Thank you, Tamia, 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. Our third quarter results reflect the impact of supply chain disruption, labor availability and significant inflation in the cost of goods that many industries have experienced.

Q3 events like the Delta variant surge, vaccine mandates and a record number of people leaving the workforce had a disproportionately adverse impact on nursing homes, and contributed to the rapid and significant inflation we experienced during the quarter.

Despite these unprecedented challenges, we remain steadfast in our commitment to supporting our customers, in caring for their patients and residents. During the quarter and in the face of great uncertainty, we made a real time but very intentional, purposeful longer-term-view decision to do whatever it takes to staff and supply our client facilities to get the job done, and our entire team rallied together in this effort.

If that meant incurring overtime hours, introducing special employee bonuses or increasing wage rates and premium pay, that's what we did. And that certainly had an impact on our financial results, but we hold a high level of conviction that especially in this unprecedented environment, doing right by the resident is the right thing to do and doing the right thing is always good business.

While we expect these market conditions to persist in the near term, ultimately, we expect our clients to rightsize facility wage rates, and we will then pass along billing increases reflecting those adjustments. The rightsizing of the facility wage scale should reduce or eliminate the need for further overtime, premium pay or special attendance retention or referral bonuses.

As a reminder, while it is certainly a conversation with the client, our contracts typically do not allow for pass-through billing increases based on costs like those that we have initiated. This compares to increases that are initiated by the client, whether that's wage increases or the recent hero pay bonuses for which we do have contractual pass-through rights.

Again, we ultimately expect our clients to rightsize facility wage rates, and we will then pass along billing increases reflecting those adjustments.

Food is another area we experienced unprecedented availability and inflationary pressures in during the quarter. Our total menu costs were up over 4% during Q3, with high-volume items like meat, poultry, fish and eggs up substantially more.

We are working closely with our supply chain partners to mitigate food supply challenges and are collaborating with our customers to maintain quality and limit their financial exposure through creative menu design and product substitutions.

Inflationary increases in food costs are also passed through to our clients but those are typically automatic adjustments that occur on a quarterly basis. For example, Q3 CPI-related adjustments will be reflected in Q1 customer billings, Q4 adjustments will be reflected in Q2 and so on.

Looking ahead, we will continue to closely monitor industry recovery, occupancy trends and further government funding. While the unprecedented environment is a headwind on revenue growth and profitability, we remain confident in the longer-term growth outlook for the company given our market leadership, efficient operating model and attractive demographics.

So with those introductory comments, I'll turn the call over to Matt for a more detailed discussion on the quarter.

Thanks, Ted, and good morning, everyone. Revenue for the quarter was $415.6 million with housekeeping & laundry and dining & nutrition segment revenues of $203.4 million and $212.2 million, respectively.

The majority of the sequential increase in revenue relates to the addition of new dining & nutrition service agreements with existing housekeeping & laundry customers. There was also a modest portion of the revenue uptick related to increases in billings for wage increases that some clients implemented at their facilities throughout the quarter in an effort to address staffing challenges.

Direct cost of services was reported at $364.8 million or 87.8% and included $2.3 million of new business start-up costs incurred during the quarter, $7.7 million of increased labor costs, sequentially from Q2, and that was driven by higher premium pay and employee bonuses, and $2.5 million of increased food cost, again sequentially from Q2 driven by a 4.1% increase in menu item costs.

Housekeeping & laundry and dining & nutrition segment margins were 8.5% and 3.4%, respectively. Selling, general and administrative was reported at $38.8 million after adjusting for the $200,000 decrease in deferred compensation, actual SG&A was $39 million.

SG&A was impacted by about $1 million of new business start-up costs and $600,000 of SEC-related legal costs.

Investment and other income for the quarter was reported at $133,000 after adjusting for that $216,000 change in deferred compensation, actual investment income was about $339,000 for the quarter. Our Q3 tax rate was 21.3%.

