Healthcare Services Group, Inc. (HCSG) Q4 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Healthcare Services Group, Inc. 2015 Fourth Quarter and Full Year Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session, and instructions will follow at that time. As a reminder to our audience, this conference is been recorded. The matters discussed on today's conference call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often preceded by words such as believes, expects, anticipates, plans, will, goal, may, intends, assumes or similar expressions. Forward-looking statements reflect management's current expectations as of the date of this conference call and involve certain risks and uncertainties. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances. Healthcare Services Group's actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors. Some of the factors that could cause future results to material differently from recent results or those projected in forward-looking statements are included in our earnings press release issued prior to this call and then with our filings with the Securities and Exchange Commission. We are under no obligation and expressly disclaim an obligation to update or alter its forward-looking statements, whether as a result of such changes, new information or subsequent events or otherwise. Now, I would like to turn the call over to the Chairman of Healthcare Services Group, Daniel McCartney. Sir, you have the floor.

Okay. Thank you, Bryan, and good morning, everybody. I'm with Ted Wahl and Matt McKee, and we all appreciate you joining us for this conference call. We released our fourth quarter and year-end results yesterday after the close, and we'll be filing our 10-K the week of the February 15. With that, I'll turn it over to Ted for a review and some discussion. Theodore Wahl - President, Chief Executive Officer & Director: Thank you, Dan. And it was during the fourth quarter of 2014 that we significantly accelerated our expansion which does make the Q4-Q4 comparisons the most difficult of the year, but we continue to grow the top-line at the targeted range with revenues for the quarter up nearly 8% to over $366 million, Housekeeping and Laundry grew at about 5%, Dining and Nutrition was up over 12% for the quarter. Revenues for the year increased over 11% to $1.44 billion, both quarterly and annual revenue amounts were company records. We expect double-digit top-line growth in 2016 and are in the process of transitioning new service agreements with annualized revenues of over $70 million. Over the next 12 months, we'll continue our selective expansion, controlling our growth rate to ensure that our facility execution and financial performance are in line with what we committed to our customers. As we announced in our dividend release last week, net income and EPS were unfavorably impacted by about $0.13 or $0.14 a share due to the mediated settlement of a legacy L&E matter. Although we denied any violations, we knew that in the current litigation and regulatory environment, and really with so many positive things going on in the company, it was best to settle this matter so we could devote our full attention to managing the business in the year ahead. With the investments we've made in our biometric timekeeping system and more recently, our electronic on-boarding program and ongoing expansion of our HR and Legal departments, we have both the processes and subject matter expertise to help mitigate these types of issues going forward. In September 2015, we completed the transition of our workers' comp and employee health and welfare programs into the Captive adding to the GL coverage that was already part of the program. The Captive structure will allow for greater efficiency in the management of claims, provide flexibility for our facility-level benefit plans to meet the requirements of the Affordable Care Act and be accretive to earnings in 2016. So, with that abbreviated overview, I'll turn the call over to Matt for a more detailed discussion on the quarter.

