National HealthCare Corporation (NYSE American: NHC) — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; it does not provide standalone fourth-quarter results. NHC operates and manages post-acute and senior-care services in eight states, including skilled nursing, assisted and independent living, homecare, hospice, and behavioral health.
Key financial results
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net operating revenues and grant income | $1,141.5 million | $1,085.7 million | +5.1% |
| Net patient revenues | $1,087.6 million | $1,029.1 million | +5.7% |
| Operating income | $57.1 million | $31.9 million | +79.1% |
| Net income attributable to NHC | $66.8 million | $22.4 million | +197.6% |
| Diluted EPS | $4.34 | $1.45 | +$2.89 |
| Operating cash flow | $111.2 million | $8.7 million | +$102.5 million |
Operating margin was 5.0% in 2023 versus 2.9% in 2022. Net income attributable to NHC was 5.9% of net operating revenues and grant income, compared with 2.1% in 2022. Management’s non-GAAP net income was $54.9 million ($3.55 diluted EPS), versus $37.3 million ($2.42) in 2022; this measure excludes specified items and should be considered alongside GAAP results.
- Revenue and occupancy: Skilled nursing census at owned and leased facilities rose to 87.9% from 83.8%. Composite skilled nursing per diem rates increased 6.7%. Medicare, managed-care, Medicaid, and private-pay per diems rose 3.3%, 5.9%, 9.4%, and 5.5%, respectively.
- Costs and margins: Total costs and expenses increased 2.9%, slower than revenue growth. Salaries, wages, and benefits rose 3.8% to $712.3 million, but declined to 62.4% of revenue from 63.2%. Agency nurse staffing expense fell $30.7 million, or about 44.5%, year over year.
- Cash flow and investment: Operating cash flow was $111.2 million; capital spending on property and equipment was $27.9 million. Cash, cash equivalents, and restricted cash totaled $126.0 million at year-end. Cash and cash equivalents were $107.1 million.
- Liquidity and debt: NHC reported $116.5 million of unrestricted marketable securities and access to an undrawn $50 million credit facility. It had no outstanding long-term debt; the balance sheet included $93.4 million of lease liabilities. Current assets were $406.2 million and current liabilities were $214.5 million.
- Shareholder returns: Dividends paid were $35.6 million; declared dividends were $2.34 per share, up from $2.26. NHC repurchased 44,349 shares for $2.5 million.
Changes, unusual items, and management commentary
- Revenue growth reflected higher skilled-nursing occupancy and reimbursement per diems. Same-facility net operating revenues increased 11.3% excluding stimulus income and the seven Massachusetts and New Hampshire facilities exited in 2022.
- New operations—including a 66-bed skilled nursing acquisition, three assisted-living operations, and new homecare and hospice agencies—contributed to growth. The 2022 exit of seven facilities reduced 2023 net patient revenues by $48.8 million versus the prior year.
- Provider Relief Fund stimulus income was zero in 2023, versus $11.5 million in 2022. Supplemental Medicaid payments remained material at $20.2 million, compared with $19.4 million in 2022.
- Reported earnings included a $14.9 million unrealized gain on marketable equity securities and a $6.2 million gain on contributed land. The prior-year comparison included a $3.7 million recovery of assets and $15.8 million of unrealized investment losses. In 2021, results included a $95.2 million gain related to the Caris acquisition.
- Management cited persistent workforce shortages and inflation in some supplies, while noting reduced agency staffing expense. It is expanding operations and investing in facilities; no specific company-wide earnings or revenue guidance was provided.
- For FY2024, management estimated state-specific nursing-facility Medicaid rate increases would add approximately $15 million annually in Tennessee, $9 million in South Carolina, and $5 million in Missouri. These are estimates, not overall company guidance. CMS’s FY2024 rules included a 4.0% aggregate SNF payment-rate increase and a 0.8% home-health payment increase, with policy adjustments affecting actual reimbursement.
- Three Missouri healthcare operations under finance leases were scheduled to be exited when their leases ended March 1, 2024. The NHI master lease covering numerous facilities expires December 31, 2026.
Risks and contingencies
- Reimbursement depends substantially on Medicare, Medicaid, and other payors; rate reductions, audits, payment caps, or value-based adjustments could affect revenue and margins. Medicare sequestration reductions are scheduled to continue through 2030.
- Labor availability, wage pressure, staffing requirements, and reliance on agency staff remain important operating risks. Other key risks include regulation and licensure, quality performance, competition, infectious disease outbreaks, and facility upkeep.
- Accrued workers’ compensation and professional-liability risk reserves were $103.3 million, versus $102.5 million. NHC is substantially self-insured; claims exceeding reserves or coverage could materially affect results. Estimation of professional-liability reserves was the auditor’s critical audit matter.
- NHC’s marketable equity portfolio was $137.9 million, including $91.1 million invested in National Health Investors (about 66% of the portfolio). A hypothetical 10% market-price change would change equity investment fair value by approximately $13.8 million.
- A qui tam case involving an affiliate was dismissed with prejudice, and the Eleventh Circuit affirmed the dismissal on December 21, 2023; the plaintiffs could seek Supreme Court review within the stated period. The filing describes ordinary-course care-related claims and warns that uninsured or excess claims could be material.
- The company reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Investor verification priorities
- Reconcile GAAP earnings growth with non-GAAP results and the effects of investment marks, the land gain, and other adjustments.
- Track skilled-nursing occupancy, per-diem rates, payor mix, state Medicaid supplements, and the durability of agency-staffing cost reductions.
- Review cash generation against capital spending, dividends, lease commitments, the credit facility’s maturity and availability, and planned expansion.
- Assess adequacy and sensitivity of the $103.3 million risk reserves, including claims development and insurance coverage.
- Monitor the NHI investment concentration, regulatory and reimbursement changes, and the effect of the March 2024 lease exits.