Net income for the quarter came in at $9.5 million, and EPS was $0.13 per share. Cash outflow from operations for the quarter was $23.1 million and was impacted by a $16 million increase in accrued payroll, a $12 million increase in accounts receivable related to the recent addition of new dining & nutrition service agreements, and $6 million SEC settlement.

DSO for the quarter was 64 days. Also, we would point out that the Q4 payroll accrual will be 13 days.

That compares to the 5 days that we had in the third quarter and 12 days that we had in 2020 during the corresponding period. But the payroll accrual only relates to timing and the impact ultimately washes out through the full year.

Now Q4 will also be impacted by 1/2 or about $24 million of CARES Act deferred payroll tax repayments. We're pleased with the ongoing strength of the balance sheet and the ability to support the business while continuing to return capital to HCSG shareholders.

We announced that the Board of Directors approved an increase in the dividend to $0.21 per share, payable on December 23, 2020. The cash balance is supported.

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 free cash flow and ultimately maximize return to shareholders. This will mark the 74th consecutive cash dividend payment since the program was instituted in 2003 and the 73rd consecutive quarterly increase.

That's now an 18-year period that's included 4 3-for-2 stock splits.

We recognize the dividend is important to our shareholders, and we've increased it in line with our performance track record. Additionally, the company repurchased $3.6 million of its common stock pursuant to its previous authorization during the quarter, and the company remains authorized to repurchase 1.4 million shares of our common stock pursuant to the Board of Directors' authorization.

So with those opening remarks, we'd now like to open up the call for questions.

Just a quick question on the dining side. So when you guys are bidding and talking to new clients, have you adjusted your contract rate and you're hiring accordingly, given the cost inflation you're seeing.

And also does it make sense if you can really increase the contract rate right now, does it make sense to maybe pause some dining & nutrition contract additions?

Yes. So I would say, Tao, most of the new business that we started at the tail end of Q2.

And as we've discussed, there's been significant increases in labor-related costs since that time. The good news is that we've been able to implement our systems and staffing models at those facilities, which means we've made a very favorable operational impression on those clients, and the foundation of the go-forward structure is in place.

But those facilities are not immune to the cost pressures that we've talked about seeing throughout our portfolio, no matter how long a facility has been a partner of ours. Whether that's 2 months or 2 decades, we're committed to upholding our operational responsibility.

And from the positive perspective, these are nearly all existing housekeeping clients, with whom we've had strong preexisting relationships. So that certainly aids in the ease and effectiveness of cost and billing-related conversations.

So ultimately, we've established a strong operational and systems-based foundation at these facilities, and we remain highly engaged with the clients at the facility level to monitor the labor and food costs to ensure that we are aligned in rightsizing our wage scales going forward, not unlike the other facilities in our portfolio.

As to the go-forward perspective, absolutely, the sort of dislocation of the labor market right now relative to sort of what had been a more stable environment is yet another assessment we need to make in analyzing go-forward prospect with whom we might partner. So that relates to the occupancy and the facility, the payer mix that they have and certainly, the stability of the labor environment within the 4 walls of that facility.

Do we believe that they have the appropriate starting wages? Do we believe that they are compensating the existing employees appropriately such that we'll be able to get employees in the front door and keep them from exiting out the back door.

That's yet another component of the financial assessment of -- would be partnership with the prospective clients. So 100% accurate, Tao, your instinct that we would absolutely want to make sure that we're as closely assessing the conditions of the facility before we would think about engaging and establishing a go-forward partnership via contract.

Yes. That makes sense.

And also wanted to kind of unpack a little bit of the challenges we saw this quarter. Obviously, the latest surge in COVID has somewhat peaked in August.

So things are getting better, and also the provider relief fund. Looks like the nursing home operators are going to get some additional government health, possibly in the fourth quarter.

So there are certainly some positive news coming down the pipe. But just to understand kind of the labor challenges, how are the conversations with your operator partners going right now?

Is it more of a labor availability issue right now? Or is it a cost issue?