Thanks, Ted. Good morning, everyone. Including settlement-related costs, net income was $9.1 million or $0.13 per share for the quarter and $58 million or $0.80 per share for the year. Direct cost of services was reported at 87.2% and that's inclusive of settlement-related cost. So, our normalized direct cost of services came in at around 85.5%, which is about 0.5% better than our target of 86%. And while we don't expect the full run rate benefit of the Captive until Q1, we did garner about 20 to 30 basis points in cost of services from the Captive in the fourth quarter. So, going forward, our goal is to continue to manage direct cost of services under 86% on a consistent basis and ultimately, work our way closer to 85% direct cost of services. SG&A was reported at 9.9% for the quarter and that's including the settlement-related expense and the $1 million change in deferred comp, so the normalized SG&A was about 6.9%. So, we expect SG&A to continue to be in that 7% range going forward, with the ongoing opportunity to garner some modest efficiencies. Investment income for the quarter was reported at $1.3 million, but again after removing the gain in deferred comp, our actual investment income was about $300,000 for the quarter. As part of the dividend released last week, we confirmed that Congress reauthorized for 2015 and extended through 2019 the Worker (sic) [Work] Opportunity Tax Credit or WOTC program. As a result, we've trued-up our effective tax rate to 22% for the fourth quarter and 35.5% for the year. And for 2016, we expect our effective tax rate to be in the 36% to 37% range inclusive of that WOTC benefit. We continue to manage the balance sheet conservatively and at the end of the fourth quarter had over $100 million of cash and marketable securities and a current ratio of 4 to 1. Accounts receivable remained in good shape, well below our DSO target of 60 days. And as we announced last week in conjunction with the dividend release, the Board of Directors approved an increase in the dividend to $0.18125 per share, split adjusted and payable on the 25th of March. The cash flow and cash balances for the quarter more than support it and with the dividend tax rate in place for the foreseeable future, the cash dividend program continues to be the most tax-efficient way to get the value and free cash flow back to the shareholders. It will be the 51st consecutive cash dividend payment since we instituted the program in 2003 after the change in tax law. And it's the 50th consecutive quarter that we increased the dividend payment over the previous quarter. And that's a 13-year period now that included four 3-for-2 stock splits. So, with those opening remarks, we'd like to now open up the call for questions.

Thank you. [Operator Instruction] Our first question comes from A.J. Rice with UBS. Your line is now open. Please go ahead.

Thanks. Hi, everybody. Theodore Wahl - President, Chief Executive Officer & Director: Good morning, A.J.

First, I might just ask that – there has been some press around some of the public nursing home change and even some discussion around some of the private ones that, because of their debt loads and so forth, they're having some challenges, I guess, restructuring and paying down debt, so forth. Can you comment a little bit on what you're seeing out there with your client base? Any concerns about – on the credit side and maybe remind us a little bit about how you try to protect yourself in an environment where there might be an issue? Theodore Wahl - President, Chief Executive Officer & Director: Well, for us, without getting into the macro trends, A.J., that you just outlined, it really is a client-by-client exercise and I know it sounds cliché, but good operators are going to thrive in what are perceived as difficult reimbursement times or a difficult reimbursement environment. And poor operators are going to have trouble even in a stable reimbursement environment. So, we're as committed as we've ever been to making sure we manage the credit tightly. It's a daily exercise here, both out of the corporate office as well as in the field, to make sure the clients are meeting the credit terms that they've agreed to. And you could run D&Bs and do all sorts of credit searches on the customer mix that we have, and once you've removed the multi-state larger operators, you probably wouldn't sell them Q-tips. So that's how we judge the creditworthiness, whether or not they're living up to the terms and conditions that we've agreed to. One of the tools we've used historically is the promissory note and that continues to be a way for us to improve our position as an unsecured creditor. If you think about the promissory note for us, it's a legally binding document. It memorializes the indebtedness that a customer has to us at any given point in time, and typically along with the promissory note itself, we're able to negotiate a security interest which even if it's junior to senior secured lenders, it still gives us a seat at the secured lending table. So we've been more ambitious, especially with the, kind of, dynamic of the Dining cross-sell, where oftentimes we're increasing our AR exposure 2x or 3x with any given facility, we've been more ambitious about proactively approaching the customers and having them kind of – having us participate in their structure. Because oftentimes we have more skin in the game than the bankers or the principals themselves. So we haven't seen anything on a macro basis, but again, for us, we look at it more client-by-client, area-by-area.

And it hasn't, I mean, the contracting, re-pricing of contracts or the trending contracts, there's been no change in that pretty much? Theodore Wahl - President, Chief Executive Officer & Director: Correct. Correct.

