NHC(NHC) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the company's unaudited interim condensed consolidated financial statements, including statements of operations, comprehensive income, balance sheets, cash flows, and stockholders' equity, along with detailed notes providing context and breakdowns of key financial figures and accounting policies Interim Condensed Consolidated Statements of Operations This section provides the company's interim condensed consolidated statements of operations, detailing net income, revenues, earnings per share, and dividends for the reported periods Net Income Attributable to National HealthCare Corporation (in thousands) | Period | 2025 | 2024 | | :------------------------------------------ | :------- | :------- | | Three Months Ended June 30 | $23,722 | $26,844 | | Six Months Ended June 30 | $55,927 | $53,057 | Net Operating Revenues and Grant Income (in thousands) | Period | 2025 | 2024 | | :------------------------------------------ | :------- | :------- | | Three Months Ended June 30 | $374,910 | $300,658 | | Six Months Ended June 30 | $748,607 | $597,834 | Basic Earnings Per Share Attributable to National HealthCare Corporation Stockholders | Period | 2025 | 2024 | | :------------------------------------------ | :----- | :----- | | Three Months Ended June 30 | $1.53 | $1.74 | | Six Months Ended June 30 | $3.62 | $3.45 | Dividends Declared Per Common Share | Period | 2025 | 2024 | | :------------------------------------------ | :----- | :----- | | Three Months Ended June 30 | $0.64 | $0.61 | | Six Months Ended June 30 | $1.25 | $1.20 | Interim Condensed Consolidated Statements of Comprehensive Income This section presents the company's interim condensed consolidated statements of comprehensive income, including net income and other comprehensive income components Comprehensive Income Attributable to National HealthCare Corporation (in thousands) | Period | 2025 | 2024 | | :------------------------------------------ | :------- | :------- | | Three Months Ended June 30 | $25,164 | $27,976 | | Six Months Ended June 30 | $58,759 | $53,752 | Other Comprehensive Income, Net of Tax (in thousands) | Period | 2025 | 2024 | | :------------------------------------------ | :------- | :------- | | Three Months Ended June 30 | $1,442 | $1,132 | | Six Months Ended June 30 | $2,832 | $695 | Interim Condensed Consolidated Balance Sheets This section provides the company's interim condensed consolidated balance sheets, detailing assets, liabilities, and equity at specific reporting dates Key Balance Sheet Items (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Total Assets | $1,562,220 | $1,524,429 | | Total Liabilities | $536,837 | $541,266 | | Total Equity | $1,025,383 | $983,163 | | Cash and cash equivalents | $110,992 | $76,121 | | Marketable equity securities | $146,636 | $140,064 | Interim Condensed Consolidated Statements of Cash Flows This section outlines the company's interim condensed consolidated statements of cash flows, summarizing cash movements from operating, investing, and financing activities Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2025 | 2024 | | :---------------------------------------------------------------- | :------- | :------- | | Net cash provided by operating activities | $102,074 | $60,307 | | Net cash used in investing activities | $(22,902) | $(990) | | Net cash used in financing activities | $(45,732) | $(19,680) | | Net Increase in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents | $33,440 | $39,637 | Interim Condensed Consolidated Statements of Stockholders' Equity This section presents the company's interim condensed consolidated statements of stockholders' equity, detailing changes in equity components over the reporting periods Total Stockholders' Equity (in thousands) | Date | Amount | | :---------------- | :------- | | June 30, 2025 | $1,025,383 | | June 30, 2024 | $947,845 | Dividends Declared to Common Stockholders (Six Months Ended June 30, in thousands) | Period | 2025 | 2024 | | :----- | :------- | :------- | | Amount | $(19,353) | $(18,494) | Repurchase of Common Shares (Six Months Ended June 30, in thousands) | Period | 2025 | 2024 | | :----- | :------- | :------- | | Amount | $(6,384) | $(11,402) | Notes to Interim Condensed Consolidated Financial Statements These notes provide detailed information on the company's business, significant accounting policies, revenue recognition, segment reporting, financial instruments, and other financial statement line items, offering context and further breakdown of the condensed financial statements Note 1 – Description of Business This note describes the company's core business operations, including its healthcare services, facilities, and geographical focus - NHC is a leading provider of senior health care services, operating or managing 80 skilled nursing facilities (10,329 licensed beds), 26 assisted living facilities (1,413 units), nine independent living facilities, three behavioral health hospitals, 34 