National HealthCare Corporation — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021; this is an annual filing, not a standalone fourth-quarter report. Financial statement amounts below are in U.S. dollars; millions are used unless noted otherwise.
Business context
NHC operates and manages skilled nursing, assisted and independent living, homecare, hospice and behavioral health services, and provides management, insurance and related services. At year-end, it operated or managed 75 skilled nursing facilities, 24 assisted living facilities, five independent living facilities, one behavioral health hospital, 34 homecare agencies and 28 hospice agencies across 10 states. In June 2021, NHC acquired the remaining 24.9% interest in Caris Healthcare, bringing it under full consolidation.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Net operating revenues and government grant income | $1,074.3 million | $1,028.2 million |
| Net patient revenues | $965.5 million | $931.8 million |
| Income from operations | $50.9 million | $48.2 million |
| Net income attributable to NHC | $138.6 million | $41.9 million |
| Diluted earnings per share | $8.99 | $2.72 |
| Non-GAAP net income | $62.6 million | $58.5 million |
| Cash provided by operating activities | $62.4 million | $203.3 million |
Revenue including grants increased 4.5%; patient revenue rose 3.6%. Operating income increased 5.8%, while the operating margin was approximately 4.7% in both years. GAAP net income surged largely because of a $95.2 million noncash gain on remeasurement of NHC’s prior Caris investment upon obtaining control. NHC says adjusted non-GAAP net income increased 7.0% year over year. The filing reports $8.2 million in asset impairment charges in 2021.
Operating cash flow fell $140.9 million year over year, primarily reflecting the prior-year benefit of pandemic-related funding and the start of Medicare accelerated-payment recoupments. NHC repaid $36.2 million of those advances in 2021. Capital spending on property and equipment was $39.4 million; dividends paid were $32.0 million.
At December 31, 2021, cash and cash equivalents were $107.6 million and unrestricted marketable securities were $148.4 million. Management said these resources, together with operating cash flow, were expected to cover contractual obligations, operating needs and planned growth over the next 12 months. NHC had no outstanding long-term debt, but reported $166.7 million of finance and operating lease liabilities. Total assets were $1.40 billion and total liabilities were $494.9 million.
Changes versus the prior period
- Skilled nursing occupancy declined to 80.6% from 83.6% in 2020 and 90.3% in 2019; management cited COVID-19, fewer referrals and workforce constraints. Assisted living occupancy was 68.2% versus 73.9%; independent living occupancy was 88.1% versus 92.1%.
- Homecare and hospice patient revenue increased to $96.9 million from $52.1 million, primarily reflecting consolidation of Caris after June 11, 2021. Caris contributed $39.7 million of 2021 patient revenue after acquisition.
- Government Provider Relief Fund income increased to $63.4 million from $47.5 million. Supplemental Medicaid payments recorded in patient revenue declined to $20.5 million from $26.2 million.
- Labor shortages and higher agency staffing costs pressured expenses: agency nurse staffing expense rose to $35.5 million from $11.5 million. Reported COVID-related expenses were $21.6 million, down from $47.7 million.
- Non-operating investment results remained volatile: unrealized losses on marketable equity securities were $13.9 million in 2021 versus $24.0 million in 2020. The equity portfolio included a $93.7 million investment in NHI, about 67% of its market value.
Outlook, risks and unusual items
- Outlook: The filing provides no company-wide earnings or revenue guidance. Management said the pandemic’s future impact could not be quantified and described liquidity as strong. Two behavioral health hospitals, with 16 and 64 beds, were expected to open in late Q1 or early Q2 2022. Tennessee and Missouri Medicaid rate changes were estimated to add approximately $3.5 million and $2.0 million of annual revenue, respectively, in fiscal 2022.
- COVID-19 support and repayment: $9.4 million of Provider Relief Funds remained unrecognized as income at year-end and was recorded as a current liability. Medicare accelerated-payment liabilities were $15.0 million. Deferred employer Social Security taxes totaled $10.5 million; the filing says the balance was payable by December 31, 2022.
- Reimbursement: CMS’s FY2022 SNF payment rule provided an approximate 1.2% increase. Medicare sequestration reductions were scheduled to resume in stages beginning April 2022. Medicaid funding, audits, payment caps and value-based reimbursement remain risks.
- Labor and occupancy: Management identified staffing shortages, wage inflation, increased agency use and difficulty maintaining census as ongoing challenges. COVID-19 outbreaks and vaccination requirements could further affect staffing and admissions.
- Claims and contingencies: Accrued risk reserves for professional liability and workers’ compensation were $98.0 million. NHC is largely self-insured and warns that actual claims could exceed reserves or insurance coverage. A qui tam case naming an NHC affiliate alleges False Claims Act and Anti-Kickback Statute violations; the affiliate denies the allegations. The matter was stayed pending a U.S. Supreme Court review, with no expected timeline stated.
- Other unusual items: The Caris transaction generated $95.2 million of acquisition-related gain and $147.0 million of goodwill. NHC recorded $8.2 million of impairments, including a $3.7 million credit impairment on a note receivable. The auditor highlighted estimation of professional liability reserves as a critical audit matter; its financial statement and internal-control opinions were unqualified. The control assessment excluded Caris.
Important facts for investors to verify
- Reconcile the $138.6 million GAAP profit with the $62.6 million non-GAAP figure, especially the Caris remeasurement gain and other adjustments.
- Track skilled nursing occupancy, admissions, staffing availability and agency nurse costs as pandemic and labor conditions evolve.
- Assess the sustainability of operating cash flow after pandemic funding and Medicare advance-payment recoupments, alongside capital spending and dividends.
- Review the concentration and valuation sensitivity of the investment portfolio, including its substantial NHI position.
- Monitor the use and compliance requirements for remaining Provider Relief Funds, Medicare repayment balances and deferred payroll taxes.
- Follow developments in the qui tam litigation, professional liability reserves and other regulatory or reimbursement changes.