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Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

  

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                   to                  

  

Commission file number    001-13489

 

nhc20240331_10qimg001.jpg

 

(Exact name of registrant as specified in its Charter)

  

Delaware

52-2057472

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization

Identification No.)

  

100 E. Vine Street

Murfreesboro, TN

37130

(Address of principal executive offices)

(Zip Code)

  

(615) 8902020

Registrant's telephone number, including area code

  

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

Trading

Symbols(s)

Name of each exchange on which

registered

Common, $0.01 par value

NHC

NYSE American

 

Indicate by check mark whether the registrant: (1) Has filed all reports required to be filed by Section 13 or 15(d), of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S–T (§ 232.405 of this chapter) during the preceding 12 months (or for such period that the registrant was required to submit such files).    Yes ☒      No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer

Accelerated filer ☐

  

Non–accelerated filer ☐

Smaller reporting company

  
 

Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as is defined in Rule 12b–2 of the Exchange Act). Yes    No ☒

 

15,399,724 shares of common stock of the registrant were outstanding as of May 1, 2024.

 



 

  

 
 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(unaudited)

 

  

Three Months Ended

March 31

 
  

2024

  

2023

 
         

Revenues:

        

Net patient revenues

 $285,823  $258,007 

Other revenues

  11,353   11,556 

Net operating revenues

  297,176   269,563 
         

Cost and expenses:

        

Salaries, wages, and benefits

  183,138   167,824 

Other operating

  77,429   71,489 

Facility rent

  10,348   10,092 

Depreciation and amortization

  10,586   10,048 

Interest

  46   98 

Total costs and expenses

  281,547   259,551 
         

Income from operations

  15,629   10,012 
         

Other income:

        

Non–operating income

  5,685   4,323 

Unrealized gains on marketable equity securities

  14,399   1,386 
         

Income before income taxes

  35,713   15,721 

Income tax provision

  (9,462)  (4,436)

Net income

  26,251   11,285 

Net (income)/loss attributable to noncontrolling interest

  (38)  438 
         

Net income attributable to National HealthCare Corporation

 $26,213  $11,723 
         

Earnings per share attributable to National HealthCare Corporation stockholders:

        

Basic

 $1.71  $0.76 

Diluted

 $1.69  $0.76 
         

Weighted average common shares outstanding:

     

Basic

  15,350,240   15,337,423 

Diluted

  15,505,096   15,356,335 
         

Dividends declared per common share

 $0.59  $0.57 

 

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

 

 

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Comprehensive Income

(unaudited in thousands)

 

  

Three Months Ended

March 31

 
  

2024

  

2023

 
         

Net income

 $26,251  $11,285 
         

Other comprehensive income/(loss):

        

Unrealized gains/(losses) on investments in marketable debt securities

  (472)  1,958 

Reclassification adjustment for realized gains on sales of marketable debt securities

  (10)   - 

Income tax (expense)/benefit related to items of other comprehensive income

  45   (279)

Other comprehensive income/(loss), net of tax

  (437)  1,679 
         

Net (income)/loss attributable to noncontrolling interest

  (38)  438 
         

Comprehensive income attributable to National HealthCare Corporation

 $25,776  $13,402 

 

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

 

 

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Balance Sheets

(in thousands)

 

  

March 31,

2024

  

December 31,

2023

 
  

unaudited

     

Assets

        

Current Assets:

        

Cash and cash equivalents

 $93,982  $107,076 

Restricted cash and cash equivalents, current portion

  26,010   17,725 

Marketable equity securities

  123,040   111,117 

Marketable debt securities

  484   5,427 

Restricted marketable equity securities

  29,616   26,779 

Restricted marketable debt securities, current portion

  4,790   12,822 

Accounts receivable

  125,664   108,545 

Inventories

  6,763   7,386 

Prepaid expenses and other assets

  6,750   8,855 

Notes receivable

  487   503 

Total current assets

  417,586   406,235 
         

Property and Equipment:

        

Property and equipment, at cost

  1,065,543   1,101,681 

Accumulated depreciation and amortization

  (576,845)  (608,352)

Net property and equipment

  488,698   493,329 
         

Other Assets:

        

Restricted cash and cash equivalents, less current portion

  1,140   1,167 

Restricted marketable debt securities, less current portion

  119,042   109,478 

Deposits and other assets

  13,738   14,786 

Operating lease right-of-use assets

  87,356   94,201 

Goodwill

  168,295   168,295 

Intangible assets

  7,038   7,038 

Investments in unconsolidated companies

  16,747   16,267 

Total other assets

  413,356   411,232 

Total assets

 $1,319,640  $1,310,796 

 

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

 

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Balance Sheets (continued)

(in thousands, except share and per share amounts)

 

  

March 31,

2024

  

December 31,

2023

 
  

unaudited

     

Liabilities and Stockholders Equity

        

Current Liabilities:

        

