Company Overview
National HealthCare Corporation (NYSE:NHC) is the nation's oldest publicly traded senior healthcare company, with a rich history spanning over seven decades. Founded in 1971, NHC has grown to become a leading provider of skilled nursing, assisted living, independent living, and homecare services across the southeastern United States.
The company's comprehensive spectrum of care solutions has made it a trusted partner for seniors and their families seeking high-quality, personalized healthcare. With 80 skilled nursing facilities, 26 assisted living facilities, 9 independent living facilities, 3 behavioral health hospitals, 34 homecare agencies, and 32 hospice agencies, NHC operates in 9 states, primarily in the southeastern region.
Historical Development
NHC's journey began with a single skilled nursing facility in Tennessee in 1971. Over the subsequent decades, the company steadily expanded its footprint through strategic acquisitions and development of new healthcare facilities across the Southeast. By the 1990s, NHC had diversified its operations to include not only skilled nursing facilities but also assisted living centers, independent living communities, behavioral health hospitals, homecare agencies, and hospice programs. This diversification strategy allowed the company to address a wider range of senior healthcare needs.
The early 2000s presented challenges for NHC as the senior care industry faced increased regulatory oversight, rising labor costs, and growing competition from alternative care models. In response, the company implemented new quality assurance programs, invested in workforce development, and established partnerships with hospital systems and payors. These proactive measures helped NHC maintain its position as a leading senior healthcare provider.
In 2022, NHC encountered another significant challenge when it had to cease operations at several skilled nursing facilities in the Northeast due to changing market conditions. The company managed this transition carefully to minimize disruption to patients and employees. Despite this setback, NHC's diversified portfolio of healthcare services enabled it to maintain financial stability and continue pursuing growth opportunities.
Quality of Care and Strategic Growth
NHC's strong focus on patient-centered care and quality outcomes has been a key driver of its success. The company consistently outperforms industry averages in the Centers for Medicare and Medicaid Services (CMS) Five-Star Quality Rating System, with 56% of its skilled nursing facilities earning a 4- or 5-star rating as of September 30, 2024, compared to an industry average of just 36%.
The company's strategic acquisition of the White Oak Senior Living portfolio in August 2024 further strengthened its footprint and capabilities. The White Oak portfolio, which includes 15 skilled nursing facilities, 2 assisted living facilities, and 4 independent living facilities across North and South Carolina, added 1,930 licensed skilled nursing beds, 48 assisted living units, and 302 independent living units to NHC's operations.
Financials
Financially, NHC has demonstrated resilience and growth. For the year ended December 31, 2023, the company reported net operating revenues and grant income of $1.14 billion, up 5.1% from the prior year. Excluding the impact of government stimulus income and ceased operations, same-facility net operating revenues increased 11.3% in 2023 compared to 2022. Net income attributable to NHC for the year was $66.80 million, a significant increase from $22.45 million in 2022.
In the most recent quarter (Q3 2024), NHC reported revenue of $340.20 million, representing a year-over-year growth of 17.9%. This increase was primarily driven by the acquisition of the White Oak portfolio on August 1, 2024, which contributed $37.30 million in revenue for the quarter. Net income for Q3 2024 reached $42.79 million.
The company's cash flow generation has remained strong, with operating cash flow (OCF) of $111.22 million and free cash flow (FCF) of $83.31 million for the fiscal year 2023. In Q3 2024, OCF was $46.80 million, while FCF reached $41.15 million.
Liquidity
The company's strong balance sheet and cash flow generation capabilities have enabled it to invest in strategic growth initiatives and maintain a consistent dividend payout to shareholders. As of September 30, 2024, NHC had $84.81 million in cash and cash equivalents, $164.75 million in marketable equity securities, and $147.00 million in outstanding long-term debt.
NHC's financial position remains solid, with a debt-to-equity ratio of 0.15, indicating a conservative capital structure. The company also maintains a $50 million revolving credit facility, providing additional financial flexibility. The current ratio and quick ratio both stand at 1.01, suggesting adequate liquidity to meet short-term obligations.
Market Position and Growth Prospects
NHC's diversified service offerings, focus on quality care, and prudent financial management have positioned the company for continued growth and success in the senior healthcare market. As the population of older adults in the United States continues to expand, driven by the aging of the baby boomer generation, the demand for comprehensive senior care services is expected to rise, providing a favorable tailwind for NHC's business.
However, the company is not without its challenges. Like the broader healthcare industry, NHC faces ongoing workforce shortages, regulatory changes, and rising costs for labor and supplies. The company has proactively implemented measures to address these challenges, including initiatives to improve employee retention and optimize operational efficiency.
Furthermore, NHC's reliance on government reimbursement programs, such as Medicare and Medicaid, exposes it to potential changes in healthcare policies and reimbursement rates. The company closely monitors these developments and adjusts its strategies accordingly to mitigate any adverse impacts.
Segment Performance
NHC's operations are divided into three main segments: Inpatient Services, Homecare and Hospice Services, and All Other.
The Inpatient Services segment, which includes skilled nursing facilities, assisted living facilities, and behavioral health hospitals, is the company's largest revenue contributor. For the nine months ended September 30, 2024, this segment generated $791.37 million in net operating revenues and grant income, representing 84.4% of the company's total. The segment's income from operations increased to $55.07 million for the first nine months of 2024, up from $27.44 million in the same period of 2023.
Within this segment, skilled nursing facilities are the primary driver, with 80 facilities and 10,350 licensed beds across 9 states. The occupancy rate at these facilities averaged 88.6% for the first nine months of 2024, up from 87.8% in the same period of the prior year. This increase in occupancy, along with higher Medicare and Medicaid per diem rates, contributed to the segment's revenue growth.
The Homecare and Hospice Services segment generated $103.75 million in net operating revenues for the first nine months of 2024, representing 11.1% of the company's total. This segment reported income from operations of $18.73 million, up from $17.47 million in the prior year period. NHC has continued to expand its homecare and hospice footprint, opening new agencies in several states during 2023 and 2024.
The All Other segment, which includes rental income, management and accounting services fees, and insurance services, generated $42.91 million in net operating revenues and grant income for the first nine months of 2024. This segment contributed $14.61 million in income from operations for the same period.
Industry Trends and Challenges
The long-term care industry has seen an increase in patient care-related lawsuits and claims of negligence, resulting in higher professional liability insurance costs for operators like NHC. Additionally, the industry continues to face challenges related to staffing shortages and rising labor costs.
Despite these industry-wide challenges, NHC has not been involved in any major scandals, short seller reports, or experienced any CEO departures that would significantly impact its operations or reputation.
Conclusion
Despite these challenges, NHC's strong market position, diversified service offerings, and demonstrated financial performance suggest that the company is well-positioned to navigate the evolving senior healthcare landscape. As the company continues to execute on its growth strategy and enhance its operational excellence, investors may find NHC to be an attractive long-term investment opportunity in the senior care sector. The company's recent acquisition of the White Oak portfolio, steady expansion of its homecare and hospice services, and consistent above-average quality ratings demonstrate its commitment to growth and excellence in patient care. With a solid financial foundation and a clear strategic vision, National HealthCare Corporation appears poised for continued success in the dynamic and growing senior healthcare market.