three months ended March 31, ~~2019~~2020 for such discrete items was ~~approximately $0.1 million.~~

Differences between the effective tax rate and the applicable U.S. federal statutory rate arise primarily from the effect of state and local income taxes, share-based compensation and tax credits available to the Company. The actual ~~2019~~2020 effective tax rate will likely vary from the estimate depending on the actual operating income earned with availability of tax credits and the exercise of stock options and vesting of share-based awards. The Company’s estimate for the 2020 effective tax rate has not been adjusted for any impacts related to COVID-19.

The Company accounts for income taxes using the asset and liability method, which results in recognizing income tax expense based on the amount of income taxes payable or refundable for the current year. Additionally, the Company regularly evaluates the tax positions taken or expected to be taken resulting from financial statement recognition of certain items. Based on the evaluation, there are no0 significant uncertain tax positions requiring recognition in the Company’s financial statements. The evaluation was performed for the tax years ended December 31, ~~2013~~2016 through ~~2018~~2019 (with regard to U.S. federal income tax returns) and December 31, ~~2012~~2015 through ~~2018~~2019 (with regard to various state and local income tax returns), the tax years which remain subject to examination by major tax jurisdictions as of March 31, ~~2019.~~2020.

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

Note 13—Segment Information

The Company manages and evaluates its operations in ~~two~~2 reportable segments: Housekeeping (housekeeping, laundry, linen and other services) and Dietary (dietary department services). Although both segments serve the same client base and share many operational similarities, they are managed separately due to distinct differences in the type of services provided, as well as the specialized expertise required of the professional management personnel responsible for delivering each segment’s services. Such services are rendered pursuant to discrete ~~service agreements,~~contracts, specific to each reportable segment.

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

Corporate and eliminations²

Corporate and eliminations¹

1.~~Prior year Housekeeping and Corporate revenues were revised for the presentation of the revenues earned by the Company's wholly-owned captive insurance subsidiary. Refer to~~ ~~Note 1—Description of Business and Significant Accounting Policies herein for additional disclosure regarding the revision.~~

2.Primarily represents corporate office costs and related overhead, recording of certain inventories and supplies and workers compensation costs at the reportable segment level which use accounting methods that differ from those used at the corporate level, as well as consolidated subsidiaries’ operating expenses that are not allocated to the reportable segments, net of investment and other income and interest expense.

Note 14—Earnings Per Common Share

Basic and diluted earnings per common share are computed by dividing net income by the weighted-average number of basic and diluted common shares outstanding, respectively. The weighted-average number of diluted common shares includes the impact of dilutive securities, including outstanding stock options and unvested restricted stock and restricted stock units. The table below reconciles the weighted-average basic and diluted common shares outstanding:

Effect of dilutive securities ¹

1.Certain outstanding equity awards are anti-dilutive and therefore were ~~therefore~~ excluded from the calculation of the weighted average number of diluted common shares outstanding. ~~During the~~ three months ended March 31, 2019, stock options to purchase 0.8 million shares having a weighted average exercise price of $41.80 per share, were excluded. During the three months ended March 31, 2018, stock options to purchase 0.2 million shares having a weighted average exercise price of $52.06 per share, were excluded. During the three months ended March 31, 2019 and 2018, 0.3 million and 0.1 million restricted stock units were excluded.

Anti-dilutive outstanding equity awards under share based compensation plans were as follows:


	Three Months Ended March 31,
	2020	2019
	(in thousands)
Anti-dilutive	2,090	1,146

Note 15—Other Contingencies

At March 31, ~~2019,~~2020, the Company had a $475 million bank line of credit on which to draw for general corporate purposes. Amounts drawn under the line of credit are payable upon demand and generally bear interest at a float rate, based on the ~~Company's~~Company’s leverage ratio, and starting at LIBOR plus 115 basis points (or if LIBOR becomes unavailable, the higher of the Overnight Bank Funding Rate, plus 50 basis points and the Prime Rate). As of ~~both~~March 31, ~~2019~~2020 and December 31, ~~2018~~ 2019 there were ~~$30.0~~$50.0 million and $10.0 million in borrowings under the line of credit,. respectively. The line of credit requires the Company to satisfy two financial covenants, with which the Company is in compliance as of March 31, ~~2019~~2020 and expects to remain in compliance. The line of credit expires on December 21, 2023.