Okay. On the $70 million of new business – bolus of new business, I think you've previously described it as sort of three quarters or so worth of new business compressed into maybe 1.5 or 2 quarters. I know you had a period a couple of years ago, where you brought on a bolus of business and then there was a drag on margin. Can you maybe, obviously, not necessarily talk about the customers by name but is there aspects of this one where you're more optimistic that you can bring it on quickly, is it geographically more or less concentrated? Is it – how does it break down between Dining and Housekeeping and give us some flavor for that? Theodore Wahl - President, Chief Executive Officer & Director: Yeah. Just as far as the breakdown, it's split pretty evenly between both Housekeeping and Dietary, and it is spread relatively evenly throughout the 10 different operating divisions. So we wouldn't expect a particular margin drag other than the typical 30 to 60-day ramp-up period where we're actually inheriting the payrolls at the facility as well as the purchasing and supply budgets at the facility. So, 30 days it's quickest, and then at the longer – the longer tail would be at the 60-day levels. I think overall, A.J., just to kind of talk a little bit about growth, since you brought it up. The demand for the services is really as strong as it's ever been, which is why aside from focusing on the $70 million, our focus really needs to be on the quality and the quantity of the management pipeline because that's really the catalyst or the constraint on our growth in any given district or region. And really impacts how successful we're able to transition business when we do bring it on. And you think about the $70 million and the bolus as you described it, we will continue to see this type of lumpiness or choppiness, particularly in Dining due to the fact that it's primarily still a cross-sell for us. And our existing multi-facility client base or preference is usually to do a transition on a specific date or over a condensed period of time rather than incrementally over the course of a year, which would quite frankly marry-up better with our management development efforts. And because of that – because it is an operational and a management development exercise for us, we often need to in a collaborative way push out start dates and agree to start dates that are further out or further down the line with our customers. But as you said, the $70 million is essentially six to nine months worth of growth, and maybe better said, six to nine months worth of management capacity that we're going to transitioning over a three-month or so period. So it will certainly impact our ability to take on new opportunities in some of the areas that were more directly impacted, more district – more certain districts and certain regions that are directly impacted. But having said that, I think we would expect normal type of business growth for the balance of year and that should put us in that double-digit top-line range I referenced at the outset of the call.

Okay. Great, all right. Well, thanks a lot. And I'll let someone else go. Theodore Wahl - President, Chief Executive Officer & Director: Hey. Sounds good, A.J. Thanks.

Thank you. Our next question comes from Michael Gallo with C.L. King. Your line is now open. Please go ahead. Michael W. Gallo - C.L. King & Associates, Inc.: Hi. Good morning. Theodore Wahl - President, Chief Executive Officer & Director: Hey, good morning, Mike.