Trade accounts payable

 $20,697  $19,194 

Finance lease obligations, current portion

  -   860 

Operating lease liabilities, current portion

  29,733   29,352 

Accrued payroll

  64,156   84,110 

Amounts due to third party payors

  19,988   18,369 

Accrued risk reserves, current portion

  30,800   30,549 

Other current liabilities

  24,302   22,991 

Contract liabilities

  7,667   - 

Dividends payable

  9,086   9,051 

Total current liabilities

  206,429   214,476 
         

Operating lease liabilities, less current portion

  56,004   63,175 

Accrued risk reserves, less current portion

  77,437   72,710 

Refundable entrance fees

  5,708   6,376 

Deferred income taxes

  19,639   17,200 

Other noncurrent liabilities

  27,909   26,379 

Total liabilities

  393,126   400,316 
         

Equity:

        

Common stock, $.01 par value; 45,000,000 shares authorized; 15,399,724 and 15,350,661 shares, respectively, issued and outstanding

  154   153 

Capital in excess of par value

  226,909   227,604 

Retained earnings

  704,726   687,599 

Accumulated other comprehensive loss

  (7,041)  (6,604)

Total National HealthCare Corporation stockholders’ equity

  924,748   908,752 

Noncontrolling interest

  1,766   1,728 

Total equity

  926,514   910,480 

Total liabilities and equity

 $1,319,640  $1,310,796 

 

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

 

 

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Cash Flows

(unaudited in thousands)  

 

  

Three Months Ended

March 31

 
  

2024

  

2023

 

Cash Flows From Operating Activities:

        

Net income

 $26,251  $11,285 

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation and amortization

  10,586   10,048 

Equity in earnings of unconsolidated investments

  (67)  (1,535)

Unrealized gains on marketable equity securities

  (14,399)  (1,386)

(Gains)/losses on sale of marketable securities

  (344)  492 

Gain on sale of unconsolidated company

  (1,024)  - 

Deferred income taxes

  2,484   331 

Stock–based compensation

  793   639 

Changes in operating assets and liabilities:

        

Accounts receivable

  (17,119)  (3,148)

Inventories

  623   142 

Prepaid expenses and other assets

  3,153   1,957 

Operating lease obligations

  55   (316)

Trade accounts payable

  1,503   (4,018)

Accrued payroll

  (19,954)  (15,800)

Amounts due to third party payors

  1,619   48 

Accrued risk reserves

  4,978   3,157 

Contract liabilities

  7,667   - 

Other current liabilities

  1,311   5,407 

Other noncurrent liabilities

  1,530   6,554 

Net cash provided by operating activities

  9,646   13,857 

Cash Flows From Investing Activities:

        

Purchases of property and equipment

  (5,955)  (6,640)

Proceeds from sale of unconsolidated company

  2,100   - 

Investments in unconsolidated companies

  (1,488)  - 

Collections of notes receivable

  16   2 

Purchases of marketable securities

  (8,703)  (10,281)

Proceeds from sale of marketable securities

  11,615   15,492 

Net cash used in investing activities

  (2,415)  (1,427)

Cash Flows From Financing Activities:

        

Principal payments under finance lease obligations

  (860)  (1,218)

Dividends paid to common stockholders

  (9,051)  (8,748)

Issuance of common stock

  8,412   - 

Repurchase of common shares

  (9,900)  (2,482)

Entrance fee refunds

  (668)  (171)

Net cash used in financing activities

  (12,067)  (12,619)

Net Decrease in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents

  (4,836)  (189)

Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, Beginning of Period

  125,968   74,865 

Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, End of Period

 $121,132  $74,676 
         

Balance Sheet Classifications:

        

Cash and cash equivalents

 $93,982  $46,144 

Restricted cash and cash equivalents

  27,150   28,532 

Total Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents

 $121,132  $74,676 

 

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

 

 

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Stockholders Equity

(in thousands, except share and per share amounts)

(unaudited)

 

For the three months ended March 31, 2024:

 

  

Common Stock

  

Capital in

Excess of

  

Retained

  

Accumulated

Other

Comprehensive

  

Non-

controlling

  

Total

Stockholders’

 
  

Shares

  

Amount

  

Par Value

  

Earnings

  

Loss

  

Interest

  

Equity

 

Balance at January 1, 2024

  15,350,661  $153  $227,604  $687,599  $(6,604) $1,728  $910,480 

Net income

           26,213      38   26,251 

Other comprehensive loss

              (437)     (437)

Stock–based compensation

        793            793 

Shares sold – options exercised

  150,194   1   8,412            8,413 

Repurchase of common shares

  (101,131)     (9,900)           (9,900)

Dividends declared to common stockholders ($0.59 per share)

           (9,086)        (9,086)

Balance at March 31, 2024

  15,399,724  $154  $226,909  $704,726  $(7,041) $1,766   926,514 

 

 

For the three months ended March 31, 2023: 

 

  

Common Stock

  

Capital in

Excess of

  

Retained

  

Accumulated

Other

Comprehensive

  

Non-

controlling

  

Total

Stockholders’

 
  

Shares

  

Amount

  

Par Value

  

Earnings

  

Income (Loss)

  

Interest

  

Equity

 

