Participants

Theodore Wahl; President, Chief Executive Officer, Director; Healthcare Services Group Inc

Matt McKee; Chief Communications Officer; Healthcare Services GroupHealthcare Services Group Inc

Sean Dodge; Analyst; RBC Capital Markets Wealth Management

Andrew Wittmann; Senior Research Analyst; Robert W. Baird & Co Inc

Bill Sutherland; Analyst; The Benchmark Company, LLC

Jack Senft; Analyst; William Blair

AJ Rice; Analyst; UBS Securities LLC

Presentation

Operator

Good morning and welcome to HCSG Inc.'s second-quarter 2024 earnings call. (Operator Instructions).
The matters discussed on today's conference call include forward-looking statements about the business prospects of healthcare services, Group, Inc for health care services group, Inc's most recent forward-looking statement notice. Please refer to the press release issued this morning which can be found on our website, www.hcsg.com.
Actual results may differ materially from those expressed or implied as a result of various risks uncertainties and important factors including those discussed in the risk factors MDNA and other sections of the annual report on form 10-K and healthcare services group Inc other CEF Sec filings and as indicated in our most recent forward-looking statement. Additionally, management will be discussing certain non-GAAP financial measures, a reconciliation of these items to us. GAAP can be found in this morning's press release.
At this time, I would like to turn the call over to Ted Wahl, President and Chief Executive Officer. Please go ahead.

Theodore Wahl

Thank you. And good morning, everyone, Matt mckee and I appreciate you joining us today. We released our third quarter results this morning and plan on filing our 10-Q by the end of the week.
We're very pleased with our third quarter results which underscore the positive momentum we're carrying into the fourth quarter. Executing on our three strategic priorities of driving growth, managing costs and optimizing collections is clearly paying off resulting in sequential and year over year growth in revenue earnings and cash flow. For the three months ended September 30th 2024 we reported revenue of $428.1 million in line with expectations net income and diluted EPS of $14 million and $0.19 per share and reported and adjusted cash flow from operations of $4.3 million and $19 million.
I'd like to now share our perspective on the latest industry trends and developments. Industry fundamentals continue to trend positively highlighted by rising occupancy, which now sits at 79.8% just under the low 80s prepandemic levels. A continued increase in workforce availability with the industry adding over 100,000 jobs since the beginning of 2023.
And the stable reimbursement environment which includes CMS's 4.2% increase in Medicare rates for the fiscal year 2025 which became effective October first as well as continued positive reimbursement trends at the state level.
On the regulatory front, we continue to believe that CMS' final minimum staffing rule will either undergo significant revision during the extended phase in period or will not be implemented. Especially given the pending litigation and the potential for legislation or administration change.
As we head into the final month of the year, our strategic priorities remain unchanged. We are confident that our focus on these priorities supported by our strong business fundamentals will enable us to further accelerate growth, enhance profitability and maximize cash flow through 2025 and beyond. So, with those introductory comments, I'll turn the call over to Matt for a more detailed discussion on the quarter.

Matt McKee

Thank you, Ted and good morning. Everyone.
Revenue was reported at $428.1 million in line with the company's expectation of $425 to $435 million. Housekeeping and laundry revenue was $191.1 million, and the margin was 6.4%.
Dining and nutrition revenue was $237 million and the margin was 5.3%.
The company's Q4 expected revenue range is $430 million to $440 million.
Cost of services was reported at $364.7 million or 85.2%. And the company's goal is to continue to manage cost of services excluding cecil in the 86% range.
SG&A was reported at $46.9 million. But after adjusting for the $2.4 million increase in deferred compensation, actual SG and A was $44.5 million or 10.4%. The company's goal continues to be achieving SG&A in the 8.5% to 9.5% range.
Other income was reported at $2.3 million or 0.5%. And other income includes a $2.4 million or 0.6% increase in deferred compensation.
Net income and diluted earnings per share were reported at $14 million and $0.19 respectively.
Adjusted EBITA for the quarter was $24.8 million or 5.8% cash flow and adjusted cash flow from operations was $4.3 million and $19 million respectively.
The company reaffirmed its 2024 adjusted cash flow from operations range of $40 million to $55 million and the company has repurchased over 350,000 shares or $4 million of its common stock so far in 2024 including over 90,000 shares or $1 million of its common stock during the third quarter.
Since the February 2023 share repurchase authorization. We have repurchased 1.4 million shares or $15.2 million of our common stock and we have 6.1 million shares remaining under our authorization.
So, with those opening remarks, we'd now like to open up the call for questions.