At March 31, ~~2019,~~2020, the Company also had outstanding ~~$62.7~~$64.9 million in irrevocable standby letters of credit, which relate to payment obligations under the ~~Company's~~Company’s insurance programs. In connection with the issuance of the letters of credit, the amount available under the line of credit was reduced by ~~$62.7~~$64.9 million to $360.1 million at March 31, ~~2019.~~2020. The letters of credit expire on January 2, ~~2020.~~2021. Besides the $64.9 million letters of credit there are no other restrictions as to the amount which the Company can draw upon the $475 million line of credit.

Tax Jurisdictions and Matters

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

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

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

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

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

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

currently possible to assess whether or not the outcome of these proceedings may have a material adverse effect on the Company.

Government Regulations

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

Note 16—Subsequent Events

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

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

Results of Operations

The following discussion is intended to provide the reader with information that will be helpful in understanding our financial statements, including the changes in certain key items when comparing financial statements period to period. We also intend to provide the primary factors that accounted for those changes, as well as a summary of how certain accounting principles affect our financial statements. In addition, we are providing information about the financial results of our two operating segments to further assist in understanding how these segments and their results affect our consolidated results of operations. This discussion should be read in conjunction with our financial statements as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 and the notes accompanying those financial statements.

COVID-19 Considerations

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

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

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

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

We provide management, administrative and operating expertise and services to the housekeeping, laundry, linen, facility maintenance and dietary service departments of healthcare facilities, including nursing homes, retirement complexes, rehabilitation centers and hospitals located throughout the United States. We believe we are the largest provider of housekeeping and laundry management services to the long-term care industry in the ~~nation,~~United States, rendering such services to over ~~3,500~~3,000 facilities throughout the continental United States as of March 31, ~~2019.~~2020.

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

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

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

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

At March 31, ~~2019,~~2020, Housekeeping services were provided at essentially all of our approximately ~~3,500~~3,000 client facilities, generating approximately ~~49.0%~~49.9% or ~~$233.1~~$224.2 million of our total revenues for the three months ended March 31, ~~2019.~~2020. Dietary services were provided to over 1,500 client facilities at March 31, ~~2019~~2020 and contributed approximately ~~51.0%~~50.1% or ~~$243.0~~$225.0 million of our total revenues for the three months ended March 31, ~~2019.~~2020.

~~Subject to the factors noted in the Cautionary Statement Regarding Forward~~-Looking Statements included in this Quarterly Report on Form 10-Q, and although there can be no assurance thereof, we expect our consolidated revenues for the remainder of 2019 to grow. We expect that Dietary revenues as a percentage of consolidated revenue ~~will continue to grow~~ and such growth is expected to come from extending our Dietary department service offerings to our current Housekeeping client base. Growth in Housekeeping is expected to primarily come from obtaining new clients.

Three Months Ended March 31, ~~2019~~2020 and ~~2018~~ 2019

The following table summarizes the income statement key components that we use to evaluate our financial performance on a consolidated and reportable segment basis, for the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019. The differences between the reportable segments’ operating results and other disclosed data and our consolidated financial results relate primarily to corporate level transactions and adjustments related to transactions recorded at the reportable segment level which use methods other than generally accepted accounting principles.

Three Months Ended March 31,
2019 2018 % Change
(in thousands)
Revenues
Housekeeping ¹
$ 233,134 $ 245,161 (4.9) %
Dietary 242,977 255,401 (4.9) %
Consolidated $ 476,111 $ 500,562 (4.9) %
Costs of services provided
Housekeeping ¹
$ 206,627 $ 216,820 (4.7) %
Dietary 227,552 240,671 (5.5) %
Corporate and eliminations (6,914) 11,761 (158.8) %
Consolidated $ 427,265 $ 469,252 (8.9) %
Selling, general and administrative expense
Corporate and eliminations $ 41,101 $ 33,777 21.7 %
Investment and other income, net
Corporate and eliminations¹
$ 5,203 $ 1,796 189.7 %
Interest expense
Corporate and eliminations¹
$ 1,056 $ 724 45.9 %
Income (loss) before income taxes
Housekeeping $ 26,507 $ 28,341 (6.5) %
Dietary 15,425 14,730 4.7 %
Corporate and eliminations (30,040) (44,466) 32.4 %
Consolidated $ 11,892 $ (1,395) 952.5 %

