National HealthCare Corporation (NHC) — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. NHC provides senior-care services across 10 states, including skilled nursing, assisted and independent living, behavioral health, homecare, hospice, insurance, management and rental services.
Financial performance
Amounts below are in millions of dollars except per-share data; comparisons are with the corresponding 2020 period.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net patient revenue | $237.0 | $225.7 | $453.8 | $469.8 |
| Operating revenue and grant income | $263.2 | $261.6 | $514.1 | $517.8 |
| Operating income | $13.8 | $12.5 | $29.0 | $28.4 |
| Operating margin | 5.2% | 4.8% | 5.6% | 5.5% |
| Net income attributable to NHC | $104.9 | $28.3 | $126.2 | $1.5 |
| Diluted EPS | $6.80 | $1.84 | $8.19 | $0.10 |
- Reported GAAP earnings included a $95.2 million gain from remeasuring NHC’s previously held Caris HealthCare investment when it acquired Caris’s remaining 24.9% interest. The acquisition closed June 11; Caris contributed $3.7 million of Q2 patient revenue and $1.0 million of pretax income. Purchase accounting remained preliminary at quarter-end.
- NHC’s disclosed non-GAAP net income, excluding specified items including the Caris gain and marketable-equity valuation changes, was $15.1 million in Q2, up 6.4%, and $31.7 million for six months, up 1.4%.
- Operating cash flow was $40.1 million for six months, versus $154.7 million a year earlier. Investing used $32.0 million, including $28.7 million for Caris; financing used $16.0 million, including $16.0 million of dividends. Cash, cash equivalents and restricted cash decreased $7.9 million to $150.6 million.
- At June 30, cash and cash equivalents were $134.7 million; unrestricted marketable equity and debt securities totaled $162.3 million. Current assets were $465.9 million and current liabilities $273.0 million. NHC reported no long-term debt; finance and operating lease liabilities totaled $181.4 million.
- Dividends declared were $0.52 per share for the quarter, unchanged year over year. Six-month capex was $13.1 million.
Material changes and operating trends
- Q2 operating revenue and grant income rose 0.6%; patient revenue rose 5.0%. For the first half, operating revenue and grant income declined 0.7% and patient revenue declined 3.4%.
- Homecare and hospice patient revenue increased, including Caris after consolidation. Inpatient revenue was pressured by lower skilled-nursing census; the sale of a Missouri facility in November 2020 also reduced comparison-period revenue.
- Skilled-nursing census averaged 81.1% in Q2 versus 84.3% a year earlier, and 78.9% for the first half versus 87.9%. Census improved about 7.5% from January through June 2021 as COVID-19 cases declined.
- Q2 total costs and expenses were nearly flat year over year. Management reported continued wage pressure and inflation, partly offset by reduced COVID-related incentive pay. Supplemental Medicaid COVID-19 payments contributed $7.1 million to Q2 patient revenue and $11.0 million for the first half.
Outlook, risks and unusual items
- Management expected COVID-19 developments to adversely affect 2021 financial performance, but said the ultimate impact could not be quantified. It cited elevated operating costs, labor pressures, census recovery, and the uncertain duration and severity of the pandemic. Management described liquidity and financial resources as strong.
- Management expected a 2021 corporate federal and state income-tax rate of approximately 26% excluding certain items. The Caris remeasurement gain was nontaxable and lowered the reported effective tax rate to 2.6% for Q2 and 7.3% for the first half.
- NHC recorded $37.9 million of Provider Relief Fund income in the first half and had $10.4 million of unrecognized funds remaining, which it expected to use for eligible future expenses or lost revenue. Medicare accelerated payments received totaled about $51.3 million; $40.1 million remained at June 30, with recoupment begun in Q2. Deferred employer Social Security taxes were $21.2 million, with repayment scheduled in 2021 and 2022.
- CMS’s July 2021 FY2022 skilled-nursing rule, issued after quarter-end, was described as providing an estimated 1.2% payment-rate update before estimated value-based purchasing reductions. NHC also cited proposed home-health and hospice payment changes; these are subject to policy and implementation risk.
- Key risks include changing Medicare and Medicaid reimbursement, COVID-19 effects, staffing and labor costs, census, regulatory compliance, and patient-care liability. Accrued risk reserves were $101.9 million. NHC disclosed a False Claims Act/Anti-Kickback qui tam case involving an affiliate; NHC Healthcare/Moulton denied the allegations and was defending the case, with a motion to dismiss pending. Management said there were no material changes to previously disclosed risk factors.
- Marketable equity exposure was concentrated: NHC’s NHI stock holding had a fair value of $109.3 million, about 71% of its $153.8 million equity portfolio. A hypothetical 10% portfolio price change would change fair value by about $15.4 million.
Investor verification checklist
- Separate recurring operating performance from the $95.2 million Caris remeasurement gain and marketable-equity valuation changes; assess the company’s non-GAAP adjustments.
- Track census recovery against wage inflation, staffing availability, and continuing COVID-related costs.
- Review Caris’s final purchase-price allocation, goodwill and intangible assets, and contribution after consolidation.
- Monitor Provider Relief Fund eligibility and reporting, Medicare advance-payment recoupments, and deferred payroll-tax repayments.
- Assess the adequacy of the $101.9 million risk reserves, the status of the pending litigation, and NHI investment concentration.