homecare agencies, and 33 hospice agencies[26] - The company also provides insurance services, management and accounting services, and leases properties to operators of skilled nursing and assisted living facilities, primarily in the southeastern United States[26] Note 2 – Summary of Significant Accounting Policies This note outlines the key accounting principles and policies applied in preparing the interim condensed consolidated financial statements - The unaudited interim condensed consolidated financial statements include all normal, recurring adjustments and eliminate significant intercompany transactions, with noncontrolling interest presented within equity[28] - Bad debt expense increased to $6,038,000 for the six months ended June 30, 2025, from $4,524,000 for the same period in 2024[33] - A $3,606,000 gain from the contribution of land to a newly-formed limited liability company was netted with other operating expenses for the three months ended June 30, 2025[40] - The company is self-insured for workers' compensation and general/professional liability, with accrued risk reserves estimated by independent actuaries, and professional liability claims remain a significant concern[50][51] - The company adopted ASU 2023-09 (Income Tax Disclosures) for fiscal year 2025 and is evaluating ASU 2024-03 (Disaggregation of Income Statement Expenses), effective FY2027, for potential impact[59][61] Note 3 – Net Patient Revenues This note provides a breakdown of net patient revenues by service type and payor source, along with details on supplemental Medicaid payments Net Patient Revenues by Service Type (in thousands) | Service Type | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Inpatient services | $325,012 | $245,385 | $650,490 | $497,638 | | Homecare and hospice | $38,337 | $34,533 | $74,466 | $68,103 | | Total | $363,349 | $279,918 | $724,956 | $565,741 | Revenue by Payor Source (Three Months Ended June 30) | Source | 2025 | 2024 | | :------------- | :--- | :--- | | Medicare | 31% | 33% | | Managed Care | 12% | 10% | | Medicaid | 30% | 29% | | Private Pay and Other | 27% | 28% | | Total | 100% | 100% | Supplemental Medicaid Payments (in thousands) | Period | 2025 | 2024 | | :-------------------- | :------- | :------- | | 3 Months Ended June 30 | $1,812 | $2,585 | | 6 Months Ended June 30 | $3,684 | $6,047 | Note 4 – Other Revenues This note details the company's other revenue streams, including rental income, management fees, and insurance services Total Other Revenues (in thousands) | Category | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Rental income | $6,172 | $6,028 | $12,623 | $11,987 | | Management and accounting services fees | $4,085 | $4,081 | $8,508 | $8,518 | | Insurance services | $831 | $816 | $1,645 | $1,688 | | Other | $473 | $370 | $875 | $455 | | Total other revenues | $11,561 | $11,295 | $23,651 | $22,648 | Management Fees from National Health Corporation (in thousands) | Period | 2025 | 2024 | | :-------------------- | :------- | :------- | | 3 Months Ended June 30 | $1,376 | $1,346 | | 6 Months Ended June 30 | $2,784 | $2,666 | Note 5 – Non–Operating Income This note details the company's non-operating income, including dividends, interest, and equity in earnings from unconsolidated investments Total Non-Operating Income (in thousands) | Category | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Dividends and net realized gains and losses on sales of securities | $1,928 | $1,724 | $3,882 | $3,780 | | Interest income | $2,588 | $2,648 | $4,713 | $5,186 | | Equity in earnings of unconsolidated investments | $616 | $584 | $616 | $651 | | Gain on sale of unconsolidated company | $- | $- | $- | $1,024 | | Total non-operating income | $5,132 | $4,956 | $9,211 | $10,641 | - In January 2024, the Company sold its 50% joint venture ownership interest in a homecare agency for $2,100,000, resulting in a gain of $1,024,000[83] Note 6 – Business Segments This note provides financial information for the company's reportable operating segments, including inpatient services and homecare and hospice services - The company has two reportable operating segments: (1) inpatient services (skilled nursing, assisted/independent living, behavioral health hospitals) and (2) homecare and hospice services, plus an 'all other' category[84] Income/(Loss) from Operations by Segment (Three Months Ended June 30, in thousands) | Segment | 2025 | 2024 | Change | | :------------------ | :------- | :------- | :------- | | Inpatient Services | $32,424 | $14,192 | +$18,232 | | Homecare and Hospice | $7,396 | $6,090 | +$1,306 | | All Other | $(5,730) | $2,238 | $(7,968) | | Total | $34,090 | $22,520 | +$11,570 | Income/(Loss) from Operations by Segment (Six Months Ended June 30, in thousands) | Segment | 2025 | 2024 | Change | | :------------------ | :------- | :------- | :------- | | Inpatient Services | $65,073 | $29,145 | +$35,928 | | Homecare and Hospice | $13,125 | $11,924 | +$1,201 | | All Other | $(13,341) | $(2,874) | $(10,467) | | Total | $64,857 | $38,195 | +$26,662 | Note 7 – Long-Term Leases This note details the company's long-term lease agreements, including leased facilities, annual rent, and maturity schedules for operating lease liabilities - The company leases 28 skilled nursing facilities, five assisted living centers, and three independent living centers from NHI under one lease agreement expiring in December 2026[88] - Annual base rent is $32,225,000 in 2025 and $31,975,000 in 2026, plus percentage rent[88] Total Facility Rent Expense to NHI (in thousands) | Period | 2025 | 2024 | | :-------------------- | :------- | :------- | | 3 Months Ended June 30 | $9,903 | $9,814 | | 6 Months Ended June 30 | $19,814 | $19,286 | Operating Lease Liabilities Maturity (as of June 30, 2025, in thousands) | Year | Operating Leases | | :--------- | :--------------- | | 2026 | $35,736 | | 2027 | $19,031 | | 2028 | $2,155 | | 2029 | $1,777 | | 2030 | $1,575 | | Thereafter | $11,061 | | Total | $71,335 | Note 8 – Earnings per Share This note provides details on the calculation of basic and diluted earnings per common share attributable to NHC stockholders Basic Earnings Per Common Share (attributable to NHC stockholders) | Period | 2025 | 2024 | | :-------------------- | :----- | :----- | | 3 Months Ended June 30 | $1.53 | $1.74 | | 6 Months Ended June 30 | $3.62 | $3.45 | Diluted Earnings Per Common Share (attributable to NHC stockholders) | Period | 2025 | 2024 | | :-------------------- | :----- | :----- | | 3 Months Ended June 30 | $1.52 | $1.73 | | 6 Months Ended June 30 | $3.59 | $3.42 | - 269,351 stock options for the six months ended June 30, 2025, and 233,486 for the same period in 2024, were excluded from diluted EPS calculation due to their anti-dilutive impact[91] Note 9 – Investments in Marketable Securities This note details the company's investments in marketable securities, including fair values, unrealized gains/losses, and proceeds from sales Marketable Securities Fair Value (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Marketable equity securities | $146,636 | $140,064 | | Restricted marketable equity securities | $16,269 | $23,190 | | Corporate debt securities | $60,888 | $57,471 | | Asset-based securities | $13,381 | $14,410 | | U.S. Treasury securities | $55,718 | $44,186 | | State and municipal securities | $3,714 | $3,737 | | Total | $296,606 | $283,058 | Net Unrealized Gains/(Losses) on Marketable Equity Securities (in thousands) | Period | 2025 | 2024 | | :-------------------- | :------- | :------- | | 3 Months Ended June 30 | $(5,061) | $9,124 | | 6 Months Ended June 30 | $5,921 | $23,523 | Proceeds from Sale of Marketable Securities (Six Months Ended June 30, in thousands) | Period | 2025 | 2024 | | :----- | :------- | :------- | | Amount | $43,455 | $34,662 | Note 10 – Fair Value Measurements This note describes the company's methodology for fair value measurements and categorizes financial assets within a three-level hierarchy - The company categorizes financial assets measured at fair value into a three-level hierarchy based on input observability: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[99][100][101] Total Financial Assets by Fair Value Level (June 30, 2025, in thousands) | Category | Fair Value | Level 1 | Level 2 | Level 3 | | :-------------------------- | :--------- | :-------- | :-------- | :-------- | | Cash and cash equivalents | $110,992 | $110,992 | $– | $– | | Restricted cash and cash equivalents | $19,370 | $19,370 | $– | $– | | Marketable equity securities | $162,905 | $162,905 | $– | $– | | Corporate debt securities | $60,888 | $37,152 | $23,736 | $– | | Asset–backed securities | $13,381 | $– | $13,381 | $– | | U.S. Treasury securities | $55,718 | $55,718 | $– | $– | | State and municipal securities | $3,714 | $800 | $2,914 | $– | | Total financial assets | $426,968 | $386,937 | $40,031 | $– | Note 11 – Goodwill and Other Intangible Assets This note provides information on the company's goodwill and other intangible assets, including their carrying amounts by segment and impairment assessment Goodwill by Segment (June 30, 2025, in thousands) | Segment | Amount | | :------------------ | :------- | | Inpatient Services | $5,924 | | Homecare and Hospice | $164,554 | | All Other | $– | | Total | $170,478 | Indefinite-Lived Intangible Assets (June 30, 2025, in thousands) | Category | Amount | | :------------------ | :------- | | Trade names | $15,896 | | Certificates of need | $1,756 | | Licenses | $2,212 | | Total | $19,864 | - No impairment indicators were identified for goodwill or indefinite-lived intangible assets as of June 30, 2025[103] Note 12 - Stock Repurchase Program This note details the company's common stock repurchase activities, including the number of shares repurchased and their total cost Common Stock Repurchases (Six Months Ended June 30) | Period | Shares Repurchased | Total Cost (in thousands) | | :-------------------- | :----------------- | :------------------------ | | 2025 | 60,781 | $6,384 | | 2024 | 116,767 | $11,402 | Note 13 – Stock–Based Compensation This note provides information on the company's stock-based compensation expense, unrecognized costs, and outstanding stock options Stock-Based Compensation Expense (in thousands) | Period | 2025 | 2024 | | :-------------------- | :------- | :------- | | 3 Months Ended June 30 | $1,233 | $1,175 | | 6 Months Ended June 30 | $2,260 | $1,969 | - As of June 30, 2025, the company had $8,425,000 of unrecognized compensation cost related to unvested stock-based compensation awards, to be amortized over approximately two years[107] - As of June 30, 2025, 833,190 stock options were outstanding with a weighted average exercise price of $81.96 and an aggregate intrinsic value of $20,875,000[111] Note 14 – Income Taxes This note details the company's effective income tax rates and provides context for variances from the U.S. federal statutory rate Effective Income Tax Rate | Period | 2025 | 2024 | | :-------------------- | :----- | :----- | | 3 Months Ended June 30 | 25.0% | 25.9% | | 6 Months Ended June 30 | 25.7% | 26.2% | - The primary reason for the variance from the U.S. federal statutory income tax rate of 21% is state income taxes[114] - The company is no longer subject to U.S. federal and state tax examinations for years before 2021 (with certain state exceptions)[115] Note 15 – Long-Term Debt This note provides information on the company's long-term debt, including credit facilities, outstanding balances, and maturity schedules Long-Term Debt (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :---------------- | :-------------- | :---------------- | | Credit facility | $110,000 | $137,000 | | Less current portion | $(7,500) | $(7,500) | | Total long-term debt | $102,500 | $129,500 | - The company entered into a $200,000,000 senior credit facility on August 1, 2024, with a five-year term, including a $150,000,000 term facility and a $50,000,000 revolving line of credit, with an interest rate of 5.8% at June 30, 2025[116] Aggregate Maturities of Long-Term Debt (in thousands) | Year | Amount | | :--------- | :------- | | 2025 | $3,750 | | 2026 | $7,500 | | 2027 | $7,500 | | 2028 | $7,500 | | 2029 | $83,750 | | Total | $110,000 | Note 16 – Contingencies and Commitments This note outlines the company's accrued risk reserves, self-insurance programs, and significant legal proceedings Accrued Risk Reserves (in thousands) | Date | Amount | | :---------------- | :------- | | June 30, 2025 | $108,982 | | December 31, 2024 | $103,616 | - The company is self-insured for workers' compensation and general/professional liability, with professional liability remaining a particular concern due to increased claims in the senior care industry[119][122] - Caris Healthcare, L.P. (an affiliate) is involved in a Qui Tam Case regarding hospice billing, where the government has declined to intervene, and Caris denies all allegations and intends to vigorously defend the matter[125][126] Note 17 – Subsequent Events This note discloses significant events that occurred after the balance sheet date but before the financial statements were issued - On July 4, 2025, the 'One Big Beautiful Bill Act' (OBBBA) was signed into law, making permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing, and the business interest expense limitation[129] - The company is currently evaluating the impact of the OBBBA on its deferred tax balances and financial statements, which will be reflected in its Form 10-K for the year ended December 31, 2025[129] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed analysis of the company's financial performance, liquidity, and capital resources for the three and six months ended June 30, 2025, compared to the prior year, highlighting key drivers such as increased patient revenues, strategic acquisitions, and efforts to manage operating costs and government reimbursement changes Forward–Looking Statements This section highlights that the report contains forward-looking statements subject to various risks and uncertainties, cautioning investors against undue reliance - The report contains forward-looking statements regarding future financial position, results of operations, cash flows, performance improvements, debt servicing, growth opportunities, patient care liability costs, regulatory response, and strategic plan execution[131] - These statements involve known and unknown risks and uncertainties, including national and local economic conditions, government regulations, Medicare/Medicaid payment changes, liabilities, personnel attraction/retention, capital availability, competitive environment, cybersecurity attacks, census levels, and demographic changes[132][137] - Investors are cautioned not to place undue reliance on forward-looking statements as actual results may differ materially[134] Overview This section provides a high-level description of National HealthCare Corporation's business, including its diverse senior healthcare services and operational footprint - National HealthCare