It sounds like probably both. I just wanted to understand how long do you think this pressure will last?

And how fast do you think you can pass through some of these costs to your clients?

Yes. It is.

It's both a labor availability as well as a cost issue. You can imagine the conversations we're having with our clients right now about rightsizing wage scales.

In a typical environment, these are conversations that are had with ease, right? We present to them our findings on the labor side.

They're typically experiencing the same types of cost pressures we are, wage-related or otherwise. And they are ultimately the ones that adjust the wage scale, and in turn, we pass-through a corresponding billing increase.

In this environment, their first question that they wonder, is it temporary? Or is it the new norm.

And if it is, in fact, the new norm, how much do the wage scales need to be adjusted by. And even if you increase that rate, to your point about labor availability, is there a candidate to fill that job.

And oh, by the way, how am I going to be reimbursed for whatever the incremental cost is. So I think there's a series of questions that are being discussed and collaborated on a real-time basis.

There is some market-to-market variability as there is with everything in our business, but this is a fairly widespread challenge that the industry is facing, which also then has a direct impact on occupancy, right? To the extent there's patient care, labor challenges.

That has a direct and corresponding impact on the ability for a provider to fill their beds, which -- you mentioned the surge -- the Delta Variant surge, which happened in August. Yes, that subsiding is certainly a positive.

But ultimately, the providers need to have the patient care staffed to be able to have new admits come into their facilities. And as an industry, we've been stagnated in and around 72% occupancy for the past few months, which is disappointing.

Because when you look at where the industry was, where it really bottomed out in January at around 67%. We've seen about [ 0.2%, 0.3% ] pretty consistently per week of an increase and had good momentum heading into the back half of the year.

But again, the Delta Variant surge, and I think the impact -- the unprecedented labor shortage and labor availability issue we're seeing now is definitely having a dampening impact on that occupancy recovery.

Having said that, if you tease it out, we haven't seen really early returns yet for -- that are meaningful for October. But if the industry does -- which we're hopeful -- we're hopefully and cautiously optimistic, a 0.2% recovery per week consistently had would put us back to that 80% -- that pre-pandemic 80% level sometime in June of 2022, which -- that 80% is important because that's really the -- a good baseline for what would be a self-sustaining occupancy level.

And again, that's where we were pre-pandemic. If it's 0.1% per week, then that puts us out sometime in the beginning of 2023.

So we're going to monitor that recovery very closely. At the end of the day, though, on a positive note, the demographic tailwind -- the secular demographic trends are incredibly positive.

And when you point to that 80 to 84-year-old cohort, which is about $6.4 million strong today. It's going to be over $8 million in 2025, and close to $11 million in 2030.

So in a few short years, we'll be talking about supply, not supply considerations more than the demand for the services on the provider side.

Yes. If I may ask one last question.

How does the board and management think about the dividend, continue hiking the dividend given that some of the recent challenges might lag a few quarters. How do you feel about the dividend increases going forward?

Well, I think after growth and internal investment, from a capital allocation perspective, the dividend is certainly one of the highest priorities the Board has as a company. And there's no payout ratio per se, but it's the consistency and the sustainability of the dividend.

That's always been attractive, I think, to our -- certainly, our shareholder base as well as the Board of Directors. And I think the fact that rain lead or snow, good times and bad times, we've always been able to consistently and in a sustainable way pay out the dividend has been -- certainly, underscores the confidence that we had the Board of Directors has in the future of the company.

And we've always managed the balance sheet conservatively from a cash perspective. So our expectation, Tao -- the Board's expectation is that we'll continue to pay and increase the dividend in a way that's been consistent with our past, now going on 74 quarters, soon to be 75.

Yes. Can you hear me?

Yes. Mitra, we've got you now.

Could you give me a sense in terms of the workforce exit you saw relative to your expectations? And going forward, how is it going to impact your ability to bring on new business.

It seemed like you had a lot of momentum coming into this quarter after the recent $50 million new agreement. How much do you think things are going to be pushed out?