Question and Answer Session

Operator

(Operator Instructions) Sean Dodge, RBC capital markets.

Sean Dodge

Yes, thanks. Good morning. Ted on the cash flow, you made really good progress there during the quarter. Is there anything else you can share just around the visibility you have at this point into the full year target? I know Q4 tend to be very seasonally strong for you. You mentioned at the top of the call, the, the improving macro backdrop. I guess is there still some catching up that's happening too with all of the payments kind of posted the change outage.

Theodore Wahl

Yes, Sean and thank you for the question. We did achieve over 98.5% collections for the quarter. And that helped drive that $19 million adjusted cash flow that we posted, which was in line with our targeted range and really higher compared to last quarter in the same period last year. So, we're proud of that accomplishment. We do have positive momentum heading into the fourth quarter, evidenced by our Q3 results and also the very positive start we've gotten off to in October. So, all of that works in our favor and then you mentioned it, but we also have the benefit of seasonality working in our favor. Historically, Q4 has been our strongest collections quarter. We have the tension of year end, the makeup payments from prior periods. You cited change health care as an example. So yes, we do expect in addition to what we've collected with respect to those delays in Q3, we do expect continued collections on those change, health care delays in Q4. And then as we highlighted before in past years, we do have some year-end cash basis taxpayers. So, our goal overall continues to be optimizing cash collections in the quarter ahead and 2025 we continue to expect our collections to gain strength into next year with that improving macro backdrop that you highlighted. And again, we're going to continue to focus on increasing payment frequency, taking our customers and our clients from monthly to weekly and, or biweekly continuing to focus on using promissory notes proactively as a protective and proactive measure and then ultimately remaining disciplined in our decision making for both existing business and of course, new business.

Sean Dodge

Okay, great. And then how many days of payroll accrual were there in, in the quarter in the third quarter? And then can you get us with? That'll be in days for the fourth quarter.

Matt McKee

Yes, Sean. So, the third quarter was nine days and then for the fourth quarter, it'll be three days.

Sean Dodge

Okay. And then last for me, if we just think about the pacing of revenue, what was the revenue run rate exiting the quarter? And then anything you can share on how we should be thinking about growth heading into next year It is just annualizing the Q4 guidance. Is that a fair way to kind of start to think about 2025 or our conditions such now that we could continue to see some acceleration in the dining cross sell is kind of the quarters roll on here.

Theodore Wahl

Well, I think big picture very optimistic heading into 2025. We really from a pipeline perspective, demand for the services management development, all of those indicators are trending very positively. I think Sean even to zoom out for a moment. If you recall coming into the year, we shared our expectations around revenue growth. And at that time, it was more in the spirit of crawl walk run. We had the goal of growing the top line in the second half of the year compared to the first half of the year. And that cadence of growth that we anticipated was really aligned with how we were thinking about the industry recovery and really rounding that final turn of recovery, the operating environment that existed at that at that time. And then what we saw as the improving financial strength of our customer base and ultimately future growth and client partners. So, coming into the final months of 2024 I think we're confident that we're going to hit that goal that we set at the beginning of the year. I think more specific to Q4 and 2025 we added business pretty evenly throughout the quarter. We're in the midst of prospect discussions that we know are going to amount to more meaningful ads certainly in the in the coming quarters, if not in the quarter ahead, some of those are already signed and started. We have a pool of customer customers or future customers that are signed but not yet started. And then we have a group that are more or less in the final stages of contracting that could be pulled forward into Q4 or pushed out into Q1. But again, overall, you know, in the spirit of accuracy rather than precision, we're really, we're really feeling confident and bullish on the next few quarters of growth. You know, I know we mentioned that improving visibility, we have into the pipeline compared to where we were a year or two ago. I think the timing of those ads, as I mentioned is what really drives the impact in any given quarter relative to the estimated revenue ranges. The only other piece I'd add is, you know, that Matt and I are always highlighting is the importance of retention on our existing business to new growth opportunities. We do expect, you know, the some of the, the I'd say financial related exits we've had over the past few years, post COVID through industry recovery, we expect to subside going forward, but we have to remain disciplined in our decision making and be nimble if we believe it's in the best long term interest or near term interest to exit a client group with whom we have concerns. So, that's really the tail of the tape as we think about revenue. But again, overall, we're confident that we're going to hit our top line growth goal that we had set at the beginning of the year growing second half compared to first half. And I think we'll be in a position to more specifically talk about 2025 growth expectations when we're together in February on this call, you know, certainly beyond our expectations that 2025 is going to be a year of growth which we feel confident about.