Corporation (NHC) is a leading provider of senior health care services, operating or managing 80 skilled nursing facilities, 26 assisted living facilities, nine independent living facilities, three behavioral health hospitals, 34 homecare agencies, and 33 hospice agencies[135] - The company also provides insurance, management, and accounting services, and leases properties, primarily operating in the southeastern United States[135] Summary of Goals and Areas of Focus Management's key focus areas include improving occupancy rates in skilled nursing facilities, maintaining high quality of patient care as evidenced by strong Five-Star ratings, pursuing development and growth opportunities through acquisitions and new agencies, and managing accrued risk reserves for professional liability and workers' compensation Occupancy This subsection details the company's occupancy rates in skilled nursing facilities and management's strategies to improve patient census levels Overall Census in Owned and Leased Skilled Nursing Facilities | Period | 2025 | 2024 | | :-------------------- | :----- | :----- | | Three Months Ended June 30 | 89.4% | 89.0% | | Six Months Ended June 30 | 89.3% | 88.7% | - Management is focused on improving systems for referral sources, implementing creative initiatives to retain and attract qualified healthcare professionals, and forming partnerships with hospital systems and payors to address healthcare labor shortages and maintain patient census levels[138] Quality of Patient Care This subsection highlights the company's commitment to patient-centered care and its strong performance in Five-Star Quality Ratings compared to the industry average NHC's Overall Five-Star Quality Ratings vs. Industry (as of June 30, 2025) | Metric | NHC Ratings | Industry Ratings | | :------------------------------------------ | :---------- | :--------------- | | Number of 4 and 5-star rated skilled nursing facilities | 48 | N/A | | Percentage of 4 and 5-star rated skilled nursing facilities | 60% | 35% | | Average rating for all skilled nursing facilities | 3.7 | 2.9 | - The company prioritizes patient-centered care and quality outcomes as precursors to outstanding financial performance[139] Development and Growth This subsection outlines the company's recent strategic acquisitions and the establishment of new hospice agencies to drive growth - On August 1, 2024, the company acquired White Oak Management, Inc., adding 15 skilled nursing facilities (1,928 licensed beds), two assisted living facilities (48 units), four independent living facilities (302 units), and a long-term care pharmacy in South Carolina and North Carolina[142] - New hospice agencies were opened in Morristown, TN (April 2024), Lawrenceburg, TN (July 2024), Wytheville, VA (August 2024), and Clinton, TN (October 2024)[142] Accrued Risk Reserves This subsection discusses the company's accrued professional liability and workers' compensation reserves and initiatives to reduce exposure - Accrued professional liability and workers' compensation reserves totaled $108,982,000 at June 30, 2025, funded by restricted cash and marketable securities[143] - The company has developed performance certification criteria to measure and reduce professional liability exposure, focusing on patient care issues like pressure ulcers, weight loss, and falls, leading to measurable improvements[144] Government Reimbursement Programs This section details recent and proposed changes in Medicare and Medicaid payment rates and policies for skilled nursing facilities, homecare, and hospice programs, highlighting both increases and decreases in reimbursement and the company's average per diem rate changes Medicare – Skilled Nursing Facilities This subsection provides updates on Medicare Part A payment rate changes and policy adjustments affecting skilled nursing facilities - CMS finalized a net 4.2% increase in Medicare Part A payments for SNFs for fiscal year 2025 (effective October 1, 2024) and a net 3.2% increase for fiscal year 2026 (effective October 1, 2025)[145][146] - The company's average Medicare per diem rate for skilled nursing facilities increased 5.8% for the first six months of 2025 compared to the same period in 2024[147] - Policy changes include expanded civil monetary penalties (CMPs) for health and safety violations and updates to the SNF Quality Reporting Program (QRP)[145] Medicaid – Skilled Nursing Facilities This subsection outlines state-specific Medicaid payment rate increases and their estimated impact on the company's annual revenue - The state of Tennessee implemented specific individual nursing facility increases effective July 1, 2025, estimated to increase annual revenue by approximately $3,000,000[148] - The state of South Carolina implemented specific individual nursing facility increases effective October 1, 2025, estimated to increase annual revenue by approximately $4,200,000[149] - The company's average Medicaid per diem increased 7.2% for the first six months of 2025 compared to