Well, I think as far as our expectations on workforce availability and the challenges that we saw -- I know last quarter, we spoke about Q2 being the most challenging labor environment we've ever faced, which would have included '18 and '19 when unemployment was below 4%. Even the height of the pandemic, Mitra, with health and safety concerns we're at that peak.

But I think the labor shortage and wage inflation we experienced in Q3 was unprecedented.

And we alluded to it in some of our opening remarks, knowing that labor supply is a complex issue, the Delta Variant surge -- certainly, the federal vaccine mandates had a disproportionate impact in the environment that we service each and every day and then the great resignation. We had 2.9% of the workforce exiting in its entirety, and that had a disproportionate impact on the health care sector at large.

So I think all of those considerations only further exasperated what was already a difficult environment. So I think heading into the quarter, while it was very challenging, those events, which really manifested themselves in a more significant way in August and September were unanticipated.

But certainly, the commitment we made in service of the client and our customers and the residents that they serve was to do whatever it takes and get the job done. And again, I mentioned it earlier, but we have high conviction, high levels of conviction that, that was absolutely the right thing to do given the environment.

As far as the new growth expectations, the growth expectations going forward and how it could impact, I think we just demonstrated that even in a very challenging environment, we were able to not only open new business. But as Matt mentioned, do it in a way that was very successful from an operational perspective.

Having said that, there are cost implications, and we're working through those now with those new clients. So I think going forward, opportunistic growth, I think, just looking out over the next 90 days would be the word that I would use as the opportunities present themselves.

There are so many variables right now. It'd be difficult to be able to say with certainty that we're going to be able to execute on a growth strategy in Q4 just because there's variables that are in play that are outside of our control.

That doesn't mean we're not going to grow. That doesn't mean there's not great opportunity to grow.

But I think because of the number of variables that are in play, it'd be difficult to say with confidence that, hey, we're going to successfully execute on our growth strategy in Q4. But as we gain more information and more insight into what's happening on the ground.

And hopefully, as the labor availability issue begins to subside, we'll be able to speak with more confidence to the future of our -- the near-term growth strategy.

And Mitra, I just want to add one distinction relative to sort of the exits of employees from the workforce. The challenge that we faced wasn't as much a mass exits of our employees leaving.

Thankfully, we had implemented a pretty substantial employee engagement initiative going back a few years now, and we've been able to engage with our employees. And obviously, when it comes to staffing issues within a facility, if we don't have sufficient bodies, that's where the challenges arise in order to get the job done.

We've implemented some of the premium pay and the usage of over time, retention bonuses, referral bonuses that Ted alluded to in his opening comments.

The greater challenge from us as a result of the sort of exits of bodies from the workforce is just the availability and hiring, the new hires, right? That's been the greater challenge from our perspective.

So the fortunate situation is that we've developed that high level of engagement among our employee base, where we're not seeing substantial turnover as a result of vaccine mandates or otherwise, the challenge, the greater challenge that we face is in bringing new bodies in and we're getting -- we're seeing increased levels of applications, and we're certainly investing more resources in our recruiting efforts, but that's been where the challenges felt more from a company perspective.

Okay. No, that's great.

And then quickly on the food side, how quickly you think you'll be able to sort of recoup the increased costs you're seeing in terms of being able to pass it on to your clients?

Yes, it's pretty automatic. Generally speaking, the majority of our contracts have a quarterly CPI, I apologize, CPI-related adjustment that has a 90 day lag, so Q3 CPI-related adjustments would be reflected in Q1 billings.

So a 90 day lag, at which time they're implemented for the subsequent quarter.

This is [ Tom Stellar ] on for Sean. Ted, you mentioned the difference in wage rate increases initiated by you and those initiated by the clients and the impact that has on whether or not they can be passed through.

Just to help better understand the third quarter, which are the items you may or not able to be passed along? Is it everything set to higher food cost?