Balance at January 1, 2023

  15,357,746  $153  $226,991  $656,664  $(9,532) $3,238  $877,514 

Net income/(loss)

           11,723      (438)  11,285 

Other comprehensive income

              1,679      1,679 

Stock–based compensation

        639            639 

Shares sold – options exercised

  7,046                   

Repurchase of common shares

  (44,349)     (2,482)           (2,482)

Dividends declared to common stockholders ($0.57 per share)

           (8,733)        (8,733)

Balance at March 31, 2023

  15,320,443  $153  $225,148  $659,654  $(7,853) $2,800   879,902 

 

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

 

 

NATIONAL HEALTHCARE CORPORATION

Notes to Interim Condensed Consolidated Financial Statements

March 31, 2024

(unaudited) 

 

 

Note 1 Description of Business

 

National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. As of March 31, 2024, we operate or manage, through certain affiliates, 65 skilled nursing facilities with a total of 8,421 licensed beds, 24 assisted living facilities with 1,365 units, five independent living facilities, three behavioral health hospitals, 35 homecare agencies, and 30 hospice agencies. We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units. In addition, we provide insurance services, management and accounting services, and we lease properties to operators of skilled nursing and assisted living facilities. We operate in 8 states and are located primarily in the southeastern United States.  

  

 

Note 2 Summary of Significant Accounting Policies

 

The listing below is not intended to be a comprehensive list of all our significant accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. generally accepted accounting principles (“GAAP”), with limited need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. See our audited December 31, 2023 consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by U.S. GAAP. Our audited December 31, 2023 consolidated financial statements are available at our web site: www.nhccare.com.

 

Basis of Presentation

 

The unaudited interim condensed consolidated financial statements to which these notes are attached include all normal, recurring adjustments which are necessary to fairly present the financial position, results of operations and cash flows of NHC. All significant intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements include the accounts of all entities controlled by NHC. The Company presents noncontrolling interest within the equity section of its consolidated balance sheets. The Company presents the amount of consolidated net income that is attributable to NHC and the noncontrolling interest in its consolidated statements of operations.

 

We assume that users of these interim financial statements have read or have access to the audited December 31, 2023 consolidated financial statements and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies, may be determined in that context. Accordingly, footnotes and other disclosures which would substantially duplicate the disclosure contained in our most recent annual report to stockholders have been omitted. This interim financial information is not necessarily indicative of the results that may be expected for a full year for a variety of reasons.

 

Estimates and Assumptions

 

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and could cause our reported net income to vary significantly from period to period.

 

Net Patient Revenues and Accounts Receivable

 

Net patient revenues are derived from services rendered to patients for skilled and intermediate nursing, rehabilitation therapy, assisted living and independent living, home health care services, hospice services, and behavioral health services. Net patient revenue is reported at the amount that reflects the consideration to which the Company expects to be entitled in exchange for providing patient services. These amounts are due from patients, governmental programs, and other third-party payors, and include variable consideration for retroactive revenue adjustments due to settlement of audits, reviews, and investigations.

 

The Company recognizes revenue as its performance obligations are completed. Routine services are treated as a single performance obligation satisfied over time as services are rendered. These routine services represent a bundle of services that are not capable of being distinct. The performance obligations are satisfied over time as the patient simultaneously receives and consumes the benefits of the healthcare services provided. Additionally, there may be ancillary services which are not included in the daily rates for routine services, but instead are treated as separate performance obligations satisfied at a point in time when those services are rendered.  Contract liabilities are recorded for payments the Company receives in which performance obligations have not been completed.

 

9

 

The Company determines the transaction price based on established billing rates reduced by explicit price concessions provided to third party payors. Explicit price concessions are based on contractual agreements and historical experience. The Company considers the patient's ability and intent to pay the amount of consideration upon admission. Credit losses are recorded as bad debt expense, which is included as a component of other operating expenses in the interim condensed consolidated statements of operations. Bad debt expense was $2,471,000 and $1,811,000 for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, and December 31, 2023, the Company has recorded allowance for doubtful accounts of $9,174,000 and $8,054,000, respectively, as our best estimate of expected losses inherent in the accounts receivable balance.

 

Other Revenues

 

Other revenues include revenues from the provision of insurance services, management and accounting services to other long–term care providers, and rental income. Our insurance revenues consist of premiums that are generally paid in advance and then amortized into income over the policy period. We charge for management services based on a percentage of net revenues. We charge for accounting services based on a monthly fee or a fixed fee per bed of the healthcare center under contract. We record other revenues as the performance obligations are satisfied based on the terms of our contractual arrangements.

 

We recognize rental income based on the terms of our operating leases. Under certain of our leases, we receive variable rent, which is based on the increase in revenues of a lessee over a base year. We recognize variable rent annually or monthly, as applicable, when, based on the actual revenue of the lessee is earned.

 

Segment Reporting

 

In accordance with the provisions of Accounting Standards Codification ("ASC") 280, Segment Reporting, the Company is required to report financial and descriptive information about its reportable operating segments. The Company has two reportable operating segments: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and behavioral health hospitals, and (2) homecare and hospice services. The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. See Note 6 for further disclosure of the Company’s operating segments.