1.Prior year Housekeeping and Corporate revenues, costs of services provided and investment and other income, net were revised for the presentation of the revenue and expenses associated with our wholly-owned captive insurance subsidiary. Refer to ~~Note 1—Description of Business and Significant Accounting Policies herein for additional disclosure regarding the revision.~~


	Three Months Ended March 31,
	2020		2019		% Change
	(in thousands)
Revenues
Housekeeping	$	224,293	$	233,134	(3.8)	%
Dietary	224,857		242,977		(7.5)	%
Consolidated	$	449,150	$	476,111	(5.7)	%

Costs of services provided
Housekeeping	$	200,352	$	206,627	(3.0)	%
Dietary	210,528		227,552		(7.5)	%
Corporate and eliminations	(23,724)		(6,914)		243.1	%
Consolidated	$	387,156	$	427,265	(9.4)	%

Selling, general and administrative expense
Corporate and eliminations	$	30,017	$	41,101	(27.0)	%

Investment and other (expense) income, net
Corporate and eliminations	$	(4,827)	$	5,203	(192.8)	%

Interest expense
Corporate and eliminations	$	(368)	$	(1,056)	(65.2)	%

Income (loss) before income taxes
Housekeeping	$	23,941	$	26,507	(9.7)	%
Dietary	14,329		15,425		(7.1)	%
Corporate and eliminations	(11,488)		(30,040)		61.8	%
Consolidated	$	26,782	$	11,892	125.2	%

Housekeeping revenues represented approximately ~~49.0%~~49.9% of consolidated revenues for the three months ended March 31, ~~2019.~~2020. Dietary revenues represented approximately ~~51.0%~~50.1% of consolidated revenues for the three months ended March 31, ~~2019.~~2020.

The following table sets forth the ratio ~~which~~of certain items ~~bear~~ to consolidated revenues:

Consolidated revenues decreased ~~4.9%~~5.7% to ~~$476.1~~$449.2 million for the three months ended March 31, ~~2019~~2020 compared to ~~$500.6~~$476.1 million for the corresponding period in ~~2018,~~2019, as a result of the factors discussed below under Reportable Segments.

~~Housekeeping’s~~Housekeeping and Dietary revenues decreased ~~4.9%~~3.8% and 7.5%, respectively, during the three months ended March 31, 2020 compared to the corresponding period in ~~2018. This was partially~~2019, primarily driven bythe ~~Company's adjustment of its contracts~~Company exiting facilities in conjunction with ~~several~~operator transitions where we have been unable to come to agreeable terms.

~~customers during the~~ ~~three months ended March 31, 2019. Dietary~~

We do not currently expect that our future revenues ~~decreased~~ ~~4.9%~~ ~~compared to the corresponding period in 2018 primarily from the adjustments to the Company's contractual relationship with Genesis Healthcare~~^® ~~(“Genesis”). Effective December 1, 2018, Genesis assumed responsibility for direct payment to suppliers for food purchases. HCSG~~ will ~~continue to manage food procurement, and as a result, maintain the same benefits of purchasing scale.~~be adversely impacted by COVID-19.

Costs of Services Provided

Consolidated costs of services provided decreased ~~8.9%~~9.4% to $387.2 million for the three months ended March 31, 2020 compared to $427.3 million for the three months ended March 31, ~~2019 compared to $469.3 million for~~2019. During the three months ended March 31, ~~2018~~. 2020 costs of services related to COVID-19 was not material. Future increases to both labor and supplies expense as a result of COVID-19 are possible, however we anticipate to be reimbursed from our clients for most COVID-19 related costs which are outside the scope of services or supplies which we are contractually obligated. The terms in our service agreements support this anticipation and the expectation of our clients eligibility for additional reimbursement under enacted and proposed government regulations.

The following table provides a comparison of key indicators we consider when managing the consolidated costs of services provided:

The decrease in the bad debt provision ~~is related to our~~ ~~current~~ ~~assessment of~~was impacted by the ~~collectability of our accounts and notes receivable~~ ~~in the first quarter of 2019. The first quarter of 2018 related to corporate restructurings of two privately-held, multi-state operators. Our provision for the three months ended March 31,~~ 2019 ~~of $18 million was primarily related to the~~ out-of-court restructuring of a privately held Northeast based operator. Effective January 1, 2020, the Company adopted the ASC 326 accounting guidance which changed the Company’s procedures for estimating its bad debt provision. Under ASC 326, the Company now records a provision for bad debt based on management’s forecast of expected future credit losses. Prior to ASC 326, the Company recorded a provision for bad debt based solely on accounts and notes receivables which were identified as impaired.