Yes. Well, typically, when you think about our customers, our contract structure places the onus on that customer for developing the conditions of employment to attract and retain employees.

So our general approach is to let them know what we're facing in any given labor market, make recommendations on the adjustments and then ultimately pass along those increases. That really does remain our approach.

And to that end, we're working with our clients to update their wage scales. But in this unprecedented environment and the labor shortage, what is typically, as I mentioned earlier, a straightforward process is more complex, which is why in terms of what would typically be outside the scope of that contractual arrangement, things that are initiated by us, for instance, overtime uses, which in a normal environment, would be considered an inefficiency.

If we decided to institute special bonuses or referral or retention programs for our employees. They would be initiated by us almost outside of a typical contract structure, different than, say, a wage scale adjustment where the facility is adjusting its wage scale, our departments would be part of that adjustment.

And then we would pass along the corresponding increase as we adjust the wage rate structure. So that's what we're in the process of working with our clients on now.

And ultimately, we expect the rightsizing of those wage rates to be adjusted and then passed along to our clients. But in the meantime, as we're working through that process, some of these costs I referenced earlier, special attendance bonuses, retention referral bonuses, premium pay overtime are going to be incurred like they were in the third quarter.

Okay. That's helpful.

And then given the [indiscernible] labor markets, where do you all stand currently from a new manager development standpoint? Are you continuing to recruit and train new ones?

Is it kind of business usual on that side? Or given the state of things have you paused a lot of that activity for now?

Yes. Again, Tom, I would say that, to a degree, it's business as usual.

As recently as the second quarter, we were talking about having an eye on growth, right, and an obvious first step in order for us to think about onboarding new facilities as having that managerial wherewithal the managerial capacity at the local facility level to do so. So that is one thing that's been beneficial in one regard is that at the local levels, our folks have been recruiting, and they have been hiring folks and putting them through our management training and development program.

There has been a little bit of approval, obviously, with the significant challenges in labor availability in the labor market that we've described, that's yet another tactic that we employed throughout the quarter in order to make sure that we could get the job done at the facility was repurpose, if you will, or sort of reroute some of those personnel resources toward facilities that were especially in crisis or facing needs from a labor and a personnel perspective.

So there were some instances where the -- perhaps unanticipated portion of a management training program is going to route them to a facility where they're going to be an extra set of hands, and they're going to be learning firsthand how to deal with the challenges that can arise in scenarios like this. So a great learning environment, certainly a challenging learning environment, but it will serve us well, certainly as we attain that market stability and begin to transition out toward growth mode with greater confidence.

Okay. And then one last quick one, if I can.

If you think about the cost or margin trajectory in the next couple of quarters, are all those costs reflected in the third quarter? Should we expect some incremental step-up in Q4?

Yes. At this point in time, we're -- we don't really have great visibility into that.

I would say sitting here today, knowing what's in front of us and knowing that there's so many variables in the marketplace right now. We would venture to guess that Q4 could look more like Q3, and we'll continue to work through this process.

But again, ultimately, our expectation as we work through these conversations with the customers in rightsizing the wage scales that we would return back to our typical 86% cost of services or better operating model.

Nick Spiekhout in for Ryan. I guess kind of going on this cost inflation, how does this affect kind of the sales process for incremental business?

So not just kind of synergies to kind of dining revenue. Like I would assume it's kind of a double-edged sure in that it makes kind of the pitch a little bit easier and that these folks are seeing their costs in place and they're trying to find a potential operator bring those down, but I could also see that go the other way.

So I guess just your thoughts there.

No. Your intuition is exactly correct, Nick, in the sense that we certainly have more resources at our avail.

We are able to better mitigate these challenges than the in-house managed operator. So that serves us well.

And obviously, in times of greater industry duress or when the industry is especially challenged or pressured, the leanings towards outsourcing all types of services increases, right? And certainly, that applies to the services that we provide as well.

The challenge that we face in really kind of surveying and putting proposals together and projecting new business opportunities is understanding the relative stability of that facility's financial profile, right?