 

Other Operating Expenses

 

Other operating expenses include the costs of care and services that we provide to the residents of our facilities and the costs of maintaining our facilities. Our primary patient care costs include drugs, medical supplies, purchased professional services, food, and professional liability insurance and licensing fees. The primary facility costs include utilities and property insurance.

 

General and Administrative Costs

 

With the Company being a healthcare provider, the majority of our expenses are "cost of revenue" items. Costs that could be classified as "general and administrative" by the Company would include its corporate office costs, excluding stock-based compensation, which were $6,164,000 and $5,653,000 for the three months ended March 31, 2024 and 2023, respectively.

 

Long-Term Leases

 

The Company’s lease portfolio primarily consists of operating real estate leases for certain skilled nursing facilities, assisted and independent living facilities, homecare and hospice offices, and pharmacy warehouses. The original terms of the leases typically range from two to fifteen years. Several of the real estate leases include renewal options which vary in length and may not include specific rent renewal amounts. We determine if an arrangement is a lease at inception of a contract. We determine the lease term by assuming exercise of renewal options that are reasonably certain.

 

The Company records right-of-use assets and liabilities for non-cancelable real estate operating leases with original or remaining lease terms in excess of one year. Leases with a lease term of 12 months or less at inception are not recorded and are expensed on a straight-line basis over the lease term. We recognize lease components and non-lease components together and not as separate parts of a lease for real estate leases.

 

10

 

Operating lease right-of-use assets and liabilities are recorded at the present value of the lease payments over the lease term. The present value of the lease payments are discounted using the incremental borrowing rate associated with each lease. The variable components of the lease payment that fluctuate with the operations of a health facility are not included in determining the right-of-use assets and lease liabilities. Rather, these variable components are expensed as incurred.

 

Property and Equipment

 

Property and equipment are recorded at cost. Depreciation is provided by the straight-line method over the expected useful lives of the assets estimated as follows: buildings and improvements, 20-40 years and equipment and furniture, 3-15 years. Leasehold improvements are amortized over periods that do not exceed the non-cancelable respective lease terms using the straight-line method.

 

Business Combinations

 

We account for acquisitions using the acquisition method of accounting in accordance with ASC 805, Business Combinations. Acquisitions are accounted for as purchases and are included in our consolidated financial statements from their respective acquisition dates. Assets acquired and liabilities assumed, if any, are measured at fair value on the acquisition date using the appropriate valuation method. Goodwill generated from acquisitions is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed. In determining the fair value of identifiable assets, we use various valuation techniques. These valuation methods require us to make estimates and assumptions surrounding projected revenues and costs, future growth, and discount rates.

 

Goodwill and Other Intangible Assets

 

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. Goodwill is not amortized but is subject to an annual impairment test. We perform our annual goodwill impairment assessment on the first day of the fourth quarter.  Tests are performed more frequently if events occur, or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

 

The Company’s indefinite-lived intangible assets consist of trade names and certificates of need and licenses. The Company reviews indefinite-lived intangible assets for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable.

 

Accrued Risk Reserves  

 

We are self–insured for risks related to workers’ compensation and general and professional liability insurance. We have two wholly–owned limited purpose insurance companies that insure these risks. The accrued risk reserves include a liability for reported claims and estimates for incurred but unreported claims. Our policy is to engage an external, independent actuary to assist in estimating our exposure for claims obligations (for both asserted and unasserted claims). We reassess our accrued risk reserves on a quarterly basis.

 

Professional liability remains an area of particular concern to us. The long-term care industry has seen an increase in personal injury/wrongful death claims based on alleged negligence by skilled nursing facilities and their employees in providing care to residents. The Company has been, and continues to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment. A significant increase in the number of these claims, or an increase in the amounts due as a result of these claims could have a material adverse effect on our consolidated financial position, results of operations and cash flows. It is also possible that future events could cause us to make significant adjustments or revisions to these reserve estimates and cause our reported net income to vary significantly from period to period.

 

We are principally self-insured for incidents occurring in all centers owned or leased by us. The coverages include both primary policies and excess policies. In all years, settlements, if any, in excess of available insurance policy limits and our own reserves would be expensed by us.

 

11

 

Continuing Care Contracts

 

We have one continuing care retirement center (“CCRC”) within our operations. Residents at this retirement center may enter into continuing care contracts with us. The contracts provide that 10% of the resident entry fee becomes non-refundable upon occupancy, and the remaining refundable portion of the entry fee is calculated using the lesser of the price at which the apartment is re-assigned or 90% of the original entry fee, plus 40% of any appreciation if the apartment value exceeds the original resident’s entry fee.

 

Non-refundable fees are included as a component of the transaction price and are amortized into revenue over the actuarily determined remaining life of the resident, which is the expected period of occupancy by the resident. We pay the refundable portion of our entry fees to residents when they relocate from our community and the apartment is re-occupied. Refundable entrance fees are not included as part of the transaction price and are classified as noncurrent liabilities in our consolidated balance sheets. 