Costs of services provided for Housekeeping, as a percentage of Housekeeping revenues, increased to ~~88.6%~~89.3% for the three months ended March 31, ~~2019~~2020 from ~~88.4%~~88.6% in the corresponding period in ~~2018.~~2019. Costs of services provided for Dietary, as a percentage of Dietary revenues, decreased to ~~93.7%~~93.6% for the three months ended March 31, ~~2019~~2020 from ~~94.2%~~93.7% in the corresponding period in ~~2018.~~2019.

The following table provides a comparison of the key indicators we consider when managing costs of services provided at the segment level, as a percentage of the respective segment’s revenues:

Variations within these key indicators relate to the provision of services at new facilities and changes in the mix of clients for whom we provide supplies or do not provide supplies. Management focuses on building efficiencies and managing labor and other costs at the facility level, as well as managing supply chain costs, for new and existing facilities. The reduction in dietary supplies cost was primarily a result of a modification of our contractual relationship with Genesis, which was effective December 1, 2018 and whereby Genesis assumed responsibility for direct payment to suppliers for food purchases.

Consolidated Selling, General and Administrative Expense

Included in selling, general and administrative expense are gains and losses associated with changes in the value of investments under the deferred compensation plan. These investments represent the amounts held on behalf of the participating employees and changes in the value of these investments affect the amount of our deferred compensation liability. ~~Gains~~Losses on the plan investments during the three months ended March 31, 2020 decreased our total selling, general and administrative expense for that period. In the corresponding period in 2019, ~~and 2018~~the Company realized gains on the plan investments which increased our total selling, general and administrative expense for ~~these periods.~~that period. During the three months ended March 31, 2020, we incurred an increase to certain costs related to COVID-19, however such costs were immaterial. There is a possibility for additional increased selling, general and administrative expense related to the pandemic but such costs at this time are not expected to be material.

Excluding the change in the deferred compensation plan described above, consolidated selling, general and administrative expense ~~increased $4.1~~decreased $1.9 million or ~~12.3%, to 7.9% of consolidated revenues,~~5.1% for the three months ended March 31, ~~2019~~2020 compared to the corresponding period in ~~2018. The increase was primarily~~2019, when the Company settled a result of increased legal and other professional fees incurred during the first quarter of 2019 in connection with the Company's internal investigation related to the Securities and Exchange Commission's inquiry regarding the Company's earnings per share calculation practices.state-specific sales tax audit.

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

Consolidated Investment and Other (Expense) Income, net

Investment and other income ~~increased 189.7%~~decreased 192.8% for the three months ended March 31, ~~2019~~2020 compared to the corresponding ~~2018~~2019 period, primarily due to ~~favorable~~negative market fluctuations ~~in the value of our trading security investments representing the funding for our deferred compensation plan.~~ ~~Realized gains and losses on our available-for-sale municipal bonds also impacted consolidated investment income. Refer~~related to ~~Note 1—Description of Business and Significant Accounting Policies herein for additional disclosure regarding the reclassification.~~COVID-19.

Consolidated Interest Expense

Consolidated interest expense ~~increased 45.9%~~decreased 65.2% to $0.4 million for the three months ended March 31, ~~2019~~2020 compared to the corresponding ~~2018~~2019 period due to ~~an increase in the Company's interest rate under its $475 million bank line of credit compared to the Company's previous credit agreement which expired during the fourth quarter of 2018.~~fewer interquarter borrowings.

