Apr 18, 2018 • 08:30 am ET

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Presentation
Operator
Operator

Good day, ladies and gentlemen, and welcome to the Healthcare Services Group Incorporated 2018 First Quarter Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will follow at that time. (Operator Instructions).

(Forward-Looking Cautionary Statements)

I would now like to introduce your host for today's conference Mr. Ted Wahl, President and CEO. Sir, you may begin.

Executive
Theodore Wahl

Great. Thank you, Bruce, and good morning, everyone. Matt McKee and I appreciate all of you joining us for today's conference call. We released our first quarter results yesterday after the close and plan on filing our 10-Q the week of April 23rd.

On Monday morning, we provided an update on first quarter results that highlighted two client group restructurings, those restructurings and the related $35 million charge impacted Q1 earnings by about $0.36 to $0.38 a share.

About half of the charge relates to a multi-state operator that filed for Chapter 11 in March. Although this is a relatively new matter, over the past few weeks we actively pursued all sources of potential recovery, as a critical vendor, member of the creditors committee, as well as outside of the re-org with other stakeholders.

Last week after CMS filed papers with the court indicating they had claims in the case, our assessment changed as this introduced the likelihood of an unknown claim that could dilute the pool of available funds for creditors, which is why we decided to reserve but not write off the amount served.

We realize that Friday's withdraw of the CMS objection has gotten some attention, but the reality is the withdrawal is only the withdrawal of the objection, not a withdrawal of the claims that are now believed to exist, with still no visibility into the potential size of the claims, who they may be against and how or when they may be resolved. Obviously, we're disappointed with the situation and we will continue to pursue all avenues of recovery.

The balance of the $35 million is primarily related to a customer that initiated out-of-court restructuring during Q1. Over the past couple of weeks, the landlords, other creditors began reaching agreements in principle and very reluctantly we did as well. For both groups were requiring accelerated payments and expect to continue to provide services during and after the restructuring. As a result, we don't expect any impact on future revenue, net income or EPS.

Before I passed the call over to Matt, I did want to review a few areas that will be familiar to those that know the company, but may be less familiar to others. First, the state of the industry.

Over the past five years, the US healthcare model shifted from fee-for-service to value-based purchasing. That shift added increased complexity to what was already a challenging landscape for some long-term and post-acute care operators. The regulatory incentives pressures, as well as wage inflation are being felt in a very real way by some providers, as they