Good morning, Mike. Michael W. Gallo - C.L. King & Associates, Inc.: Couple of questions, I guess, I mean, obviously, another really solid DSO performance in the quarter. I think it was roughly 53 days and looks like that long-term note receivable has continued to trend down. I guess, can you update us on where things stand in terms of balances on customers and bankruptcy and the like? Has it been stabilized? I know there was a period where it went up a bit. It's been a little more stable over the last couple of quarters. Theodore Wahl - President, Chief Executive Officer & Director: I think, kind of, piggybacking off of the answer that we had with A.J., it really is client-by-client for us. But, Mike, when you look back historically, we've always written off less than one half of 1% of our receivables. At different times in the company history, it's maybe been slow pay but it's always been good pay, because the amount that the customer or the provider is stating on their cost report for our services is ultimately reimbursed through the Medicare, Medicaid programs. And they are supposed to use it for its stated purpose. So that's always given us, kind of, leverage if you will in making sure we were able to get paid in a timely manner as we negotiated. So, nothing again on a macro basis, nothing unique within a specific customer that would give us cause for concern, although it's always something that we're focused on, and again, we've probably left more customers over the past five years than we've left in the first 35 years of the company history. And it's not to leave them in a lurch, but if they are – if we're uncomfortable with their payment behavior, we're more inclined to convert the services to a management-only arrangement where we'll provide management services and give back the payroll in the case of Dining, the food purchases and make sure the operations remain stable until the customer gets back on their fiscal feet, in which case, we're more than willing to transition back to full service. Michael W. Gallo - C.L. King & Associates, Inc.: Okay, great. Second question I have is just on the margins. I know, I'll have to probably wait for the Q to get the segment breakdown, but I was wondering kind of where the foodservice margins came up in Q4, when you adjust for the labor stuff that I know was kind of muddying the gross margin line. And then also once you put in the $35 million of additional business roughly and you get through the initial transition period, what kind of segment margin we should expect in foodservice, where you obviously have the ability to really bridge that gap that exists with Housekeeping and Laundry segment. Theodore Wahl - President, Chief Executive Officer & Director: I think as you said, the details will be in the K and that's still being finalized. And I think as Dan mentioned, we'll be filing that in the middle of February. But I would expect Dining – to the extent there is any margin compression in either Housekeeping or Dining, it would be really as part of the ramp up from a segment basis, as part of the ramp up for the openings in the first quarter, Mike, but nothing specific on the underlying business front. And when you look back over the past five years, we've improved the Dining margins well over 200 basis points and it's slower than what we would prefer. It's an operational exercise. It's not a hockey stick type of rise, but it is a two steps forward and one step back type of slog towards getting the Dining facilities managed under the right complement of facilities as we would determine it to be in. The Northeast and the Mid-Atlantic are currently at those levels, so any incremental business we add in the Northeast and the Mid-Atlantic regions, we're actually creating districts and regions so we don't get that disproportionate benefit from a margin contribution perspective. But in the less mature areas like the Southwest, the Southeast, Midwest, even into the Far West, as we're layering in the new business during the first quarter and really during 2016, we expect to continue to trend the Dining margins over the next couple years until they ultimately mirror those of Housekeeping and Laundry. So, that's kind of what we've done, albeit slower than all of us would desire, but that's what we would expect over the next couple of years. Michael W. Gallo - C.L. King & Associates, Inc.: Okay. Thanks very much. Theodore Wahl - President, Chief Executive Officer & Director: Great. Thanks, Mike.

Thank you. Our next question comes from Ryan Daniels with William Blair. Your line is now open. Please go ahead. Ryan S. Daniels - William Blair & Co. LLC: Yeah. Good morning, guys. Thanks for taking the question. Theodore Wahl - President, Chief Executive Officer & Director: Hey, Ryan. Ryan S. Daniels - William Blair & Co. LLC: Just – good morning. The first one is specific on the tax rate, I know it was about 35.5% this year, despite the longer term extension of WOTC, I think you said it would be 36%, 37% next year. So, are there any specific nuances moving that up, 50 basis points to 150 basis points? Theodore Wahl - President, Chief Executive Officer & Director: Yeah. This – just because of the settlement-related cost during the fourth quarter, we had lower pre-tax income. So, less income was taxed at the higher end of the graduated tax scale, which is why in the fourth quarter, the rate wasn't in the low 30%s, it was actually in the low 20%s. So, going into next year, as we continue to expect to grow pre-tax income year-over-year, the absolute dollar amount of the WOTC benefit should increase on a pro rata basis really with our employee count. But the percentage impact that it would have on our tax rate is diminished. So, in absolute dollars, the WOTC will continue to be a program that grows, but that's why, Ryan, when you compare 2015, we would expect 2016 to be in that 36% to 37% range. Ryan S. Daniels - William Blair & Co. LLC: Okay. That makes sense. And then you mentioned, you transitioned to the workers' comp and health and benefits in September, so you've had kind of one quarter, I know that was probably offset by some transition cost. If we look out to Q1, Q2, is it still in your view a $1.5 million, $2 million quarterly savings and will that really be in the first quarter or will we see the full run rate really come in Q2 and beyond? Theodore Wahl - President, Chief Executive Officer & Director: We would expect it in the first quarter, and I think as you said, we did complete the – we completed the tax free reorg and then the funding of the Captive with the $70 million during the third quarter, but continue to target about $6 million or so on an annualized basis and then that could prove to be conservative depending on specifically how the voluntary health and welfare programs progress during the course of 2016 and 2017. And we also achieved the $20 million cash benefit that we targeted in 2015 as a result of the accelerated tax deduction. So I think the benefit that we got in the fourth quarter, to your point, Ryan, we did expect more of it to be offset by the transition cost related to the changeover from our third-party insurer to the Captive TPA (20:34) model. But about $1 million or so of the benefit was actually realized in Q4, which I think reconfirms the achievability and really what our expectations are of the benefit moving into 2016. Ryan S. Daniels - William Blair & Co. LLC: Okay. That's helpful color. And then one last one, just any thoughts on the retention rate, I guess, both for 2015 and then any changes in Q4 to what you're seeing? Thanks.