Consolidated Income Taxes


		March 31, 2019		December 31, 2018			March 31, 2020		December 31, 2019
ASSETS:	ASSETS:					ASSETS:
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	28,362	$	26,025	Cash and cash equivalents	$	64,498	$	27,329
Marketable securities, at fair value	Marketable securities, at fair value	78,508		76,362		Marketable securities, at fair value	90,497		90,711
Accounts and notes receivable, less allowance for doubtful accounts of $58,630 and $47,209 as of March 31, 2019 and December 31, 2018, respectively		353,106		341,838
Accounts and notes receivable, less allowance for doubtful accounts of $87,453 and $45,726 as of March 31, 2020 and December 31, 2019, respectively						Accounts and notes receivable, less allowance for doubtful accounts of $87,453 and $45,726 as of March 31, 2020 and December 31, 2019, respectively	303,804		340,930
Inventories and supplies	Inventories and supplies	40,982		41,443		Inventories and supplies	36,938		36,517
Prepaid expenses and other assets	Prepaid expenses and other assets	24,048		22,468		Prepaid expenses and other assets	24,819		20,245
Total current assets	Total current assets	525,006		508,136		Total current assets	520,556		515,732
Property and equipment, net	Property and equipment, net	30,077		12,900		Property and equipment, net	29,010		28,820
Goodwill	Goodwill	51,084		51,084		Goodwill	51,084		51,084
Other intangible assets, less accumulated amortization of $18,257 and $17,216 as of March 31, 2019 and December 31, 2018, respectively		25,477		26,518
Notes receivable – long–term portion, less allowance for doubtful accounts of $10,000 as of March 31, 2019 and December 31, 2018		39,291		43,043
Other intangible assets, less accumulated amortization of $20,342 and $19,300 as of March 31, 2020 and December 31, 2019, respectively						Other intangible assets, less accumulated amortization of $20,342 and $19,300 as of March 31, 2020 and December 31, 2019, respectively	21,311		22,353
Notes receivable — long–term portion, less allowance for doubtful accounts of $4,827 and $6,667 as of March 31, 2020 and December 31, 2019, respectively						Notes receivable — long–term portion, less allowance for doubtful accounts of $4,827 and $6,667 as of March 31, 2020 and December 31, 2019, respectively	49,466		46,992
Deferred compensation funding, at fair value	Deferred compensation funding, at fair value	31,812		29,113		Deferred compensation funding, at fair value	30,008		37,247
Deferred income taxes	Deferred income taxes	20,177		20,552		Deferred income taxes	30,642		20,364
Other noncurrent assets		—		1,257
Total assets	Total assets	$	722,924	$	692,603	Total assets	$	732,077	$	722,592

LIABILITIES AND STOCKHOLDERS’ EQUITY:	LIABILITIES AND STOCKHOLDERS’ EQUITY:					LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	60,254	$	61,467	Accounts payable	$	60,794	$	54,418
Accrued payroll, accrued and withheld payroll taxes	Accrued payroll, accrued and withheld payroll taxes	51,359		35,198		Accrued payroll, accrued and withheld payroll taxes	29,763		36,413
Other accrued expenses	Other accrued expenses	10,740		8,890		Other accrued expenses	11,443		16,489
Borrowings under line of credit	Borrowings under line of credit	30,000		30,000		Borrowings under line of credit	50,000		10,000
Income taxes payable	Income taxes payable	1,410		7,140		Income taxes payable	10,555		8,075
Accrued insurance claims	Accrued insurance claims	21,719		20,696		Accrued insurance claims	23,729		23,256
Total current liabilities	Total current liabilities	175,482		163,391		Total current liabilities	186,284		148,651
Accrued insurance claims — long-term portion	Accrued insurance claims — long-term portion	60,680		58,904		Accrued insurance claims — long-term portion	65,272		64,366
Deferred compensation liability	Deferred compensation liability	31,909		29,528		Deferred compensation liability	30,098		37,621
Lease liability - long-term portion		12,304		—
Lease liability — long-term portion						Lease liability — long-term portion	12,244		11,649

Commitments and contingencies (Note 15)	Commitments and contingencies (Note 15)					Commitments and contingencies (Note 15)