You can look at a facility at a point in time and see a certain occupancy level, perhaps a certain payer mix or even a certain wage scale, and you have to determine whether each of those is scaled appropriately for that particular facility and not only for that moment in time, but going forward. We talked about the challenges that we faced throughout parts of the pandemic where there were infusions of government funds that could absolutely create the opportunity for full gold in assessing new business opportunities, right?

A customer calls you, the value proposition resonates very clearly with them. They're interested in partnering with us, and they show you a balance sheet that's reflective of a much healthier version of what exists perhaps behind the curtains on a go-forward basis relative to occupancy and some of the labor challenges that we've talked about.

So we need to, as a part of that comprehensive financial assessment of the facility determine, is this the appropriate wage scale in this building. The last thing that we would want to do is onboard a new facility, establish a new partner where the average wage is $9 an hour.

And then all of a sudden, we get in there and we determine that, boy, we're not able to get anybody in for less than $11.50. You're sort of blowing up the unit-level economics right out of the shoe.

So it is yet another component, Nick, of that facility-based assessment, not only at the moment in time, but it's a little bit of a moving target and we have to do our best to project out how sustainable, how appropriately scaled is the unit-level economics of that particular facility.

I can appreciate that. And then I guess just a follow-up.

In regards to kind of the cross-selling opportunity with the dining & nutrition, how far or long, I guess, are you in the potential to do that? Are you still in kind of the early innings of that?

Or are you kind of -- I guess where are you in that process?

I'd describe it mix similar to the dynamics that I described as it relates to management development, right? The management development function is one that is executed and established locally, based upon existing managerial needs and likewise the go-forward growth prospects.

And similarly, business development is assessed executed and ultimately onboarded locally. So we are at different stages throughout the country based upon customer relationships, based upon the stability in the labor market and other factors.

Some of those conversations about converting housekeeping & laundry customers to becoming a dining customer are years in the making. And if we're confident that, that customer can tick all the boxes with respect to those elements that I just outlined, in addition to, of course, first and foremost, will they hold the contract with the utmost integrity, will they ultimately commit to paying us on time and in full.

If we can tick all those boxes, then we would feel confident to forge forward and to convert some of those new opportunities in the near term. But generally speaking, there's a fairly wide variability in what you'd find based upon kind of the local conditions and where they are with both the management capacity and that assessment of those facility-based financials and go-forward profile that I described earlier.

Got you. And if you're going to put like a number on that, like is that 1,000 clients, 2,000 clients?

Like is there kind of like a number that you guys are tracking, I guess?

The one number that I would point out, Nick, is that we continue to have less than 50% of our housekeeping and laundry customers for whom we're providing dining services. So that is certainly the most obvious and immediate low-hanging fruit for us.

As a company. It's a tremendous opportunity and a runway that lies ahead in the near term.

We wouldn't feel comfortable to put numbers associated with either the timing or the number of facilities that we'd expect to convert within any sort of anticipated time frame.

Just a couple of things, if I could ask. So in the press release -- and I'm sorry, I got on a few minutes late.

So let me know we can cover it offline if you've already talked about this. But you discussed taking a look at every aspect of the business, looking at operational changes.

I wondered if you could flesh out a little more specifically where you think there's opportunities to respond to what you're seeing in the marketplace?

Well, I think in terms of actions that we're taking, A.J., specifically with respect to the labor market, we talked about some of the initiatives that we've launched that we -- that have been in place, but that we're continuing to innovate around. But certainly, repurposing, redeploying resources to high-need facilities, introducing employee incentive and referral programs, streamlining onboarding processes, just to name a few.

So there are some of the recruiting among many, many other programs and innovations that we continue to have and implement throughout the organization.

In terms of our customer base, I think we have the tried-and-true approach that has worked since company inception around wage rate and wage scale pass-through provisions in the unprecedented environment that we're in right now. Obviously, that's more of a process than an event.