Yeah. Ryan, it's crucial for us and that's an aspect of the business that I think is often overlooked when you look at kind of the overall growth and the growth target that we expect to achieve. Certainly, it's exciting for us to build the management capacity to be able to bring on the new business that we are bringing on in the first quarter here. But just as important for us is to maintain the high levels of client satisfaction and retention that we've always enjoyed. Obviously, the company target has historically been 90% year-over-year client retention. We've actually made efforts to creep that up even higher over the past few years and that's crucial for us. So there's an absolute focus on that in the field. Obviously, our field-based management team is incented to grow the business in their area, but just as important to that incentive component is retaining the satisfaction and the client base year-over-year. So there is an absolute focus in that area. We're happy to say that we continue to see the retention levels where they are, but that certainly doesn't happen by accident. And we're more committed than ever that our model needs to be growing in a controlled fashion along the lines of the rate at which we're able to develop the management folks. But just as importantly, keep the client – the existing client base satisfied and retain that business year-over-year, because that will obviously enable us to better achieve our targeted growth rates moving forward. Ryan S. Daniels - William Blair & Co. LLC: Okay. Thanks for the color, Matt. Thanks, guys.

Thanks, Ryan. Theodore Wahl - President, Chief Executive Officer & Director: Thanks, Ryan.

Thank you. Our next question comes from Mitra Ramgopal with Sidoti. Your line is now open. Please go ahead. Mitra Ramgopal - Sidoti & Co. LLC: Yes, hi. Good morning. Theodore Wahl - President, Chief Executive Officer & Director: Good morning, Mitra.

Good morning. Mitra Ramgopal - Sidoti & Co. LLC: Hi. I was wondering if you could just give us a sense in terms of, for example, we know some states are talking about higher minimum wage and my sense is you probably will be able to pass that on given the contracts, but would that be an opportunity in terms of pressuring nursing homes and lead to potentially more business for you?

Mitra, for us – the short answer is yes, that would be viewed as a pass-through to the clients just as any other wage or benefit increase would be given the contract structure that we employ. But you could add that to the long list of cost pressures that the operators are feeling at the nursing home. So certainly in any given geography where there is a significant change in minimum wages, that obviously impacts their ability to get bodies in the door as they find themselves competing with other, shall we call them, maybe more attractive, blue-collar type positions if you look at restaurants or grocery stores, et cetera. So, certainly any pressure – especially cost pressure that the operators feel at the local level benefits outsourcing companies of all kinds of services including obviously ours. Mitra Ramgopal - Sidoti & Co. LLC: Okay. Thanks. Theodore Wahl - President, Chief Executive Officer & Director: Thank you, Mitra.

Thank you. Our next question comes from Toby Wann with Obsidian Research Group. Your line is now open. Please go ahead.