 

We also annually estimate the present value of the cost of future services and the use of facilities to be provided to the current CCRC residents and compare that amount with the balance of non-refundable deferred revenue from entrance fees received. If the present value of the cost of future services exceeds the related anticipated revenues, a liability is recorded with a corresponding charge to income. As of March 31, 2024, and December 31, 2023, we have recorded a future service obligation liability in the amount of $1,606,000. This obligation is reflected within other noncurrent liabilities in the interim condensed consolidated balance sheets.

 

 

Other Noncurrent Liabilities

 

Other noncurrent liabilities include reserves primarily related to various uncertain income tax positions, deferred revenue, and obligations to provide future services to our CCRC residents. Deferred revenue includes the deferred gain on the sale of assets to National Health Corporation (“National”) and the non-refundable portion (10%) of CCRC entrance fees being amortized over the remaining life expectancies of the residents.

 

Other noncurrent liabilities also include funds received related to the Employee Retention Credit ("ERC"), a refundable tax credit for businesses that sustained a partial suspension of operations limiting commerce due to COVID-19 or had significant declines in gross receipts during 2020 and 2021.

 

Noncontrolling Interest

 

The noncontrolling interest in a subsidiary is presented within total equity in the Company's interim condensed consolidated balance sheets. The Company presents the noncontrolling interest and the amount of consolidated net income attributable to NHC in its interim condensed consolidated statements of operations. The Company’s earnings per share is calculated based on net income attributable to NHC’s stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of the subsidiary earnings, contributions, and distributions.

 

Variable Interest Entities

 

We have equity interests in unconsolidated limited liability companies that operate various post-acute and senior healthcare businesses. We analyze our investments in these limited liability companies to determine if the company is considered a variable interest entity (“VIE”) and would require consolidation. To the extent that we own interests in a VIE and we (i) have the power to direct the activities of the VIE and (ii) have the obligation or rights to absorb the VIE's losses or receive its benefits, then we would be determined to be the primary beneficiary and would consolidate the VIE. To the extent we own interests in a VIE, then at each reporting period, we re-assess our conclusions as to which, if any, party within the VIE is considered the primary beneficiary.

 

The Company's maximum exposure to losses in its investments in unconsolidated VIEs cannot be quantified and may or may not be limited to its investment in the unconsolidated VIE. The investments in unconsolidated VIEs are classified as “investments in unconsolidated companies” in the interim condensed consolidated balance sheets.

 

Recently Issued Accounting Guidance

 

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07,Segment Reporting (Topic 280): Improvement to Reportable Segment Disclosures.” The ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit and loss, and contain other disclosure requirements. This ASU is effective for fiscal years beginning after December 15, 2023, which will be the Company's fiscal year 2024, and interim periods within fiscal years beginning after December 15, 2024.  We are currently evaluating the impact this standard will have on our disclosures.

 

12

  
 

Note 3 Net Patient Revenues

 

The Company disaggregates revenue from contracts with customers by service type and by payor.

 

Revenue by Service Type

 

The Company’s net patient services can generally be classified into the following two categories: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and behavioral health hospitals, and (2) homecare and hospice services (in thousands).

 

  

Three Months Ended

March 31

 
  

2024

  

2023

 

Net patient revenues:

        

Inpatient services

 $252,254  $226,169 

Homecare and hospice

  33,569   31,838 

Total net patient revenues

 $285,823  $258,007 

 

13

 

For inpatient and hospice services, revenue is recognized on a daily basis as each day represents a separate contract and performance obligation. For homecare, revenue is recognized when services are provided based on the number of days of service rendered in the period of care or on a per-visit basis. Typically, patients and third-party payors are billed monthly after services are performed or the patient is discharged, and payments are due based on contract terms.

 

As our performance obligations relate to contracts with a duration of one year or less, the Company is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The Company has minimal unsatisfied performance obligations at the end of the reporting period as our patients are typically under no obligation to remain admitted in our facilities or under our care.  As the period between the time of service and time of payment is typically one year or less, the Company did not adjust for the effects of a significant financing component.

 

Revenue by Payor

 

Certain groups of patients receive funds to pay the cost of their care from a common source. The following table sets forth sources of net patient revenues for the periods indicated:

 

  

Three Months Ended

March 31

 

Source

 

2024

  

2023

 

Medicare

  34%   36% 

Managed Care

  10%   11% 

Medicaid

  28%   27% 

Private Pay and Other

  28%   26% 

Total

  100%   100% 

 

Medicare covers skilled nursing services for beneficiaries who require nursing care and/or rehabilitation services following a hospitalization of at least three consecutive days. For each eligible day a Medicare beneficiary is in a skilled nursing facility, Medicare pays the facility a daily payment, subject to adjustment for certain factors such as a wage index in the geographic area. The payment covers all services provided by the skilled nursing facility for the beneficiary that day, including room and board, nursing, therapy and drugs, as well as an estimate of capital–related costs to deliver those services.