What was otherwise and would typically be a pretty straightforward conversation. You have a client that's in a position where they're asking many different questions among their own departments, whether one of the departments we're operating and trying to understand whether the environment is transitory or whether it's permanent.

And if it's permanent, that would trigger a series of additional conversations. So I think in the quarter ahead, given all of the variables, which is why when I was asked the question about next quarter, what I can answer is not exactly what next quarter is going to look like from a financial outcome perspective.

But I can speak with great certainty on what we're prioritizing, which is recruiting and retaining staff, working with our clients on updating employee wage scales and then remaining laser focused on the elements of the business that are within our control. So that's really going to be our focus.

So beyond that, we continue to keep an eye towards growth and the other parts of the business that will manage here to today.

Sure. I guess I didn't understand, and it sounds like, yes, the focus is on the recruiting side that pipeline.

I wondered -- it almost read like maybe there was some way you could -- you were thinking about retooling the infrastructure -- the management infrastructure that you have in that model. But that doesn't sound like that's on the table or anything.

No. No, definitely not.

Okay. I guess the pass-through elements of what you have on dining, the pass-through elements of the wages for the hourly labor has always been a great aspect of the company.

It's given you protection. I guess when you're in an environment like maybe we're in now where you just -- nursing homes are in a position where they have trouble raising the wage, they have to deal with their own workers and with your workers, and raising and dealing with the increase in dining food input cost that they can only go so far they put themselves in financial distress.

Are we dealing with that kind of thing? It seems like the occupancy rate sort of bounced off the bottom, but it sort of plateaued here at a -- relative to pre-pandemic levels depressed.

I just wonder whether that's one of the challenges is. Even though you've got the right potentially to pass through these wage increases, they're just not in a position financially to raise rates enough to get the labor, and therefore, they're sort of in a cash '22.

Are we at that point yet or not really?

You're thinking about it exactly correctly, A.J., in that not only do they not necessarily have the financial wherewithal to increase those wages. They don't know where to take them, right?

Because you've got to keep in mind that once you let the toothpaste out of the tube, it's really hard to get back in, right? If you completely adopt the wage scale for what could be a moment in time, there's -- it's really hard to walk that back, right?

I mean once that starting wage gets up above from the example I gave earlier from $9 to $11.50, really hard to walk that back, right? That becomes the new norm.

So that's part of the challenge. And how that impacts us, as we've discussed previously, when there's a customer who's slow to respond or slow to adjust the wage scale, the facility to adapt to labor marketing conditions, that can create operational challenges for us, right?

It can make it harder to get people in the front door. It can create challenges in keeping them from walking out the back door.

When that's pushed and pressure to the next level, it can create the need for us to utilize over time. And as you know, better than anyone, A.J., we joke about overtime being the dirtiest of dirty words in our business.

It's an absolute budget killer. But with the commitment that we make to the residents in these facilities, and to getting the job done for our clients, we will utilize whatever it takes to leverage the employees that we have in that building to get the job done.

So whether that's utilizing overtime hours or implementing some of the premium pay or bonuses that Ted alluded to, that's the commitment that we make. Now the good the benefit is that once the facility ultimately sort of rightsizes and rescale the wage structure, that's when we do, in fact, we have the opportunity to pass along those increases.

But in the meantime, there certainly can be operational, and that can bleed into financial challenges that were required to bear in service of getting the job done until that facility wage scales rightsized.

A.J., I would just add. What hasn't changed, even if this environment as difficult as it is for all the reasons you outlined persist.

Ultimately, our approach contractual and otherwise, is fair and beneficial to the client. It's fair to the client in the sense that they are -- if we were not there -- and that's really the view ultimately that the customer would look at their decision.

And if we were not there, they would be subject to the same wage pressures and have to make the same adjustments if not greater adjustments than we would. And it's beneficial because whatever adjustments that client would otherwise have to make would likely be on a larger employee base because of the efficiency that we have in operating the business.