the same period in 2024[150] Medicare – Homecare Programs This subsection details projected Medicare payment rate changes for home health agencies, including proposed increases and reductions - CMS projects a 0.5% increase in payments to home health agencies for fiscal year 2025 (effective November 2024), but a proposed 6.4% decrease for fiscal year 2026 (effective June 2025)[152][153] - The proposed FY2026 decrease includes a 4.1% permanent reduction and a temporary but indefinite 5.0% reduction to achieve budget neutral implementation of the Patient-Driven Groupings Model (PDGM)[153] Medicare – Hospice This subsection provides information on Medicare hospice payment rate increases and changes to the statutory aggregate cap amount - CMS issued a 2.9% rate increase for fiscal year 2025 (effective October 1, 2024) and proposed a 2.4% rate increase for fiscal year 2026 (effective October 1, 2025) for Medicare hospice payments[154][155] - The statutory aggregate cap amount for FY2025 is $34,465, with a proposed cap of $35,293 for FY2026[154][155] Segment Reporting This section presents financial performance by the company's operating segments, including inpatient services, homecare and hospice, and an 'all other' category - The company's two reportable operating segments are inpatient services and homecare and hospice services, with an 'all other' category for rental income, management/accounting services, insurance, and corporate costs[156] - The Chief Operating Decision Maker (CODM) evaluates performance based on pretax earnings and allocates capital resources to improve patient care quality and profitability, but does not review assets by segment[157] Income/(Loss) Before Income Taxes by Segment (Three Months Ended June 30, in thousands) | Segment | 2025 | 2024 | Change | | :-------------------------------- | :------- | :------- | :------- | | Inpatient Services | $30,431 | $14,192 | +$16,239 | | Homecare and Hospice | $7,396 | $6,090 | +$1,306 | | All Other | $(5,659) | $16,318 | $(21,977) | | Total | $32,168 | $36,600 | $(4,432) | Income/(Loss) Before Income Taxes by Segment (Six Months Ended June 30, in thousands) | Segment | 2025 | 2024 | Change | | :-------------------------------- | :------- | :------- | :------- | | Inpatient Services | $60,974 | $29,099 | +$31,875 | | Homecare and Hospice | $13,125 | $11,924 | +$1,201 | | All Other | $1,791 | $31,290 | $(29,499) | | Total | $75,890 | $72,313 | +$3,577 | Results of Operations The company experienced a significant increase in net operating revenues and grant income for both the three and six months ended June 30, 2025, primarily driven by higher net patient revenues from increased census, per diem rate increases, and the White Oak acquisition. Total costs and expenses also rose, but at a slower rate than revenues, leading to improved operating income Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 This subsection analyzes the company's financial performance for the three months ended June 30, 2025, compared to the prior year, highlighting revenue growth and expense changes - Net operating revenues and grant income increased by 24.7%, driven by a 9.6% increase in same-facility net operating revenues and the White Oak acquisition[164] GAAP Net Income Attributable to NHC (in thousands) | Period | 2025 | 2024 | Change | | :-------------------- | :------- | :------- | :------- | | 3 Months Ended June 30 | $23,722 | $26,844 | $(3,122) | Adjusted Net Income (Non-GAAP, in thousands) | Period | 2025 | 2024 | Change | % Change | | :-------------------- | :------- | :------- | :------- | :--------- | | 3 Months Ended June 30 | $25,710 | $15,612 | $10,098 | 64.7% | - Net patient revenues increased by $83,431,000 (29.8%), with the White Oak operations contributing $56,855,000 to this increase[166][168] - Overall skilled nursing facility census averaged 89.4% (2025) compared to 89.0% (2024), and the composite per diem increased 6.7%, with Medicare, managed care, Medicaid, and private pay per diem rates increasing by 6.4%, 8.5%, 8.3%, and 9.1% respectively[167] - Salaries, wages, and benefits increased by $46,458,000 (25.8%), but agency nurse staffing expense decreased significantly to $981,000 (2025) from $4,098,000 (2024)[170] Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 This subsection analyzes the company's financial performance for the six months ended June 30, 2025, compared to the prior year, detailing revenue growth and expense changes - Net operating revenues and grant income increased by 25.2%, driven by a 9.5% increase in same-facility net operating revenues and the White Oak acquisition[177] GAAP Net Income Attributable to NHC (in thousands) | Period | 2025 | 2024 | Change | % Change | | :-------------------- | :------- | :------- | :------- | :--------- | | 6 Months Ended June 30 | $55,927 | $53,057 | $2,870 | 5.4% | Adjusted Net Income (Non-GAAP, in thousands) | Period | 2025 | 2024 | Change | % Change | | :-------------------- | :------- | :------- | :------- | :--------- | | 