Executive Summary / Key Takeaways

• Integrated Care Model Drives Performance: National HealthCare Corporation (NHC) leverages its diversified portfolio of skilled nursing, assisted living, homecare, and hospice services to deliver comprehensive patient care, fostering strong operational execution and consistent revenue growth.
• Robust Financial Expansion: The company demonstrated significant financial strength in the first nine months of 2025, with adjusted net income increasing by 47.9% year-over-year, propelled by higher skilled nursing census, favorable reimbursement rates, and reduced agency staffing expenses.
• Strategic Growth and Quality Focus: NHC's strategy emphasizes expanding its senior care operations through acquisitions like White Oak Management and organic growth in hospice, while maintaining a strong commitment to quality, evidenced by 59% of its skilled nursing facilities achieving 4 and 5-star ratings.
• Strong Liquidity and Debt Management: NHC maintains a healthy liquidity position, with substantial cash and marketable securities, and has actively reduced its long-term debt, providing financial flexibility for future growth and capital deployment.
• Key Risks and Outlook: While facing challenges such as the ongoing lease dispute with National Health Investors (NHI) and evolving government reimbursement policies, NHC's proactive management and diversified revenue streams position it to adapt and capitalize on the growing demand for senior healthcare services.

A Legacy of Care and Strategic Evolution in a Dynamic Healthcare Landscape

National HealthCare Corporation, established in 1971, stands as the nation's oldest publicly traded senior healthcare company, a testament to its enduring presence and adaptability within the evolving healthcare sector. The company has built a comprehensive ecosystem of senior care services, encompassing 80 skilled nursing facilities, 26 assisted living facilities, nine independent living facilities, three behavioral health hospitals, 34 homecare agencies, and 33 hospice agencies as of September 30, 2025. These operations are strategically concentrated across nine states, primarily in the southeastern United States, allowing for regional specialization and operational efficiencies. Beyond direct patient care, NHC diversifies its revenue streams through insurance services, management and accounting services, and property leasing to other healthcare operators.

The broader healthcare industry is characterized by several significant trends that shape NHC's strategic imperatives. An aging demographic in the United States continues to drive demand for senior care services, creating a foundational tailwind for companies like NHC. However, this demand is met with persistent challenges, notably a widespread healthcare labor shortage that has amplified the difficulty of maintaining optimal patient census levels. Furthermore, the industry operates under a complex and ever-changing regulatory and reimbursement environment, particularly concerning Medicare and Medicaid programs, which necessitates continuous adaptation and compliance. While specific proprietary technological differentiators in the traditional sense (e.g., a unique medical device or software platform) are not detailed for NHC, the company's strategic approach to operational excellence and patient care quality serves as a critical differentiator. NHC consistently invests in improving its "processes and information systems to protect the privacy of patients, partners and other persons and reduce the risk of successful cybersecurity attacks." This focus on robust internal systems and data-driven quality initiatives, such as performance certification criteria designed to reduce professional liability exposure, underpins its ability to deliver superior patient outcomes. For instance, 59% of NHC's skilled nursing facilities hold 4 and 5-star ratings, significantly outperforming the industry average of 37%, with NHC's average rating at 3.80 compared to the industry's 2.90. This commitment to quality, supported by continuous operational refinement, enhances patient satisfaction and strengthens NHC's market reputation.

Competitive Landscape and Differentiated Approach

NHC operates within a highly competitive post-acute care market, vying for patients and talent against a range of direct and indirect competitors. Direct rivals include large senior living operators like Brookdale Senior Living , specialized rehabilitation providers such as Encompass Health , and other skilled nursing and senior living facility managers like The Ensign Group .

Compared to Brookdale Senior Living (BKD), which emphasizes broader senior living amenities, NHC's offerings are more specialized in rehabilitative and medical services, integrating homecare, hospice, and behavioral health. This integrated service model positions NHC as a comprehensive provider for patients with complex needs, offering a unique value proposition in markets that prioritize coordinated care. While Brookdale's larger scale might offer advantages in procurement and staffing efficiencies, NHC's specialization in integrated care potentially leads to stronger customer loyalty and recurring revenue through enhanced patient continuity.

Against Encompass Health (EHC), a leader in inpatient rehabilitation and home health, NHC provides a broader spectrum of services, including skilled nursing and hospice. NHC's holistic approach, covering care from acute recovery to end-of-life services, differentiates it by offering integrated solutions across the patient journey. Although Encompass may hold an edge in specialized rehabilitation efficiency, NHC's service diversity enhances revenue stability.