Sean Dodge

Okay, sounds great. Thanks and congratulations again.

Theodore Wahl

Thank You, Sean.

Operator

Andrew Wittmann, Baird.

Andrew Wittmann

Yeah. Good morning, guys. Thank you for taking my questions. I have kind of one just kind of technical question and then I'm going to follow up with a broader picture question. But start out here guys, you know, in the past, recognizing that the credit adjustments under fecal accounting can be lumpy positive or negative in any given quarter. I was just hoping that you could tell us what the hypothetical difference between your excuse me, hypothetical difference between your results here. GAAP results including the cecil how those would have compared versus the legacy GAAP accounting standard here, either like if you could just quantify that on a pretax or on a per share basis. Obviously, you've talked about this in the past on other quarters, you're not here, but I thought it'd be just informative for all of us to understand what that difference was and how it contributed to the results of this quarter.

Matt McKee

Yes. So, you know, prior to the Cecil standard, we booked bad debt as it was incurred or known, right? So really bad debt this quarter would have looked quite comparable really under the Cecil standard as compared to that previous standard. But I said you're trying to bridge to an adjustment, Andy. So, the way that we've discussed it previously is that in recent years, you know, kind of prior to Cecil that was averaging around 70 basis points of revenue. So, you know, that's an average number. So worth noting that it was, you know, certain quarters and years in which we were well below that mark, but then you'd have a specific client restructuring or bankruptcy and you could see bad debt elevated for a quarter and that would ultimately lead to, you know, some of the variability quarter to quarter and then even year to year. So, in any quarter, since we introduced Cecil, really inserting 70 bits of revenue. Andy as a bed debt plug would really offer a comparison versus what we were averaging using, you know, what you referred to as that legacy accounting standard.

Andrew Wittmann

Okay. All right. Got it. So then, and then I guess just stepping back here a little bit, I'm just curious, like, are you seeing, what are you seeing in terms of the sniff room demand from the increasing levels of acuity that are being managed in assisted living locations?
Now, these assisted living locations seem to be functioning increasingly the way sniffs used to. And I was just wondering what the company's pathway or potential was to expand into this higher acuity assisted living facilities is, are there like barriers either at those facilities or, or structural elements of your business that prevents you or are precluding you from, from addressing that as a market opportunity.
I'm just kind of curious if you could just talk about what this higher acuity assisted living places mean for you and how you are addressing it if at all?

Theodore Wahl

Yeah, and it's a great question, Andy, I think, you know, when you think big picture, right, the 2030 problem is real, you know, you have the ongoing demographic tailwind for companies like ours and that operate in the senior living and or long term care space and the idea that, you know, and as the as those macro trends continue to work in all of those companies, whether it's the provider or the service companies that operate in that space as the macro trends continue to improve. So do the opportunities across all parts of the continuum from independent living through, as you highlighted senior living more traditional assisted living opportunities, right on through long-term care nursing homes and then ultimately hospice. So, we see ourselves playing a role in that entire continuum. Obviously, historically, our core focus has been in and around the traditional long term or post care facility Ie the nursing home today that makes up roughly 80% of our business, but in that other 20% is a rapidly growing and a great opportunity part of the company, we mentioned education that is still less than 5% of our revenues but has tremendous opportunity. But when you think about as you highlighted the assisted living, more higher acuity level assisted living facilities, as well as behavioural health substance abuse canters, they all make up very attractive opportunities for the company moving forward. We're well positioned to take advantage of those opportunities. We haven't talked about inorganic growth opportunities recently on calls like this. But you know, we always have one eye open for, you know, different brands that could be complementary to our existing brand, but even under the HCSG umbrella, you know, we, we think there's a clear runway to continue to grow and expand in that market.