6 Months Ended June 30 | $50,549 | $30,998 | $19,551 | 63.1% | - Net patient revenues increased by $159,215,000 (28.1%), with White Oak operations contributing $113,580,000 to this increase, while the exit of Missouri operations in 2024 decreased net patient revenues by $5,579,000[179][181] - Overall skilled nursing facility census averaged 89.3% (2025) compared to 88.7% (2024), and the composite per diem increased 5.7%, with Medicare, managed care, Medicaid, and private pay per diem rates increasing by 5.8%, 6.5%, 7.2%, and 9.3% respectively[180] - Salaries, wages, and benefits increased by $91,450,000 (25.2%), but agency nurse staffing expense reduced to $2,468,000 (2025) from $9,384,000 (2024)[184] Non-GAAP Financial Presentation This section explains the company's use of non-GAAP financial measures to provide a clearer view of ongoing operations and consistent performance - The company provides non-GAAP financial measures to offer investors a more accurate assessment of ongoing operations and consistent performance across periods, supplementing GAAP information[189][190] - Non-GAAP adjustments exclude unrealized gains or losses on marketable equity securities, gains on sale of unconsolidated companies, gains on sale of property and equipment, and share-based compensation expense[190] Non-GAAP Net Income (in thousands) | Period | 2025 | 2024 | Change | % Change | | :-------------------- | :------- | :------- | :------- | :--------- | | 3 Months Ended June 30 | $25,710 | $15,612 | $10,098 | 64.7% | | 6 Months Ended June 30 | $50,549 | $30,998 | $19,551 | 63.1% | Non-GAAP Diluted Earnings Per Share | Period | 2025 | 2024 | Change | | :-------------------- | :----- | :----- | :----- | | 3 Months Ended June 30 | $1.65 | $1.00 | +$0.65 | | 6 Months Ended June 30 | $3.24 | $2.00 | +$1.24 | Liquidity, Capital Resources, and Financial Condition The company's liquidity is primarily supported by operating cash flows, cash on hand, and marketable securities. While operating cash flow significantly increased, cash used in investing and financing activities also rose, resulting in a net decrease in total cash and equivalents at period-end. The company believes it has adequate resources for both short-term and long-term needs Operating Activities This subsection details the cash flows generated from the company's primary operating activities, highlighting changes in net cash provided Net Cash Provided by Operating Activities (Six Months Ended June 30, in thousands) | Period | 2025 | 2024 | Change | % Change | | :----- | :------- | :------- | :------- | :--------- | | Amount | $102,074 | $60,307 | $41,767 | 69.3% | - Cash provided by working capital significantly increased to $32,831,000 for the six months ended June 30, 2025, compared to $4,052,000 for the same period in 2024[194] Investing Activities This subsection outlines the cash flows used in the company's investing activities, including property additions and marketable securities transactions Net Cash Used in Investing Activities (Six Months Ended June 30, in thousands) | Period | 2025 | 2024 | Change | % Change | | :----- | :------- | :------- | :------- | :--------- | | Amount | $(22,902) | $(990) | $(21,912) | (2,213.3)% | - Cash used for property and equipment additions was $16,341,000 in 2025, up from $13,788,000 in 2024[196] - Purchases, net of proceeds from sales, of marketable securities resulted in $3,821,000 cash used in investing activities for 2025, compared to $15,764,000 cash provided in 2024[196] Financing Activities This subsection details the cash flows used in the company's financing activities, including debt payments, dividends, and share repurchases Net Cash Used in Financing Activities (Six Months Ended June 30, in thousands) | Period | 2025 | 2024 | Change | % Change | | :----- | :------- | :------- | :------- | :--------- | | Amount | $(45,732) | $(19,680) | $(26,052) | (132.4)% | - Cash of $27,000,000 was used to pay down the outstanding principal balance of long-term debt in the first six months of 2025[198] - Dividends paid to common stockholders totaled $18,854,000 in 2025, compared to $18,137,000 in 2024[198] - Common share repurchases amounted to $6,384,000 in 2025, down from $11,402,000 in 2024[198] Short–term liquidity This subsection outlines the company's expected sources for meeting its short-term liquidity requirements - The company expects to meet short-term liquidity requirements from cash flows from operating activities, $110,992,000 in current cash on hand, $146,636,000 in unrestricted marketable equity securities, unencumbered real estate, and a $50 million available line of credit[199] Long–term liquidity This subsection describes the company's expected sources for meeting its long-term liquidity needs and factors influencing future performance - Long-term liquidity will be met primarily from cash flows from operating activities, current cash on hand ($110,992,000), unrestricted marketable equity securities ($146,636,000), and the $50 million available