National HealthCare Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; unaudited. NHC provides senior healthcare services across eight states, including skilled nursing, assisted and independent living, behavioral health, homecare and hospice, plus management, insurance and property-leasing services.
Financial performance
Unless stated otherwise, amounts are in millions. Comparisons are with the corresponding 2022 period.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net operating revenues and grant income | $282.6 | $271.4 | $552.1 | $550.3 |
| Net patient revenues | $269.6 | $260.1 | $527.6 | $516.4 |
| Operating income | $14.0 | $4.6 | $24.0 | $18.8 |
| Net income attributable to NHC | $16.3 | $3.2 | $28.0 | $18.5 |
| Diluted EPS | $1.06 | $0.21 | $1.83 | $1.20 |
| Operating margin | 4.9% | 1.7% | 4.3% | 3.4% |
- Q2 net operating revenue increased 4.1%; first-half revenue increased 0.3%. Net patient revenue rose 3.7% in Q2 and 2.2% for the first half. Other revenue was $13.0 million in Q2, up 18.4%.
- GAAP earnings benefited materially from marketable-equity valuation changes: Q2 included a $4.65 million unrealized gain versus a $3.55 million loss a year earlier; first-half gains were $6.04 million versus losses of $0.42 million. NHC-reported non-GAAP net income was $13.7 million for Q2 versus $7.2 million, and $25.7 million for the first half versus $21.3 million. These company-defined measures exclude specified items and are not GAAP results.
- Q2 salaries, wages and benefits were $175.3 million, nearly flat year over year, and 62.0% of revenue versus 64.5%. Agency nurse staffing expense fell 50.4% in Q2 and 41.5% for the first half. Management also cited inflation in food, dietary, drug and pharmaceutical costs.
- Operating cash flow was $53.2 million for the first half, compared with cash used of $1.2 million in 2022. Investing used $2.2 million and financing used $22.9 million. Capital expenditures were $12.8 million; dividends paid were $17.5 million.
Balance sheet and liquidity
- At June 30, 2023, cash and cash equivalents were $78.5 million; total cash including restricted cash was $102.9 million. Current assets were $368.7 million and current liabilities $197.8 million.
- Marketable equity and debt securities totaled $243.0 million on the balance sheet, including restricted securities. NHC’s $85.5 million NHI equity holding represented 66.3% of its marketable-equity portfolio; management estimated a 10% market-price change would alter portfolio fair value by about $12.9 million.
- Total liabilities were $394.3 million. The filing reports no outstanding conventional credit-facility borrowings; finance-lease obligations were $3.4 million and operating-lease liabilities were $106.0 million. A new unsecured $50 million, 364-day credit facility was entered in May 2023 and remained undrawn at quarter-end.
- Management said cash, investments and available credit were expected to meet operating, contractual and growth needs. This is management’s assessment, not a guarantee.
Changes, outlook and risks
- Skilled-nursing census improved: 87.9% in Q2 versus 84.0%, and 87.7% for the first half versus 83.3%. Composite skilled-nursing per diem rates rose 7.2% in Q2 and 5.2% in the first half. Management attributed improved results to higher occupancy and reimbursement rates and lower agency staffing costs.
- Revenue comparisons reflect both growth and portfolio changes. NHC acquired a 66-bed Nashville skilled nursing facility in May 2023 and opened or expanded other agencies and facilities. Conversely, it transferred operations of seven Massachusetts and New Hampshire nursing facilities in September 2022. Excluding those facilities and government stimulus income, same-facility revenue increased 11.5% in Q2 and 9.6% for the first half.
- No company-wide earnings or revenue guidance is provided. The filing describes expected reimbursement changes: FY2024 Medicare skilled-nursing payments are projected by CMS to rise 4.0%; the company estimated annual Medicaid revenue increases of $15 million in Tennessee, $9 million in South Carolina and $5 million in Missouri, subject to stated effective dates. CMS’s proposed FY2024 home-health payment update would reduce payments 2.2%; hospice payments are set to increase 3.1% from October 2023.
- Provider Relief Fund stimulus income was zero in 2023 versus $10.9 million in the first half of 2022. Supplemental Medicaid payments remained material: $6.2 million in Q2 and $11.1 million in the first half of 2023.
- Accrued workers’ compensation and general/professional-liability reserves were $106.2 million. The company is substantially self-insured and warns claims could exceed insurance coverage and reserves. A False Claims Act/Anti-Kickback qui tam case against an affiliate was dismissed with prejudice in April 2023; plaintiffs appealed to the Eleventh Circuit.
- Other key exposures include staffing availability and cost, government reimbursement and regulation, census, inflation, patient-care claims, cybersecurity and privacy risks, and investment-market volatility. The company reported no material change in its previously disclosed risk factors and said disclosure controls were effective.
Investor verification priorities
- Separate recurring operating performance from unrealized investment gains and losses; review the company’s non-GAAP reconciliations and exclusions.
- Track skilled-nursing census, per-diem reimbursement, agency-staffing costs and the continuing effect of the seven-facility transfer and recent additions.
- Monitor the concentration and valuation of the NHI investment, including restricted holdings and securities available to fund obligations.
- Assess the adequacy and development of the $106.2 million risk reserves, claims experience and the qui tam appeal.
- Confirm the implementation and realized financial effect of announced FY2024 Medicare and state Medicaid reimbursement changes, and review the credit facility’s maturity and covenants.