 

For homecare services, Medicare pays based on the acuity level of the patient and based on periods of care. A period of care is defined as a length of care up to 30 days with multiple continuous periods allowed. The services covered by the payment include all disciplines of care, in addition to medical supplies, within the scope of the home health benefit.

 

For hospice services, Medicare pays a daily rate to cover the hospice’s costs for providing services included in the patient care plan. Medicare makes daily payments based on 1 of 4 levels of hospice care. All hospice care and services offered to patients and their families must follow an individualized written plan of care that meets the patient’s needs.

 

Our hospice service revenue is subject to certain limitations on payments from Medicare. We are subject to an inpatient cap limit and an overall Medicare payment cap for each provider number. We monitor these caps on a provider-by-provider basis and estimate amounts due back to Medicare if we estimate a cap has been exceeded. If applicable, we record these cap adjustments as a reduction to revenue.

 

Medicaid is operated by individual states with the financial participation of the federal government. The states in which we operate currently use prospective cost–based reimbursement systems. Under cost–based reimbursement systems, the skilled nursing facility is reimbursed for the reasonable direct and indirect allowable costs it incurred in a base year in providing routine resident care services as defined by the program.

 

Private pay, managed care, and other payment sources include commercial insurance, individual patient funds, managed care plans and the Veterans Administration. Private paying patients, private insurance carriers and the Veterans Administration generally pay based on the healthcare center's charges or specifically negotiated contracts. For private pay patients in skilled nursing, assisted living and independent living facilities, the Company bills for room and board charges, with the remittance being due on receipt of the statement and generally by the 10th day of the month the services are performed.

 

Certain managed care payors for homecare services pay on a per-visit basis. This revenue is recorded on an accrual basis based upon the date of services at amounts equal to its established or estimated per-visit rates.

 

14

 

State Relief Supplemental Funding

 

The Company received supplemental Medicaid payments from various states, including healthcare relief funding under the American Rescue Plan Act ("ARPA") and other state specific relief programs.  The funding generally incorporates specific use requirements primarily for direct patient care including labor related expenses or various patient care related expenses.  We have recorded $3,462,000 and $4,883,000 in net patient revenues for these supplemental Medicaid payments for the three months ended March 31, 2024 and 2023, respectively.  

 

Contract Liabilities

 

Included in the Company’s interim condensed consolidated balance sheets are contract liabilities, which represent payments the Company receives in advance of services provided. As of March 31, 2024 and December 31, 2023, the Company has recorded $7,667,000 and $0, respectively, in contract liabilities related to receipts during the first quarter of 2024 from the Change Healthcare/Optum Payment Disruption ("CHOPD") Accelerated and Advance Payment program.  These payments were issued to providers who experienced delays in the submission or processing of Medicare claims payments as a result of the Change Healthcare/Optum cyber incident, which began February 21, 2024. Recoupment of the accelerated payments began in the first quarter of 2024.

 

A summary of the activity related to contract liabilities follows (in thousands):

 

Balance at December 31, 2023

 $- 

Payments received

  9,881 

Payments recouped

  (2,214)

Balance at March 31, 2024

 $7,667 

 

 

Third Party Payors

 

Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Noncompliance with such laws and regulations can be subject to regulatory actions including fines, penalties, and exclusion from the Medicare and Medicaid programs. We believe that we are following all applicable laws and regulations.

 

Medicare and Medicaid program revenues, as well as certain Managed Care program revenues, are subject to audit and retroactive adjustment by government representatives or their agents. Settlements with third-party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and the Company’s historical settlement activity, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known, or as years are settled or are no longer subject to such audits, reviews, and investigations. We believe that any differences between the net revenues recorded, and final determination will not materially affect the consolidated financial statements. We have made provisions of approximately $19,988,000 and $18,369,000 as of March 31, 2024 and December 31, 2023, respectively, for various Medicare, Medicaid, and Managed Care claims reviews and current and prior year cost reports.

  

 

Note 4 Other Revenues

 

Other revenues are outlined in the table below. Revenues from rental income include health care real estate properties owned by us and leased to third party operators. Revenues from management and accounting services include fees provided to manage and provide accounting services to other healthcare operators. Revenues from insurance services include premiums for workers’ compensation and professional liability insurance policies that our wholly owned insurance subsidiaries have written for certain healthcare operators to which we provide management or accounting services. "Other" revenues include miscellaneous health care related earnings (in thousands).

 

  

Three Months Ended

March 31

 
  

2024

  

2023

 

Rental income

 $5,959  $6,043 

Management and accounting services fees

  4,438   4,097 

Insurance services

  872   1,048 

Other

  84   368 

Total other revenues

 $11,353  $11,556 

 

Rental Income

 

The Company leases real estate assets consisting of skilled nursing facilities and assisted living facilities to third party operators. Additionally, we sublease four Florida skilled nursing facilities included in our lease from National Health Investors (“NHI”) as noted in Note 7 – Long Term Leases.

 

Management Fees from National Health Corporation

 

We manage five skilled nursing facilities owned by National Health Corporation (“National”). For the three months ended March 31, 2024 and 2023, we recognized management fees and interest on management fees of $1,320,000 and $1,190,000, respectively, for these centers.