line of credit[200] - Substantial value in unencumbered real estate assets could also be used as collateral for future borrowing opportunities[200] - Future performance is subject to business, economic, financial, and other factors, including changes in government payment rates, customer demand, competition, and the state of financial markets[201] Commitment and Contingencies This subsection addresses the company's ability to meet long-term obligations, emphasizing risks from complex and evolving governmental regulations - The company's ability to meet long-term obligations is subject to risks from complex and evolving governmental regulations, particularly concerning Medicare, Medicaid, and other federal healthcare programs, where non-compliance could lead to significant regulatory actions[202] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposure primarily stems from its fixed-income and equity portfolios, encompassing interest rate risk, credit risk, equity price risk, and concentration risk. Management employs comprehensive policies to manage these risks, including diversifying investments and monitoring financial conditions Interest Rate Risk This subsection discusses the company's exposure to interest rate fluctuations, particularly concerning its fixed-income investments and credit facility - The fair values of the company's fixed-income investments ($133,701,000 at June 30, 2025) fluctuate with market interest rates, with the portfolio primarily composed of short-term and intermediate-term maturities[204] - The credit facility exposes the company to variability in interest payments due to changes in Secured Overnight Financing Rate (SOFR) interest rates[206] - The company does not currently use derivative instruments to hedge its interest rate exposure[207] Credit Risk This subsection describes how the company manages its credit risk by diversifying its fixed maturity portfolio and limiting investments in lower-rated securities - Credit risk is managed by diversifying the fixed maturity portfolio to avoid concentrations in any single industry group or issuer and by limiting investments in securities with lower credit ratings[208] Equity Price and Concentration Risk This subsection addresses the company's exposure to equity price fluctuations and significant concentration risk within its marketable equity securities portfolio - The fair value of marketable equity securities was approximately $162,905,000 at June 30, 2025, exposing the company to equity price risk[209] - A significant concentration risk exists with the investment in NHI Common Stock, comprising approximately $114.3 million (70.2%) of the total equity securities portfolio[209] - A hypothetical 10% change in quoted market prices would result in an approximate $16.3 million increase or decrease in the fair value of equity investments[209] Item 4. Controls and Procedures As of June 30, 2025, the company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective. There have been no material changes in internal control over financial reporting during the period - The company's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025, by management, including the CEO and CFO[210] - There have been no changes in internal control over financial reporting that have materially affected or are reasonably likely to materially affect internal control over financial reporting during the period[211] PART II. OTHER INFORMATION Item 1. Legal Proceedings For a discussion of prior, current, and pending litigation of material significance, refer to Note 16 of this Form 10-Q - Material legal proceedings are discussed in Note 16 of this Form 10-Q[213] Item 1A. Risk Factors There were no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024, during the six months ended June 30, 2025 - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024, occurred during the six months ended June 30, 2025[214] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable to the current report - Not applicable[215] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - None[215] Item 4. Mine Safety Disclosures This item is not applicable to the current report - Not applicable[215] Item 5. Other Information There is no other information to report under this item - None[215] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, certifications, and XBRL-related documents - The exhibit list includes the Certificate of Incorporation, Restated Bylaws, Form of Common Stock, Rule 13a-14(a)/15d-14(a) Certifications of CEO and CFO, Certification pursuant to 18 U.S.C. Section 1350, and various Inline XBRL documents[218] SIGNATURES The report is duly signed by Stephen F. Flatt, Chief Executive Officer, and Brian F. Kidd, Senior Vice President and Chief Financial Officer, on August 7, 2025, certifying its submission pursuant to the Securities Exchange Act of 1934 - The report was signed by Stephen F. Flatt, Chief Executive Officer, and Brian F. Kidd, Senior Vice President and Chief Financial Officer, on August 7, 2025[220]