Matt McKee

And I would just distinguish and one component relative to your question in the sense that as we look at that assisted living market specifically, first off, you're absolutely correct in your assessment of increasing acuity levels in assisted living. You know, there are folks that we see in assisted living today who even as few as six years ago would have absolutely been in a skilled environment. So that is a dynamic that's evolving for sure. I would point out though that just from a demand perspective, the model relative to housekeeping services and even laundry services in assisted living facilities tends to be, you know, still more of almost a universal aid model, right? You still have generally speaking, most residents are able to clean their own apartment, their own space. So, you have universal aid who may be contributing to cleaning common areas in the facility and performing other random functions as a component of their facility. Employment.
You contrast that though with dining where absolutely dining is a significant area of focus and you know, massive component of the resident experience at an assisted living facility. So, you know, as we look to further expand our footprint in dining services, by virtue of the acquisition that we made that was intended relative to the education and market but is also certainly transferable into the higher end assisted living market that remains an opportunity for us. So, I would say in the near term, at least Andy, a greater opportunity in assisted living from a dining perspective as compared to environmental services.

Andrew Wittmann

Okay, great. I'll leave it there guys. Have a good day.

Operator

Bill Sutherland - The Benchmark Company, LLC

Bill Sutherland

Hey, thanks, good morning guys. Just to follow up on Andy's question, it got me thinking, are you seeing any of your sniff clients? See experiencing declines in the skill in the skill mix?

Matt McKee

You know, certainly there's a variability that occurs, you know, client to client, you know, there are certain clients and operators who are more focused on driving, for instance, bill, you know, the short term post-acute rehab type stay versus others who are catering to more of the long term care, the true long term care resident, within their patient mix. So, I'd say it's hard to offer any specifics bill relative to what we're seeing. But, you know, definitely within any particular client or end market, you know, you could see variability.

Bill Sutherland

Okay. On the SGN A number, which is right in line this quarter and you've spoken about the potential to use various level, you know, very various approaches to efficiencies and technology to, you know, do even better there and also in cost of sales. So, I'm just wondering, should we think about on an absolute dollar basis? SG and A being managed even lower or is it just something that you can maybe manage flat on against a growing revenue base to get it into the range? You want it in as far as percent of revenue.

Theodore Wahl

It’s actually a mix of the two bills. I think when you look over the past 12 months, SGNA has been relatively flat from a, from a on a quarter-to-quarter basis, you know, longer term, our goal is to manage SGNA, you know, we think of it as a percentage opportunity in that 8.5% to 9.5% targeted range. Obviously, it's higher than that today as a percentage of revenue. But we expect to continue to make the investments that we've made over the past couple of years. And as we grow the top line, we're going to be able to further leverage the fixed portion of that SGNA and really scale it, you know, relative to that top line growth. So, you mentioned some of the investments, we're going to continue to invest in employee engagement and experience, which you know, we've mentioned before. But we're in the midst of a companywide initiative that's going to continue to drive items like retention and overall operating performance, which is oftentimes reflected in the cost of services line item similar, we talked about marketing, brand, marketing and brand positioning, which we continue to view as critical for both external, as well as those internal stakeholders. I alluded to Ie employees in burnishing the image of the company and you know, their pride in working within the four walls of the community and that correlation to the HCSC brand. And then, you know, obviously technology investments which you touched on which we're excited about continuing to really leverage technology for more efficient service offering and you know, better engagement with our employees. So, all of the above and we expect as I mentioned to be able to do that while at the same time leveraging the fixed portion of SGNA as we as we grow the top line.