Hi, thanks for taking the questions, guys. Can you just kind of talk quickly about the pace of activity, new business activity and I know you got the big bolus of $70 million coming on in the first quarter. But in terms of – are you seeing more bigger contracts, multi-facility type contracts out there or is it still kind of the small one and two-type deals? Theodore Wahl - President, Chief Executive Officer & Director: It's all of the above. We are really – when you think about our existing customer mix, about 30% or so are the large national chains. We don't do all of their business with any single operator, but on an annual basis, we are growing kind of incrementally at the local levels year-over-year. Another – the middle kind of 35% to 40% are those state-based chains that may have anywhere from 3 to 15 facilities in a given cluster and the bottom 30% or so continue to be those local mom and pop operators – they may be religious affiliated or governmentally owned and operated. And we are growing with all three segments because the match-point, all three are feeling similar cost pressures. So the demand is really across the spectrum of operators. When you see the type of – the amount of new business, the unusually large amount of business that we added or in the process of adding during the first quarter, that's as much driven, Toby, by client preference and that's where with the multi-state operators, in particular, when we have an existing relationship, just because with any transition there is always going to be transitory issues. Their preference, if they are an existing Housekeeping customer, is to do the Dining transition, for instance, over a condensed period of time rather than have it over a six month to 12-month period. So that's where you see these kind of boluses as we are describing them build up over the course of any quarter or year. But in spite of the fact that it looks like, we went out made a few phone calls and transitioned business over a couple of weeks, the reality is four of the five groups that make up that $70 million – and we are not even including all the local business that we are opening. But four of those five groups were in discussions for over 12 months where we have been prepping, planning, developing management, coordinating and as we speak today, we are doing the same thing for a business that we plan on opening 12 months from now. So it's an ongoing effort and it is – it's no different than we have done historically. Internally, it's just more a shift that we've seen in some of the customer preferences and again that's driven by the Dining cross-sell dynamic.

Okay. And then speaking of that kind of cross-sell dynamic and success you guys have had on the Dining and Nutrition, kind of what's the breakdown now between – I guess if you wanted to quantified it in terms of number of facilities that are Housekeeping, number of facilities that are in Dining, and kind of what's the penetration rate of that cross-sell to where you're in both? Theodore Wahl - President, Chief Executive Officer & Director: We're about 25% penetrated with our existing customer base in Dining.

Okay. Perfect. Thanks, guys, and congrats on the quarter. Theodore Wahl - President, Chief Executive Officer & Director: Thank you, Toby.

Thanks, Toby.

Thank you. Our next question comes from Chad Vanacore with Stifel. Your line is now open. Please go ahead. Chad Vanacore - Stifel, Nicolaus & Co., Inc.: Hey, good morning. Theodore Wahl - President, Chief Executive Officer & Director: Hey, good morning, Chad. Chad Vanacore - Stifel, Nicolaus & Co., Inc.: So you were talking about the demand for your services, and I'm sorry, if you said this. But, is most of the demand actually coming from existing client base or externally?

It's really – again to borrow Ted's answer from the prior question, all of the above. The demand for the services really is driven by and large by the cost pressures that the operators are feeling. And as Ted mentioned in an earlier answer, that pressure is felt whether you're part of a large national chain or a local kind of regional level chain or even the mom and pops. So, the demand exists across all three of those segments. And we continue to grow with all those folks and recognizing that regardless of the ownership group under which a particular facility falls, all those discussions still happen at the local level. So whether it's talking about cost pressures or other pressures that would create demand, that demand is generally generated at the local level. Now to Ted's point, the dynamic has changed in the sort of make-up of some of the larger customers that we do have. So, recognizing that change in their make-up, some of those discussions get elevated to higher levels, whether it's Regional Vice President of a national chain who oversees 15 to 20 facilities, we'll obviously engage them appropriately as we pursue discussions at the facility level in their respective region, or it may elevate to kind of the C-suite level of a regional chain or perhaps even ultimately to the C-suite level of a national chain where there is more interest in asserting themselves at the operational level. But typically again, all of the demand, all of the cost pressures and all of those substantive discussions happen at the facility level. Chad Vanacore - Stifel, Nicolaus & Co., Inc.: All right. So, and assuming that there is growing demand out there for your services, is there any way to improve the recruiting so that you can meet that demand?