So those 2 components to any discussion in any -- contractual or otherwise, are omnipresent in the room. And again, it's a process in this unprecedented situation as opposed to in past years or occurrences.

It's more of an event.

Okay. And any -- I guess, just trying to understand this dynamic given it's sort of unique.

When either you or the nursing home is paying a referral bonus or sign-on bonus or retention bonus is -- if they pay that, does that automatically get in your rate structure? Or if you're paying that, are they -- is that getting passed through?

Or you having to absorb that? Do you get outside of the hourly standardization when you start doing these bonuses.

Yes. The distinction that we would make in that regard, A.J., relates to which party initiated the bonus program, right?

If you think back not that long ago in the midst of the pandemic, we had customers throughout the country that we're instituting attendance bonuses and hero bonuses for those folks that were coming in to do yeoman's work in these health care facilities throughout the midst of the pandemic. When a bonus such as that was initiated by the customer, they are typically asking that we likewise pass that bonus availability along to our employees and then we're able to get reimbursed by the customer for those type bonuses.

That's different and distinct from a bonus that we would implement that would ultimately serve to our benefit in our ability to staff the facility, right? If we're offering referral bonuses as a means to span out the availability of labor in a particular market, that's a decision that we would make and ultimately bear that cost.

Similarly, some of the attendance bonuses and premium pay, and unfortunately, in instances in which we're forced to utilize overtime hours. Those corresponding costs are ones that are borne by us because they are decisions that we've made.

Now obviously, those decisions are made in service of the client, in service of the resident and getting the job done. But that's the distinction, A.J., as to some of those programs and bonuses that would have been initiated by the customer, which would be a direct pass-through, whereas some of the other sort of tactical decisions and programs that we've implemented are in service of allowing us to get the job done at cost we would likely bear.

Now we'll go back to the customer, and there's certainly a conversation that happens throughout this process, where we're making recommendations on ways that they can rightsize the wage scale at the facility. We are certainly informing them of the challenges that we face, and we're hoping that they will provide a remedy on a more durable basis at the facility.

And in instances in which we are incurring overtime hours or some of these bonuses I've spoken of, there's nothing that stops us from going back to the client and initiating a conversation about the possibility of getting reimbursed. We generally don't have the contractual availability to directly pass those through, but it's certainly a conversation with the client.

It's Jack Slevin on for Brian. And just a quick one to close out here.

Just as it relates to genesis, any update you can give there? Or could you let us know kind of what your thoughts are given the current environment on whether or not there's risk that rate and payment concessions would need to be extended past their current time lines?

In terms of the relationship, again, continues to be a strong partnership on the facilities right on through their C-suite. They're a great partner, frequent communication, and they continue to execute on their restructuring plans that they've previously outlined with us, and prior to them going private to the public.

Now there's been some changes with new management and new leadership, they continue to evolve that plan and innovate throughout their -- the exercise of that plan. But again, overall, it's a strong relationship, and nothing to speak to in terms of risks that you outlined.

I mean that's no different than any other client or any other customer in this environment. We're closely watching and monitoring all of our customers.

And the best way for us to judge any client's creditworthiness is by them living up to their commitments financially and otherwise. And to date, they've continued to do that.

Thank you, Tamia. While we are mindful of the near-term challenges, we will continue to use our longer-term view as our true north as we navigate these uncertain times with discipline, intention and purpose to best position the company for when we emerge from this unprecedented period.

In the quarter ahead, we will closely monitor industry recovery, occupancy trends and further government funding as we prioritize recruiting and retaining staff, working with our clients on updating employee wage scales and remaining laser-focused on managing the elements of our business within our control. We'll also keep an eye towards opportunistic growth and remain committed to internal investment and returning capital to shareholders.

Looking out further, we remain confident in the longer-term growth outlook for the company given our market leadership, efficient operating model and attractive demographics.

So on behalf of Matt and all of us at Healthcare Services Group, I wanted to thank Tamia for hosting the call today, and thank you again to everyone for joining.