Bill Sutherland

Got it. One more I was thinking about is the education segment. No, it's still less than 5%. But curious if you're starting to see some benefit or not benefit but some seasonality with the school year in your fourth quarter and first quarter.

Matt McKee

Yes. So, I guess just to distinguish Bill, there is absolutely seasonality in that business. You know, not only in, sort of the ramping of, you know, head count right to provide the services in the academic year, you know, a little bit of a lull, there's project work and reallocation of some of the labour hours during the summer months. But there's also seasonality in the selling and kind of administratively and in the entree into that market. So, the answer, the short answer is yes, there is absolutely seasonality that applies to that business. Does that translate into sort of, you know, an impact on total company results? And should you see any impact relative to the fourth quarter? We're not yet at a spot bill where there's enough sort of meaningful revenue there that it would have an impact on total company,

Bill Sutherland

Kind of guess that. But and then actually let me sneak in the hurricane question, any comment on all the Florida issues or even Western North Carolina?

Matt McKee

Yeah, you know, certainly, first off bill, we would want to offer our sympathies to everybody who was affected by the recent weather events down in the southeast. And you know, we had clients and employees who suffered losses. So, we're very sensitive to those challenges. But you know, to your question bill, you know, fortunately, we had no major disruptions in our services or our supply chains. And that's on one hand, it's fortunate. But if you found out it's really more than just good luck, it's really the preparation planning and execution of our teams in both Florida and North Carolina that helped us to mitigate those potential challenges that the storms could have created. And, you know, our team in Florida is expert in handling weather related events and have an unbelievable track record of demonstrating our value to our clients and the residents that we serve. So specifically in Florida, we assisted with evacuations of 29 facilities. You know, that's over 2000 residents that we helped to relocate and, and even in adjacent geographies that weren't evacuated, our managers were providing up to 48 hours of continuous presence in the facilities to make sure that the residents were properly cared for and then remained on call 24/7, even after the storms had cleared. So, North Carolina was a little bit unique in that Helene affected geography. That's typically outside of the storm pathways. You know, it mostly affected mountainous rural areas where we don't have large concentration of facilities. But our teams have rolled up their sleeves and jumped into really the cleanup efforts and are leveraging our vendor partners to help facilitate the flow of supplies into some of those affected areas. So, you know, terrible incidents and it's heartbreaking to see the devastation that these storms have caused. But, you know, if we can modestly and with the utmost sensitivity offer any type of silver lining, it's that, our client partners know that we're there for them. You know, we have the resources and the expertise to plan and execute in a highly effective manner. So it offers us really an opportunity to further strengthen those client relationships and really bolster the resonance of our value proposition.

Bill Sutherland

Thanks man. Appreciate it.

Operator

Ryan Daniels, William Blair.

Jack Senft

Yeah. Hi everyone. This is Jack on for Ryan. Thanks for taking the questions. I think in your answer to Sean's question, it sounded like much of the growth you're guiding to has been driven by cross sell opportunity. But I think you touched on this too in some of the previous answers, but I was just wondering if you could maybe get or give an update on how the environmental services and just the education opportunities are shaping up in terms of demand here and really kind of how we should think about these going forward into 2025. Thanks.

Theodore Wahl

I think the demand for both, you know, environmental services, you mentioned the cross sell, but certainly for environmental services as a stand-alone Greenfield opportunity. And then in the education side, demand is very strong on both fronts. You know, when you think about 2025 specifically, we would expect the growth to mirror what the current breakup is in revenue. So, think more, you know, 45-55 Ish environmental services and dining. And as we grow, that Greenfield EVs opportunity on, we would expect that to not only create the cross sell in dining, but as you alluded to, we have that existing customer that is primed and ready for the dining, for the dining and nutrition, cross sales. So that continues to be the lowest hanging fruit and a key part of our growth strategy moving forward. And I know Matt touched on it in one of the prior questions, but on the education front, high demand, it's still less than 5% of our revenues. So, we think of it heading into 2025 as more of a complement to our overall growth strategy than a specific standalone division. But we continue to be very excited about the longer term prospects there and the opportunity that presents for the company.

