National HealthCare Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 19, 2021. NHC operates post-acute and senior-care services, including skilled nursing, assisted and independent living, homecare, and a behavioral health hospital, across 10 states.
Financial performance and liquidity
- Revenue: Net operating revenues and grant income were $1.028 billion, up 3.2% from 2019. Net patient revenue fell 1.7% to $931.8 million. Excluding CARES Act grant income and other COVID-related revenue, management said operating revenue would have declined 4.2%.
- Profit and margins: Net income attributable to NHC was $41.9 million, down 38.6%; diluted EPS was $2.72 versus $4.44. Operating income was $48.2 million, with a 4.7% operating margin versus 4.9%. Net margin was 4.1% versus 6.8%. Non-GAAP net income was $58.5 million versus $59.6 million; this measure excludes specified items, including investment-value changes.
- Cash flow: Operating cash flow was $203.3 million versus $100.1 million. The 2020 total included substantial working-capital cash benefits, including $51.3 million in Medicare advance payments, $16.1 million of unrecognized Provider Relief Fund proceeds, and $21.2 million of deferred employer payroll taxes. Investing cash use was $63.9 million; financing cash use was $41.9 million.
- Liquidity and obligations: At year-end, cash and cash equivalents were $147.1 million; management also cited $176.4 million of marketable securities as available liquidity. Current assets were $456.8 million and current liabilities $281.2 million. NHC had no long-term debt and terminated its credit facility in August 2020. Lease liabilities remained: $14.963 million finance and $179.055 million operating, including current and noncurrent portions.
- Other metrics: Owned and leased skilled-nursing census fell to 83.6% from 90.3%; assisted-living occupancy was 73.9% versus 81.4%. COVID-related expenses totaled $47.9 million. The company recorded $47.5 million of Provider Relief Fund income and $26.2 million of supplemental Medicaid payments in patient revenue. Dividends declared were $2.08 per share.
Material changes versus 2019
- COVID-19 sharply reduced admissions and occupancy from late March and increased staffing, PPE, infection-control, and testing costs. Skilled-nursing per diem rates rose 7.0%, helping offset lower census; reported Medicaid rates benefited from supplemental payments.
- Net income was also pressured by a $24.0 million unrealized loss on marketable equity securities, compared with a $12.2 million unrealized gain in 2019. The portfolio was concentrated: National Health Investors represented about 85% of its market value at year-end.
- Interest expense declined to $1.4 million from $3.1 million as debt was repaid. NHC acquired the remaining interest in a 166-bed Knoxville skilled-nursing facility and sold a Missouri facility, recording a $2.8 million gain.
- Operating cash increased significantly, but partly reflects temporary pandemic-related funding, advances, and tax deferrals rather than recurring operating improvement.
Outlook, risks and unusual items
- Management expected COVID-19 to adversely affect 2021 financial performance but said the impact could not be quantified. The filing provides no specific earnings or revenue guidance.
- Key risks include pandemic-related census and staffing pressures; Medicare and Medicaid reimbursement changes; labor availability and cost; regulatory compliance; and patient-care litigation and self-insurance exposure.
- Accrued risk reserves were $99.5 million, up from $96.0 million; the auditor identified estimation of professional-liability reserves as a critical audit matter. Claims could exceed reserves or insurance coverage.
- Medicare advance payments of $51.3 million are subject to recoupment beginning approximately one year after receipt; remaining balances may become payable on demand, with 4% interest, after 29 months. Deferred employer payroll taxes of $21.2 million are payable in 2021 and 2022.
- The NSS False Claims Act case was dismissed, with final judgment entered in May 2020. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether census and referral volumes recover, and how that affects staffing costs and operating margins.
- How much of 2020 cash generation and revenue depended on grants, supplemental Medicaid payments, Medicare advances, and payroll-tax deferrals—and the timing of repayment or use requirements.
- The valuation and concentration risk of the marketable-equity portfolio, particularly its NHI exposure and effect on reported earnings.
- Whether the $99.5 million risk reserve remains adequate as claims develop and insurance costs or coverage change.
- Future dividend capacity, given the company’s stated intent to continue quarterly dividends but absence of an assurance they will be maintained.