That would be – that's the Holy Grail, Chad. Theodore Wahl - President, Chief Executive Officer & Director: Yeah. I'd say we're looking for resumes, so if anybody on the call has any, please send us – please send to our direction.

And it's – and we've talked about this on prior calls. It's not necessarily the recruiting that's the challenge for us. We've always been able to get plenty of resumes, either by word of mouth or other more formal avenues that we pursue from a recruiting perspective. It's really in getting folks through the training and development program. Recruiting folks, getting them hired has never been a challenge. And if we simply had a classroom setting where they could sit for three weeks in a classroom setting and just sort of understand all that goes into managing our operations and managing what is a highly demanding client base, that would be fantastic and we could certainly accelerate the top-line growth. The limitation for us is, having experimented with every variety of training and development of our management personnel, we're more committed than ever that the training and the development has to happen out in the field at the client facilities in a very hands-on, almost apprenticeship type fashion. And knowing our business, Chad, you know that that means, hey, whether you've got an advanced degree or you've got a GED, you're a military veteran, you are welcome to hang your diploma or other certifications on the wall, but roll up your sleeves, here is a mop, you will be performing the blue collar tasks that you will ultimately be managing. And it's not to haze them, although it may feel like that when you're in the throes of that training and development. But it's really so that we're certain that they understand the efficiencies that they'll ultimately be implementing and managing at a facility down the line. We can't have them conduct a time-work study to understand how long it needs to take. Down the line when they are managing a facility, they need to be able to empathize with and relate to our caliber of employees, but more importantly, when Jimmy the floor tech comes and says, hey, boss, I'm going to go buff the third floor hallway, I'll see you in two hours, that manager with confidence can say, "Nonsense, Jimmy, that should take you 25 minutes and if you can't do it in 25, I will show you how to do it in 25." Now, having said all that, the individual, the candidate with the advanced degree or even the recent college grad, their tolerance to grab a mop and to really buy in to that larger scale picture is the challenge that we face. We've not had success in operational shortcuts in the training program. So as I mentioned, we're more committed than ever that we need to take our time, successfully develop managers from an operational perspective, from a client relationship management perspective, et cetera. So, absolutely, you're correct, if we could accelerate the recruitment efforts and more importantly the training program that would definitely lead to a corresponding acceleration of top-line growth. Unfortunately, that silver bullet does not presently exist that we are aware of. Chad Vanacore - Stifel, Nicolaus & Co., Inc.: All right. Then just one last one, quick thoughts on best uses for cash flow – still in terms of dividend? Theodore Wahl - President, Chief Executive Officer & Director: It is and it's something, as we talked about on calls like this before, I mean it's something the Board evaluates on an ongoing basis, and certainly if earnings and cash flow continue to accelerate at a rate faster than the dividend then bumping up the dividend would continue to warrant some serious consideration. But our plan was to complete the Captive-related reorg which we did in the third quarter, and then over the course of 2016 gain some operating experience in the Captive, because it does change our balance sheet. It's a different type of balance sheet than what we've had in the past. So be able to manage through the Captive over the next 12 months, and then going into 2017, determine what makes the most sense in terms of that capital allocation going forward. But certainly the Board believes, we believe that the highest and best use of cash, the best way to give the value and the free cash flow back to the shareholders, is through the commitment to the dividend program. Chad Vanacore - Stifel, Nicolaus & Co., Inc.: All right. That's it for me. Thanks all. Theodore Wahl - President, Chief Executive Officer & Director: Great. Thanks, Chad.

Thanks, Chad.