Jack Senft

Okay, understood. Makes perfect sense. Thanks just a quick follow up to where are you in terms of manager from a manager training standpoint? Are you, you know, good staffing level to fill the facilities in order to drive growth into you know, Q4 and even as we start to look into 2025 or will this kind of be an area that we, you know, we see you guys continue to, to bolster up.

Theodore Wahl

Very much so in a good position. I alluded to it or mentioned it as part of my conversation with Sean earlier, but that is an absolute critical part of our growth strategy. It's not just about, you know, the demand for the services and pairing up that demand with, you know, our leadership, local leadership at the, you know, in a given geography, but we need to make sure we have the requisite level of management talent and depth to service those accounts. And as we, as we begin to enter more normal times here in 2025 and then the years that follow, we would expect the most significant gating factor on our ability to grow as being management development. We typically, when you look at years past and where we look at today, we're going to be able to train up and develop managers in a spot where we'd be comfortable growing that top line in 2025 in that mid maybe high single digit range. But as I mentioned before, we're going to be able to refine that number, you know, more in February and give a better sense of the cadence of growth in 2025. But generally speaking, that continues to be the greatest gating factor on our ability to grow is how quickly we can hire, develop and then deploy management talent. No one does it better than us. We have that district self-sustaining model where training centers in a given district are able to, you hire and train up the future management candidates and still a very difficult part of the job. You know, more than two thirds of our management candidates don't make their way out of that training program. It's very hands on and that's done by design. But we continue to believe, although our way is not the only way that that's the best approach in making sure we have, you know, a prepared candidate when that growth opportunity presents itself.

Jack Senft

Perfect. Thanks. And if I can just sneak in one final, it's a longer-term question. But you, you previously mentioned mental health and substance abuse disorders, possible opportunities down the road. And I know this wouldn't be for a while, but I'm just kind of curious if you can dive a little bit deeper into what these looks like for the company and just kind of what the full opportunity would look like for Both of these segments. Thanks.

Matt McKee

Yes, Jack. I would say that certainly there's, you know, a lot of comparability from the skilled nursing and market as compared to specifically the inpatient behavioural and rehab type facilities. So, you know, when we think about what makes an attractive candidate for our services, typically you're talking about an inpatient environment and that's so that we can support financially having an on site manager, you know, our preference, certainly in an inpatient environment that it's of a sufficient scale to be able to provide an on site manager. So that's the first qualifier. But beyond that, for both environmental services and dining services, we're finding increasing demand levels and a growing appetite to outsource those services. So we've made inroads in certain geographies and in certain markets specifically. And as our expertise has continued to grow in the provision of services into those end markets, specifically, you develop that networking and can leverage that to your advantage. So we haven't really qualified or quantified rather that opportunity as yet in either the near term or the long term. But as an additive and market service offering, there's a lot that we like about it.

Jack Senft

Awesome. Thank you again, guys.

Operator

AJ Rice, UBS Securities LLC.

AJ Rice

Hi, everybody. First, maybe looking at the other side of the labour, the hourly workforce. I know over the last few years, there was a time when the nursing homes weren't giving the updates to rates that you felt they needed to. I think that's sort of normal. I think with the employment increase you talked about across the industry. But where are we at on that? What kind of increases are you seeing? Is that adequate for you to get the hourly people that you need to staff the positions in the client facilities?