STOCKHOLDERS’ EQUITY:	STOCKHOLDERS’ EQUITY:					STOCKHOLDERS’ EQUITY:
Common stock, $.01 par value; 100,000 shares authorized; 75,465 and 75,344 shares issued, and 74,058 and 73,877 shares outstanding as of March 31, 2019 and December 31, 2018, respectively		755		753
Common stock, $0.01 par value; 100,000 shares authorized; 75,725 and 75,557 shares issued, and 74,416 and 74,149 shares outstanding as of March 31, 2020 and December 31, 2019, respectively						Common stock, $0.01 par value; 100,000 shares authorized; 75,725 and 75,557 shares issued, and 74,416 and 74,149 shares outstanding as of March 31, 2020 and December 31, 2019, respectively	757		756
Additional paid-in capital	Additional paid-in capital	264,936		259,440		Additional paid-in capital	275,447		270,614
Retained earnings	Retained earnings	184,592		190,092		Retained earnings	168,404		195,455
Accumulated other comprehensive income, net of taxes	Accumulated other comprehensive income, net of taxes	1,574		158		Accumulated other comprehensive income, net of taxes	2,386		2,919
Common stock in treasury, at cost, 1,407 and 1,467 shares as of March 31, 2019 and December 31, 2018, respectively		(9,308)		(9,663)
Common stock in treasury, at cost, 1,309 and 1,408 shares as of March 31, 2020 and December 31, 2019, respectively						Common stock in treasury, at cost, 1,309 and 1,408 shares as of March 31, 2020 and December 31, 2019, respectively	(8,815)		(9,439)
Total stockholders’ equity	Total stockholders’ equity	442,549		440,780		Total stockholders’ equity	438,179		460,305
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	722,924	$	692,603	Total liabilities and stockholders’ equity	$	732,077	$	722,592


		March 31, 2019 ¹		December 31, 2018			March 31, 2020		December 31, 2019
		(in thousands)							(in thousands)
Housekeeping and Dietary equipment	Housekeeping and Dietary equipment	$	23,251	$	22,596	Housekeeping and Dietary equipment	$	23,070	$	25,219
Computer hardware and software	Computer hardware and software	12,413		12,114		Computer hardware and software	9,384		12,769
Operating lease - right-of-use assets		18,137		—
Operating lease — right-of-use assets¹						Operating lease — right-of-use assets¹	23,221		21,176
Other ²	Other ²	1,370		920		Other²	1,668		1,698
Total property and equipment, at cost	Total property and equipment, at cost	55,171		35,630		Total property and equipment, at cost	57,343		60,862
Less accumulated depreciation	Less accumulated depreciation	25,094		22,730		Less accumulated depreciation	28,333		32,042
Total property and equipment, net	Total property and equipment, net	$	30,077	$	12,900	Total property and equipment, net	$	29,010	$	28,820


Period/Year	Period/Year	Operating Leases		Period/Year	Operating Leases
		(in thousands)			(in thousands)
April 1 to December 31, 2019		$	3,822
2020		$	4,306
April 1 to December 31, 2020				April 1 to December 31, 2020	$	4,131
2021	2021	$	2,489	2021	4,390
2022	2022	$	1,447	2022	3,137
2023	2023	$	1,258	2023	1,274
2024	2024	$	1,285	2024	1,295
2025				2025	1,311
Thereafter	Thereafter	$	5,514	Thereafter	4,204
Total minimum lease payments	Total minimum lease payments	$	20,121	Total minimum lease payments	$	19,742


Period/Year	Period/Year	Total Amortization Expense		Period/Year	Total Amortization Expense
		(in thousands)			(in thousands)
April 1 to December 31, 2019		$	3,124
2020		$	4,165
April 1 to December 31, 2020				April 1 to December 31, 2020	$	3,124
2021	2021	$	4,165	2021	$	4,165
2022	2022	$	4,165	2022	$	4,165
2023	2023	$	3,168	2023	$	3,169
2024	2024	$	2,035	2024	$	2,035
2025				2025	$	2,035
Thereafter	Thereafter	$	4,655	Thereafter	$	2,618


		As of March 31, 2019																			As of March 31, 2020
						Fair Value Measurement Using:															Fair Value Measurement Using:
		Carrying Amount		Total Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Carrying Amount		Total Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
		(in thousands)																			(in thousands)
Financial Assets:	Financial Assets:											Financial Assets:
Marketable securities	Marketable securities											Marketable securities
Municipal bonds — available-for-sale	Municipal bonds — available-for-sale	$	78,508	$	78,508	$	—	$	78,508	$	—	Municipal bonds — available-for-sale	$	90,497	$	90,497	$	—	$	90,497	$	—