When measured against The Ensign Group (ENSG), which focuses on operational excellence and acquisitions in skilled nursing and senior living, NHC's deeper penetration into homecare and behavioral health creates a more comprehensive care ecosystem. NHC's integrated service model is designed to foster long-term patient relationships, potentially yielding recurring revenue advantages. While Ensign's operational efficiency might translate to lower operating costs, NHC's expertise in behavioral health and integrated care provides a distinct competitive edge.

NHC's primary competitive advantages, or "moats," stem from its integrated service model and its established network of facilities and regulatory licenses. The integrated service model translates into tangible benefits such as enhanced patient continuity, which can lead to stronger customer loyalty and recurring revenue. This model also supports superior margins through efficient resource allocation and improved capital efficiency, allowing NHC to differentiate itself from broader offerings and capture market share in complex care segments. The company's extensive facility network and necessary licenses create significant barriers to entry for potential competitors, bolstering NHC's market position and strategic adaptability. This helps NHC maintain robust growth and generate strong cash flows by cultivating a loyal customer base.

Indirect competitors, including telehealth providers and home health startups offering virtual care or wearable health monitoring, represent a potential threat by providing alternative, often more convenient, solutions. NHC mitigates this by offering its own homecare and hospice services, ensuring it remains an active participant in the evolving landscape of decentralized care delivery.

Financial Performance: A Story of Resurgence and Growth

NHC's recent financial performance underscores its operational effectiveness and strategic growth initiatives. For the three months ended September 30, 2025, net operating revenues increased by a robust 12.5% year-over-year to $382.66 million. This growth was primarily fueled by an 8.7% increase in same-facility net operating revenues and the significant contribution from the August 1, 2024, acquisition of White Oak Management, Inc.. The White Oak acquisition alone contributed an additional $20.03 million in net patient revenues for the quarter.

The company's profitability also saw substantial improvement. Adjusted net income for the third quarter of 2025 rose by 24.3% to $24.74 million compared to the same period in 2024. This increase was attributed to a continued rise in skilled nursing census, favorable per diem rate increases from government payors, and a significant reduction in agency staffing expenses. For the nine months ended September 30, 2025, the adjusted net income surged by 47.9% to $75.29 million, driven by similar factors.

Operational metrics further highlight this positive trend. The overall census in owned and leased skilled nursing facilities increased to 90% in Q3 2025 from 88.30% in Q3 2024, and to 89.60% for the nine months ended September 30, 2025, from 88.60% in the prior year period. Medicare per diem rates for skilled nursing facilities also saw healthy increases of 6.10% in Q3 2025 and 5.90% for the nine months ended September 30, 2025. Critically, efforts to address the healthcare labor shortage yielded tangible results, with agency nurse staffing expense decreasing significantly to $1.21 million in Q3 2025 from $3.10 million in Q3 2024, and to $3.67 million for the nine months ended September 30, 2025, from $12.48 million in the same period of 2024. This reduction in a key operating cost directly contributed to margin expansion.

Examining profitability ratios, NHC's latest trailing twelve-month (TTM) Gross Profit Margin stands at 38.16%, with an Operating Profit Margin of 7.72% and a Net Profit Margin of 7.20%. The EBITDA Margin is 12.79%. These margins reflect the company's ability to manage costs effectively amidst revenue growth. For context, while direct TTM comparisons for all competitors are not available, Encompass Health (EHC) has a P/E ratio of 18.16, and The Ensign Group (ENSG) has a P/E of 31.27, suggesting NHC's P/E of 18.90 positions it favorably against some peers in terms of valuation relative to earnings.

NHC's liquidity and capital resources are robust. Net cash provided by operating activities for the nine months ended September 30, 2025, was $168.27 million, a substantial increase from $94.51 million in the prior year period. The company also demonstrated prudent financial management by paying down $63.88 million of long-term debt during the first nine months of 2025.

NHC maintains a strong liquidity profile with $130.63 million in cash and cash equivalents and $166.75 million in unrestricted marketable equity securities, along with a $50 million available line of credit. The company is compliant with all financial covenants under its $200 million senior credit facility, further underscoring its financial stability. These resources provide NHC with significant flexibility to meet its contractual obligations, fund ongoing operations, and pursue future growth and development plans.