Matt McKee

Yeah, I think AJ if you look at sort of the broader labour market, we're seeing you know, certainly stabilization and improving conditions, you know, job postings are no longer declining. You know, more than a quarter of a million new jobs were created in September, which I think was a surprise to the upside. And I'm just talking about the, you know, the US economy in general here, but that wage growth has definitely stabilized. It's increasing slightly and I'd say modestly, you know, unemployment rate has fallen back from that recent high of 4.3 back to 4.1 and wage growth, you know, to your question, AJ appears to have more or less returned to its prepandemic trend.
Our industry specifically, if you think about long term and post care, we're still 120,000, I'm sorry, 112,000 jobs short relative to prepandemic levels. But it's improving, this was, and market that had lost almost a quarter of a million jobs. So, we're clawing our way back. It's about a pace of 4,400 jobs per month that we're seeing returned to the skilled nursing space. So at this rate, the workforce should be back to prepandemic levels, you know, late 2026 you know, on our business specifically, you know, along the lines of what we're seeing with the clients, I would say it's a stabilization, it still remains kind of an uneven recovery where in certain geographies and certain more specific markets typically more of the metro and suburban markets AJ the recovery is complete if I dare say that in the sense that, you know, we're able to fully staff, we're able to hire employees, train them and ultimately retain them. It remains a challenge though in broadly speaking, the rural markets and more specifically, certain rural markets are more challenged than others. But I would say, ongoing recovery and stabilization, we're almost all the way there if not completely there in the suburban and urban markets, but the challenges do remain in rural facilities.

AJ Rice

Okay, great. And then the other inflationary area we often ask about related to food in the dining side, anything to call out there or what's the latest trends you see in there?

Matt McKee

Yeah, you know, food inflation was back up sequentially AJ it was, you know, you know, five basis points of inflation for the quarter, you know, that compared to one basis point of deflation that we actually saw in Q2. So, you know, if you're looking at the trends, you know, the month of August was four basis points, which was the highest monthly inflation that we've seen since January. So definitely want to keep an eye on that. But broadly speaking, 40 bits of food inflation. So, nothing really outside the norm in kind of recent quarters. And, and that just by way of reminder would be passed through in our first quarter billings,

AJ Rice

Right Okay. And then, just last on the capital deployment, I know there's a buyback and you pursue that, somewhat uneven between quarters, any updated in your thinking there. And then you did mention inorganic growth potential, is that just that's always there or are you seeing a pipeline of opportunities develop that wasn't there before?

Theodore Wahl

Yes. On the second question, AJ it's always been there the opportunities really since we, you know, over the course of our history, even over the past10 years, we've been very selective, but, you know, we have done a couple more tuck in type opportunities with regional players. We're, we're less, I'd say enthused about those types of opportunities in part because, you know, we believe we have the best mouse trap out there, there's always opportunity to improve upon it. But we think we're in a pretty good position in terms of our service and operating model as well as the fact that we have, you know, 80% over 80% of the outsourced market shares. So, the reality is there's just not that many pure plays if you will candidates out there, but certainly within our core market as complementary acquisition or investment type opportunities. We have us on those as well as other opportunities, whether it be in the education space or other attractive, you know, education related opportunities. So that's always there and we do see with some of the, more interest rate certainty that is being projected out in the future, we see more activity and potentially more opportunities on those fronts in the year ahead. So, we're excited about that. I think from a share repurchase perspective that continues to be part of our capital allocation framework. And we continue to view the buyback specifically as opportunistic. It's certainly a tax efficient way, you know, when that those opportunities present themselves to return capital to shareholders. And just to give a little more color, we think about opportunism and really the timing of the repurchases as being dependent on factors that exist at the time of execution, that may be our liquidity position or expected cash flow. We've talked about our share price, obviously being a consideration. We look at annual dilution rates via share creek, which is really when you look at the pace over the past couple of years, we've eliminated any creep that otherwise could have existed and then bridging back to whether it be organic growth or the conversation we just had about on inorganic opportunities. We're always looking at alternative use analysis and where we can deliver the highest return. So, it's a holistic view that we take, and all of those considerations are factored into the decision.

AJ Rice

Okay. Thanks a lot

Operator

That concludes our Q&A session. I will now turn the conference back over to ted well, for closing remarks.

Theodore Wahl

Okay. Great. Thank you. It's an incredibly exciting time for the company. Our underlying fundamentals are stronger than ever. And with the industry at the beginning of a multidecade demographic tailwind, we are very favourably positioned to capitalize on the opportunities ahead and deliver meaningful long term shareholder value. So, on behalf of Matt and all of us at healthcare services group, Jeanie, we wanted to thank you for hosting the call today and thank you to everyone for joining us.

Operator

This concludes today's call. You may now disconnect.