Deferred compensation fund	Deferred compensation fund											Deferred compensation fund
Money Market ¹	Money Market ¹	$	1,793	$	1,793	$	—	$	1,793	$	—	Money Market ¹	$	1,152	$	1,152	$	—	$	1,152	$	—
Balanced and Lifestyle	Balanced and Lifestyle	9,017		9,017		9,017		—		—		Balanced and Lifestyle	8,250		8,250		8,250		—		—
Large Cap Growth	Large Cap Growth	9,776		9,776		9,776		—		—		Large Cap Growth	10,040		10,040		10,040		—		—
Small Cap Growth	Small Cap Growth	3,608		3,608		3,608		—		—		Small Cap Growth	2,935		2,935		2,935		—		—
Fixed Income	Fixed Income	3,568		3,568		3,568		—		—		Fixed Income	3,977		3,977		3,977		—		—
International	International	1,678		1,678		1,678		—		—		International	1,496		1,496		1,496		—		—
Mid Cap Growth	Mid Cap Growth	2,372		2,372		2,372		—		—		Mid Cap Growth	2,158		2,158		2,158		—		—
Deferred compensation fund	Deferred compensation fund	$	31,812	$	31,812	$	30,019	$	1,793	$	—	Deferred compensation fund	$	30,008	$	30,008	$	28,856	$	1,152	$	—


		As of December 31, 2018																			As of December 31, 2019
						Fair Value Measurement Using:															Fair Value Measurement Using:
		Carrying Amount		Total Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Carrying Amount		Total Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
		(in thousands)																			(in thousands)
Financial Assets:	Financial Assets:											Financial Assets:
Marketable securities	Marketable securities											Marketable securities
Municipal bonds — available-for-sale	Municipal bonds — available-for-sale	$	76,362	$	76,362	$	—	$	76,362	$	—	Municipal bonds — available-for-sale	$	90,711	$	90,711	$	—	$	90,711	$	—

Deferred compensation fund	Deferred compensation fund											Deferred compensation fund
Money Market ¹	Money Market ¹	$	2,529	$	2,529	$	—	$	2,529	$	—	Money Market ¹	$	2,625	$	2,625	$	—	$	2,625	$	—
Balanced and Lifestyle	Balanced and Lifestyle	8,265		8,265		8,265		—		—		Balanced and Lifestyle	10,294		10,294		10,294		—		—
Large Cap Growth	Large Cap Growth	8,195		8,195		8,195		—		—		Large Cap Growth	11,369		11,369		11,369		—		—
Small Cap Growth	Small Cap Growth	3,217		3,217		3,217		—		—		Small Cap Growth	4,120		4,120		4,120		—		—
Fixed Income	Fixed Income	3,432		3,432		3,432		—		—		Fixed Income	4,072		4,072		4,072		—		—
International	International	1,485		1,485		1,485		—		—		International	1,932		1,932		1,932		—		—
Mid Cap Growth	Mid Cap Growth	1,990		1,990		1,990		—		—		Mid Cap Growth	2,835		2,835		2,835		—		—
Deferred compensation fund	Deferred compensation fund	$	29,113	$	29,113	$	26,584	$	2,529	$	—	Deferred compensation fund	$	37,247	$	37,247	$	34,622	$	2,625	$	—


		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Other-than-temporary Impairments			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Other-than-temporary Impairments
		(in thousands)																			(in thousands)
March 31, 2019
March 31, 2020												March 31, 2020
Type of security:	Type of security:											Type of security:
Municipal bonds — available-for-sale	Municipal bonds — available-for-sale	$	76,516	$	2,092	$	(100)	$	78,508	$	—	Municipal bonds — available-for-sale	$	87,477	$	3,347	$	(327)	$	90,497	$	—
Total debt securities	Total debt securities	$	76,516	$	2,092	$	(100)	$	78,508	$	—	Total debt securities	$	87,477	$	3,347	$	(327)	$	90,497	$	—

December 31, 2018
December 31, 2019												December 31, 2019
Type of security:	Type of security:											Type of security:
Municipal bonds — available-for-sale	Municipal bonds — available-for-sale	$	76,162	$	633	$	(433)	$	76,362	$	—	Municipal bonds — available-for-sale	$	87,016	$	3,695	$	—	$	90,711	$	—
Total debt securities	Total debt securities	$	76,162	$	633	$	(433)	$	76,362	$	—	Total debt securities	$	87,016	$	3,695	$	—	$	90,711	$	—


