Healthcare Services Group, Inc. Reports Results for the Three and Nine Months Ended September 30, 2012 & Declares Increased Third Quarter 2012 Cash Dividend

BENSALEM, PA, Oct 09 (Marketwire) --
Healthcare Services Group, Inc. (NASDAQ: HCSG) reported that revenues for
the three months ended September 30, 2012 increased over 24% to
$272,681,000 compared to $218,929,000 for the same 2011 period. Net
income for the three months ended September 30, 2012 increased over 15%
to $11,517,000 or $0.17 per basic and per diluted common share, compared
to 2011 three month period net income of $9,996,000 or $0.15 per basic
and per diluted common share.

Revenues for the nine months ended September 30, 2012 increased over 25%
to $800,396,000 compared to $638,826,000 for the same 2011 period. Net
income for the nine months ended September 30, 2012 increased
approximately 14% to $31,416,000 or $0.47 per basic and $0.46 per diluted
common share, compared to 2011 nine month period net income of
$27,591,000 or $0.41 per basic and per diluted common share.

Additionally, our Board of Directors declared a regular quarterly cash
dividend of $0.1650 per common share, payable on November 30, 2012 to
shareholders of record at the close of business on October 26, 2012. This
represents the 38th consecutive regular quarterly cash dividend payment,
as well as the 37th consecutive increase since our initiation of regular
quarterly cash dividend payments in 2003.

The Company will host a conference call on Wednesday, October 10, 2012 at
8:30 am Eastern Time to discuss its results for the three and nine month
period ended September 30, 2012. The call in number will be 800-289-0746.
Passcode #6624937.

Cautionary Statement Regarding Forward-Looking Statements
This release
and any schedules incorporated by reference into it may contain
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934 (the "Exchange Act"), as amended, which are not
historical facts but rather are based on current expectations, estimates
and projections about our business and industry, our beliefs and
assumptions. Words such as "believes," "anticipates," "plans," "expects,"
"will," "goal," and similar expressions are intended to identify
forward-looking statements. The inclusion of forward-looking statements
should not be regarded as a representation by us that any of our plans
will be achieved. We undertake no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information,
future events or otherwise. Such forward-looking information is also
subject to various risks and uncertainties. Such risks and uncertainties
include, but are not limited to, risks arising from our providing
services exclusively to the health care industry, primarily providers of
long-term care; credit and collection risks associated with this
industry; from having several significant clients who each individually
contributed at least 3% with one as high as 7% to our total consolidated
revenues in the three and/or nine month periods ended September 30, 2012;
our claims experience related to workers' compensation and general
liability insurance; the effects of changes in, or interpretations of
laws and regulations governing the industry, our workforce and services
provided, including state and local regulations pertaining to the
taxability of our services; and the risk factors described in our Form
10-K filed with the Securities and Exchange Commission for the year ended
December 31, 2011 in Part I thereof under "Government Regulation of
Clients," "Competition" and "Service Agreements/Collections," and under
Item IA "Risk Factors". Many of our clients' revenues are highly
contingent on Medicare and Medicaid reimbursement funding rates, which
Congress and related agencies have affected through the enactment of a
number of major laws and regulations during the past decade, including
the March 2010 enactment of the Patient Protection and Affordable Care
Act and the Health Care and Education Reconciliation Act of 2010. Most
recently, on July 29, 2011, the United States Center for Medicare
Services issued final rulings which, among other things, reduced Medicare
payments to nursing centers by 11.1% and changed the reimbursement for
the provision of group rehabilitation therapy services to Medicare
beneficiaries. Currently, the U.S. Congress is considering further
changes or revising legislation relating to health care in the United
States which, among other initiatives, may impose cost containment
measures impacting our clients. These laws and proposed laws and
forthcoming regulations have significantly altered, or threaten to
significantly alter, overall government reimbursement funding rates and
mechanisms. The overall effect of these laws and trends in the long-term
care industry has affected and could adversely affect the liquidity of
our clients, resulting in their inability to make payments to us on
agreed-upon payment terms. These factors, in addition to delays in
payments from clients, have resulted in, and could continue to result in,
significant additional bad debts in the near future. Additionally, our
operating results would be adversely affected if unexpected increases in
the costs of labor and labor-related costs, materials, supplies and
equipment used in performing services could not be passed on to our
clients.

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

Healthcare Services Group, Inc. is the largest national provider of
professional housekeeping, laundry and dietary services to long-term care
and related health care facilities.

HEALTHCARE SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

For the Three Months Ended For the Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2012 2011 2012 2011
------------- ------------- ------------- -------------
Revenues $ 272,681,000 $ 218,929,000 $ 800,396,000 $ 638,826,000
Operating costs
and expenses:
Cost of services
provided 234,281,000 188,041,000 691,982,000 549,768,000
Selling, general
and
administrative 20,789,000 14,344,000 60,295,000 46,635,000
------------- ------------- ------------- -------------
Income from
operations 17,611,000 16,544,000 48,119,000 42,423,000
Other income
(loss):
Investment and
interest 962,000 (1,355,000) 2,520,000 (178,000)
------------- ------------- ------------- -------------
Income before
income taxes 18,573,000 15,189,000 50,639,000 42,245,000
Income taxes 7,056,000 5,193,000 19,223,000 14,654,000
------------- ------------- ------------- -------------

Net income $ 11,517,000 $ 9,996,000 $ 31,416,000 $ 27,591,000
============= ============= ============= =============

Basic earnings per
common share $ .17 $ .15 $ .47 $ .41
============= ============= ============= =============

Diluted earnings
per common share $ .17 $ .15 $ .46 $ .41
============= ============= ============= =============

Cash dividends per
common share $ .16 $ .16 $ .49 $ .47
============= ============= ============= =============

Basic weighted
average number of
common shares
outstanding 67,651,000 66,710,000 67,344,000 66,544,000
============= ============= ============= =============

Diluted weighted
average number of
common shares
outstanding 68,635,000 67,530,000 68,316,000 67,510,000
============= ============= ============= =============

HEALTHCARE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

September 30, December 31,
2012 2011
------------- -------------
Cash and cash equivalents $ 53,176,000 $ 38,639,000
Marketable securities, at fair value 21,354,000 31,337,000
Accounts receivable, net 137,369,000 130,744,000
Other current assets 37,196,000 31,401,000
------------- -------------
Total current assets 249,095,000 232,121,000

Property and equipment, net 10,264,000 9,763,000
Notes receivable- long term, net 2,885,000 1,483,000
Goodwill, net 16,955,000 16,955,000
Other intangible assets, net 5,746,000 7,372,000
Deferred compensation funding 17,113,000 13,780,000
Other assets 10,778,000 8,221,000
------------- -------------

Total Assets $ 312,836,000 $ 289,695,000
============= =============

Accrued insurance claims- current $ 6,751,000 $ 5,296,000
Other current liabilities 48,229,000 40,091,000
------------- -------------
Total current liabilities 54,980,000 45,387,000

Accrued insurance claims- long term 15,753,000 12,358,000
Deferred compensation liability 17,586,000 14,224,000
Stockholders' equity 224,517,000 217,726,000
------------- -------------

Total Liabilities and Stockholders' Equity $ 312,836,000 $ 289,695,000
============= =============

Company Contacts:

Daniel P. McCartney
Chairman and Chief Executive Officer
215-639-4274

Theodore Wahl
President and Chief Operating Officer
215-639-4274

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