Thank you. Our next question comes from Sean Dodge with Jefferies. Your line is now open. Please, go ahead.

Hi. Good morning, guys. Theodore Wahl - President, Chief Executive Officer & Director: Good morning, Sean.

So going back to the Captive for a moment, the savings you saw during the quarter, was this just all premium that you would have otherwise been paying to Zurich or is there something else that is being included there that helped you realize these savings a little bit earlier than you had expected? Theodore Wahl - President, Chief Executive Officer & Director: Well, it's really the – it's really driven by our ongoing improvement in the mix between indemnity claims and medical-only claims, which has been the underpinning of our entire program initiative over the past five years. Now if you look back five years ago, our typical mix of medical claims and indemnity claims was two-third/one-third, today, it's closer to 85/15. And the difference between those two types of claims on a fully developed basis is as much as $30,000 or more. So that's really where the ultimate savings are coming from. And as I said, the longer term play would be on the voluntary health and welfare side as well as the efficiencies on the major medical and the fact that we're able to custom craft those types of programs.

Okay. And then, Ted, I think you had said, the – so you have about a $1 million or $2 million of savings in the fourth quarter and then there's an another incremental...? Theodore Wahl - President, Chief Executive Officer & Director: It was just under $1 million and we would expect another maybe $0.5 million on top of that going into Q1.

Okay. So, it's not going to be all $6 million then we see in Q1, it will ramp pretty linearly? Theodore Wahl - President, Chief Executive Officer & Director: That's exactly right. We would expect to see that benefit kind of throughout the course of the year as you said more linear than kind of lumpy in a given quarter or set of quarters.

Okay. And then on gross margin, you should benefit from the savings from the Captive and leveraging the Dining management infrastructure, are there other levers that you're focused on when it comes to continuing to drive some improvement there? Theodore Wahl - President, Chief Executive Officer & Director: I think over the near-term, there are the two. It's the benefit, the tailwind that we're going to get from the Captive insurance program. And then over the next couple years, the ongoing albeit incremental benefit we'll see if not quarter-to-quarter, year-over-year from the Dining and Nutrition segment.

All right. Thanks again.

Thanks, Sean. Theodore Wahl - President, Chief Executive Officer & Director: Terrific. Thank you, Sean.

Thank you. There are no further questions. So now, I would like to turn the call over to Theodore Wahl, President, CEO for closing comments. Theodore Wahl - President, Chief Executive Officer & Director: Great. Thank you, Bryan. Overall, the demand for our services continues to be greater than what we're capable of managing. And with the uncertain regulatory and reimbursement environment facing the healthcare industry, we would expect that demand to only increase in the years ahead. The rate-limiting factor on our growth continues to be the pace at which we're able to develop and promote from within management candidates which is why people development at all levels of the organization remains our highest priority. We'll look to keep direct cost of services below 86% and work our way closer to 85% direct cost of services with the primary drivers of that margin improvement being the Dining and Nutrition districts in regions, managing the right complement of facilities, as well as our Property and Casualty and employee health and welfare programs being managed out of the Captive. We expect our normalized SG&A to be about 7% going forward excluding any deferred comp impact, but remain committed to ongoing investment in our Clinical Dietitian, HR and Legal functions. As we enter 2016 in what will be our 40th year of business, we continue to operate in a recession-proof market niche. The demographic trends have been and continue to be in our favor. We're in an unprecedented cost containment environment that's really increased the demand for outsourcing services of all kinds, including ours. We have the most talented management team we've had in the history of the organization and we have the financial wherewithal to grow business as fast as our ability to manage it. Ours is an execution business and our ability to execute is what will drive our success in the months and years ahead. So, on behalf of Dan, Matt, and really all of us at Healthcare Services Group, I wanted to thank Bryan for hosting the call today, and thank you to everyone for participating.

Ladies and gentlemen, this concludes today's program and you may all disconnect. Everybody have a wonderful day.