		Municipal Bonds — Available-for-Sale							Municipal Bonds — Available-for-Sale
Contractual maturity:	Contractual maturity:	March 31, 2019		December 31, 2018		Contractual maturity:	March 31, 2020		December 31, 2019
		(in thousands)							(in thousands)
Maturing in one year or less	Maturing in one year or less	$	957	$	1,645	Maturing in one year or less	$	1,133	$	876
Maturing in second year through fifth year	Maturing in second year through fifth year	23,162		24,649		Maturing in second year through fifth year	21,489		16,071
Maturing in sixth year through tenth year	Maturing in sixth year through tenth year	17,008		14,769		Maturing in sixth year through tenth year	42,400		38,801
Maturing after ten years	Maturing after ten years	37,381		35,299		Maturing after ten years	25,475		34,963
Total debt securities	Total debt securities	$	78,508	$	76,362	Total debt securities	$	90,497	$	90,711


		Stock Options Outstanding					Stock Options Outstanding
		Number of Shares	Weighted Average Exercise Price			Number of Shares	Weighted Average Exercise Price
		(in thousands)				(in thousands)
December 31, 2018		2,121	$	31.53
December 31, 2019					December 31, 2019	2,107	$	32.99
Granted	Granted	188	$	40.49	Granted	210	$	24.43
Exercised	Exercised	(68)	$	27.15	Exercised	(92)	$	17.55
Forfeited	Forfeited	(5)	$	36.37	Forfeited	(9)	$	37.64
Expired	Expired	(2)	$	13.68	Expired	(12)	$	32.58
March 31, 2019		2,234	$	32.42
March 31, 2020					March 31, 2020	2,204	$	32.80


		Restricted Stock Units and Restricted Stock					Restricted Stock Units and Restricted Stock
		Number	Weighted Average Grant Date Fair Value			Number	Weighted Average Grant Date Fair Value
		(in thousands)				(in thousands)
December 31, 2018		241	$	45.47
December 31, 2019					December 31, 2019	362	$	43.24
Granted	Granted	194	$	40.49	Granted	307	$	24.43
Vested	Vested	(60)	$	42.91	Vested	(93)	$	42.30
Forfeited	Forfeited	(1)	$	52.06	Forfeited	(8)	$	32.68
March 31, 2019		374	$	43.29
March 31, 2020					March 31, 2020	568	$	33.36


		Three Months Ended March 31,						Three Months Ended March 31,
Costs of Services Provided - Key Indicators as a % of Consolidated Revenue	Costs of Services Provided - Key Indicators as a % of Consolidated Revenue	2019	2018	Change	Costs of Services Provided - Key Indicators as a % of Consolidated Revenue	2020	2019	Change
Bad debt provision	Bad debt provision	3.9%	7.4%	(3.5)%	Bad debt provision	0.5%	3.9%	(3.4)%
Self-insurance costs	Self-insurance costs	2.4%	2.6%	(0.2)%	Self-insurance costs	2.8%	2.4%	0.4%


	~~Quarter Ended~~
		March 31, ~~2019~~2020
	(amounts in thousands, except per share data)
Cash dividend paid per common share		$	~~0.19625~~0.20125
Total cash dividends paid		$	~~14,588~~15,033
Record date		February ~~15, 2019~~28, 2020
Payment date		March ~~22, 2019~~27, 2020


Covenant Descriptions and Requirements						As of March 31, ~~2019~~2020
Funded debt ¹ to EBITDA ² ratio: less than 3.50 to 1.00						~~0.49~~0.67
EBITDA to Interest Expense ratio: not less than 3.00 to 1.00						~~38.55~~42.83


	~~Allowance for Doubtful Accounts~~
	~~(in thousands)~~
~~Balance December 31, 2018~~	$	~~57,209~~
~~Provision for bad debts~~	~~18,470~~
~~Net write-offs of client accounts receivable~~	~~(7,049)~~
~~Balance March 31, 2019~~	$	~~68,630~~


	Balance December 31, 2018		Additions		Deductions		Balance March 31, 2019
	(in thousands)
Impaired notes receivable	$	25,704	$	3,726	$	(527)	$	28,903
Reserve for impaired notes receivable	$	13,472	$	2,546	$	(497)	$	15,521


Exhibit Number						Description
31.1						Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
31.2						Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
32.1						Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
101						The following financial information from the Company’s Form 10-Q for the quarterly period ended March 31, ~~2019~~2020 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statement of Stockholders’ Equity, and (v) Notes to Consolidated Financial Statements
104						Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.)