 

15

 

Insurance Services

 

For workers’ compensation insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023 were $582,000 and $736,000, respectively. Associated losses and expenses including those for self-insurance are included in the interim condensed consolidated statements of operations as "Salaries, wages and benefits."

 

For professional liability insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023 were $290,000 and $312,000, respectively. Associated losses and expenses including those for self–insurance are included in the interim condensed consolidated statements of operations as "Other operating costs and expenses".

  

 

Note 5 NonOperating Income

 

Non–operating income is comprised of the following (in thousands):

 

  

Three Months Ended

March 31

 
  

2024

  

2023

 

Dividends and net realized gains and losses on sales of securities

 $2,056  $1,233 

Interest income

  2,538   1,555 

Equity in earnings of unconsolidated investments

  67   1,535 

Gain on sale of unconsolidated company

  1,024   - 

Total non-operating income

 $5,685  $4,323 

 

Gain on sale of unconsolidated company

 

In January 2024, the Company sold its 50% joint venture ownership interest in a homecare agency located in Nashville, Tennessee. The total consideration paid to the company was $2,100,000, which resulted in a gain of $1,024,000.

  

 

Note 6 Business Segments

 

The Company has two reportable operating segments: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and behavioral health hospitals; and (2) homecare and hospice services. These reportable operating segments are consistent with information used by the Company’s Chief Executive Officer, as chief operating decision maker (“CODM”), to assess performance and allocate resources. The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office.

 

The Company’s CODM evaluates performance and allocates capital resources to each segment based on an operating model that is designed to improve the quality of patient care and profitability of the Company while enhancing long-term shareholder value. The CODM does not review assets by segment in his resource allocation and therefore, assets by segment are not disclosed below.

 

16

 

The following table sets forth the Company’s unaudited interim condensed consolidated statements of operations by business segment (in thousands):

 

  

Three Months Ended March 31, 2024

 
  

Inpatient
Services

  

Homecare

and Hospice

  

All Other

  

Total

 

Revenues:

                

Net patient revenues

 $252,254  $33,569  $-  $285,823 

Other revenues

  15   -   11,338   11,353 

Net operating revenues

  252,269   33,569   11,338   297,176 
                 

Costs and expenses:

                

Salaries, wages, and benefits

  150,890   21,009   11,239   183,138 

Other operating

  68,683   5,972   2,774   77,429 

Rent

  8,112   566   1,670   10,348 

Depreciation and amortization

  9,630   187   769   10,586 

Interest

  46   -   -   46 

Total costs and expenses

  237,361   27,734   16,452   281,547 
                 

Income/(loss) from operations

  14,908   5,835   (5,114)  15,629 

Non-operating income

  -   -   5,685   5,685 

Unrealized gains on marketable equity securities

  -   -   14,399   14,399 
                 

Income before income taxes

 $14,908  $5,835  $14,970  $35,713 

 

 

  

Three Months Ended March 31, 2023

 
  

Inpatient
Services

  

Homecare

and Hospice

  

All Other

  

Total

 

Revenues:

                

Net patient revenues

 $226,169  $31,838  $-  $258,007 

Other revenues

  271   -   11,285   11,556 

Net operating revenues

  226,440   31,838   11,285   269,563 
                 

Costs and expenses:

                

Salaries, wages, and benefits

  138,939   20,244   8,641   167,824 

Other operating

  62,264   5,499   3,726   71,489 

Rent

  8,168   558   1,366   10,092 

Depreciation and amortization

  9,117   185   746   10,048 

Interest

  98   -   -   98 

Total costs and expenses

  218,586   26,486   14,479   259,551 
                 

Income/(loss) from operations

  7,854   5,352   (3,194)  10,012 

Non-operating income

  -   -   4,323   4,323 

Unrealized gains on marketable equity securities

  -   -   1,386   1,386 
                 

Income before income taxes

 $7,854  $5,352  $2,515  $15,721 

 

17

  
 

Note 7 Long-Term Leases

 

Operating Leases

 

At March 31, 2024, we lease from NHI the real property of 28 skilled nursing facilities, five assisted living centers and three independent living centers under one lease agreement. As part of the lease agreement, we sublease four Florida skilled nursing facilities to a third-party operator. The lease includes base rent plus a percentage rent. The annual base rent is $32,625,000 in 2024, $32,225,000 in 2025, and $31,975,000 in 2026 with the lease term expiring in December 2026. The percentage rent is based on a quarterly calculation of revenue increases and is payable on a quarterly basis. Total facility rent expense to NHI was $9,472,000 and $9,295,000 for the three months ended March 31, 2024 and 2023, respectively.