Strategic Initiatives and Future Outlook

NHC's forward strategy is anchored in expanding its senior care operations while safeguarding existing markets. Recent development activities include the addition of new hospice agencies in Morristown, TN, Lawrenceburg, TN, Wytheville, VA, and Clinton, TN, all in 2024, demonstrating organic growth in key service lines. The significant acquisition of White Oak Management, Inc. in August 2024 further expanded NHC's footprint, adding 15 skilled nursing facilities, two assisted living facilities, four independent living facilities, and a long-term care pharmacy across South Carolina and North Carolina. This acquisition was explicitly noted as accretive to earnings, highlighting its strategic value.

The company's outlook is shaped by a mix of favorable reimbursement adjustments and some proposed reductions. For fiscal year 2026, the Centers for Medicare & Medicaid Services (CMS) projects a net 3.20% increase in Medicare Part A payments to skilled nursing facilities, comprising a 3.30% market basket increase, a 0.60% market basket forecast error adjustment, and a negative 0.70% productivity adjustment. This positive adjustment, however, excludes an estimated $208.40 million reduction from the SNF Value Based Purchasing (VBP) program. State-level Medicaid increases are also expected to bolster revenues, with Tennessee implementing increases estimated to generate approximately $3.00 million annually ($750,000 per quarter) for fiscal year 2026, and South Carolina's increases projected to add approximately $4.20 million annually ($1.05 million per quarter).

Conversely, the proposed rule for Medicare homecare programs in fiscal year 2026 projects a 6.40% decrease in payments, or $1.10 billion, relative to the prior year. This reduction includes a 3.20% market basket update, a 0.80 percentage point productivity cut, a 4.10% permanent reduction to the standard payment rate for the Patient-Driven Groupings Model (PDGM), and a 5% temporary adjustment for retrospective PDGM overpayments. For Medicare hospice services, CMS issued a rate increase of 2.60%, or $750 million, effective October 1, 2025. These varied reimbursement changes underscore the dynamic regulatory environment and the importance of NHC's diversified service offerings to mitigate risks in any single segment.

Key Risks and Challenges

Despite its strengths, NHC faces several pertinent risks. The most immediate is the ongoing lease dispute with National Health Investors, Inc. (NHI). NHC's wholly-owned subsidiary leases 32 skilled nursing facilities and three independent living centers under a Master Lease agreement with NHI. In July 2025, NHI alleged non-compliance with certain non-monetary provisions, escalating to a formal allegation of default in September 2025. While NHC disputes these allegations and has exercised its option to renew the Master Lease for a five-year term commencing January 1, 2027, there is no assurance of agreement on fair rental value or other renewal terms. Failure to resolve these disputes could lead to the loss of occupancy for these facilities, increased lease-related expenses, or other remedies in favor of NHI, potentially having a material adverse effect on NHC's financial position and operations. Analyst commentary suggests that market fears regarding this lease dispute may be overblown, citing NHC's strong negotiating position and financial capacity to absorb rent increases or even purchase properties.

Another significant risk stems from accrued risk reserves, particularly for professional liability and workers' compensation claims. The long-term care industry has experienced an increase in personal injury and wrongful death claims, which can result in substantial legal costs and damage awards. While NHC utilizes wholly-owned insurance companies and independent actuaries to estimate these obligations, a significant increase in claims could materially affect its financial position. The persistent healthcare labor shortage also remains a challenge, potentially impacting patient census levels and increasing staffing costs, although NHC has demonstrated success in reducing agency nurse staffing expenses. Finally, the complex and frequently changing governmental regulations governing Medicare and Medicaid programs pose ongoing compliance risks, including potential fines, penalties, or exclusion from these programs.

Conclusion

National HealthCare Corporation presents a compelling investment thesis rooted in its long-standing legacy, diversified and integrated senior care offerings, and a demonstrated commitment to quality patient outcomes. The company's recent financial performance, marked by strong revenue growth and a significant increase in adjusted net income, reflects effective operational management and successful strategic acquisitions like White Oak. NHC's ability to improve skilled nursing census, secure favorable reimbursement rates, and substantially reduce agency staffing expenses underscores its operational resilience.

While the ongoing lease dispute with NHI and the dynamic regulatory environment present notable risks, NHC's robust liquidity, proactive debt management, and strategic focus on integrated care and quality position it to absorb these challenges. The company's emphasis on continuous improvement in its processes and information systems, coupled with its high CMS Five-Star ratings, serves as a crucial differentiator in a competitive landscape. For discerning investors, NHC represents a resilient player in the essential senior healthcare market, poised for continued growth through its strategic initiatives and unwavering commitment to patient-centered care, making it an attractive consideration for long-term value.