 

Minimum Lease Payments

 

The following table summarizes the maturity of our operating lease liabilities as of March 31, 2024 (in thousands):

 

  

Operating

Leases

 

2025

 $34,351 

2026

  33,590 

2027

  24,933 

2028

  493 

2029

  207 

Thereafter

  21 

Total minimum lease payments

  93,595 

Less: amounts representing interest

  (7,858)

Present value of future minimum lease payments

  85,737 

Less: current portion

  (29,733)

Noncurrent lease liabilities

 $56,004 

 

18

  
 

Note 8 Earnings per Share

 

Basic net income per share is computed based on the weighted average number of common shares outstanding for each period presented. Diluted net income per share reflects the potential dilution that would have occurred if securities to issue common stock were exercised, converted, or resulted in the issuance of common stock that would have then shared in our earnings.

 

The following table summarizes the earnings and the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands, except for share and per share amounts):

 

  

Three Months Ended
March 31

 
  

2024

  

2023

 

Basic:

        

Weighted average common shares outstanding

  15,350,240   15,337,423 

Net income attributable to National HealthCare Corporation

 $26,213  $11,723 

Earnings per common share, basic

 $1.71  $0.76 
         

Diluted:

        

Weighted average common shares outstanding

  15,350,240   15,337,423 

Effects of dilutive instruments

  154,856   18,912 

Weighted average common shares outstanding

  15,505,096   15,356,335 
         

Net income attributable to National HealthCare Corporation

 $26,213  $11,723 

Earnings per common share, diluted

 $1.69  $0.76 

 

For the three months ended March 31, 2024, 245,726 stock options have been excluded from the calculation of diluted weighted average shares of common stock outstanding because the inclusion of these securities would have an anti-dilutive effect. For the three months ended March 31, 2023, 691,580 stock options have been excluded from the calculation of diluted weighted average shares of common stock outstanding because the inclusion of these securities would have an anti-dilutive effect.

  

 

Note 9 Investments in Marketable Securities

 

Our investments in marketable equity securities are carried at fair value with the changes in unrealized gains and losses recognized in our results of operations at each measurement date. Our investments in marketable debt securities are classified as available for sale securities and carried at fair value with the unrealized gains and losses recognized through accumulated other comprehensive income at each measurement date. Any credit-related decline in fair market values below the amortized cost of our available for sale debt securities are recorded in our results of operations through an allowance for credit losses. Realized gains and losses from securities sales are recognized in results of operations upon disposition of the securities using the specific identification method on a trade date basis. Refer to Note 10 for a description of the Company's methodology for determining the fair value of marketable securities. 

 

Marketable securities consist of the following (in thousands):

 

  

March 31, 2024

  

December 31, 2023

 
  

Amortized

Cost

  

Fair

Value

  

Amortized

Cost

  

Fair

Value

 

Investments available for sale:

                

Marketable equity securities

 $30,176  $123,040  $30,176  $111,117 

Corporate debt securities

  494   484   2,497   2,441 

U.S. Treasury securities

  -   -   2,990   2,986 

Restricted investments available for sale:

                

Marketable equity securities

  24,495   29,616   24,134   26,779 

Corporate debt securities

  61,488   59,398   59,586   57,731 

Asset-based securities

  19,026   17,438   19,388   17,659 

U.S. Treasury securities

  47,323   43,004   46,771   42,863 

State and municipal securities

  4,079   3,992   4,106   4,047 
  $187,081  $276,972  $189,648   265,623 

 

19

 

Included in the marketable equity securities are the following (in thousands, except share amounts):

 

  

March 31, 2024

  

December 31, 2023

 
  

Shares

  

Cost

  

Fair

Value

  

Shares

  

Cost

  

Fair

Value

 

NHI Common Stock

  1,630,642  $24,734  $102,453   1,630,642  $24,734  $91,071 

 

The amortized cost and estimated fair value of debt securities classified as available for sale, by contractual maturity, are as follows (in thousands):

 

  

March 31, 2024

  

December 31, 2023

 
  

Cost

  

Fair

Value

  

Cost

  

Fair

Value

 

Maturities:

                

Within 1 year

 $21,299  $20,785  $19,664  $19,328 

1 to 5 years

  77,738   73,370   81,517   77,118 

6 to 10 years

  32,012   28,925   33,515   30,802 

Over 10 years

  1,361   1,236   642   479 
  $132,410  $124,316  $135,338  $127,727 

 

Gross unrealized gains related to marketable equity securities are $98,459,000 and $84,514,000 as of March 31, 2024 and December 31, 2023, respectively. Gross unrealized losses related to marketable equity securities are $474,000 and $928,000 as of March 31, 2024 and December 31, 2023, respectively. For the three months ended March 31, 2024 and 2023, the Company recognized net unrealized gains of $14,399,000 and $1,386,000, respectively, for the changes in fair market value of the marketable equity securities in the interim condensed consolidated statements of operations.

 

Gross unrealized gains related to available for sale marketable debt securities are $179,000 and $326,000 as of March 31, 2024 and December 31, 2023, respectively. Gross unrealized losses related to available for sale marketable debt securities are $8,273,000 and $7,937,000 as of March 31, 2024 and December 31, 2023, respectively.

 

The Company’s unrealized losses in our available for sale marketable debt securities were determined to be non-credit related. The Company has not recognized any credit related impairments for the three months ended  March 31, 2024 and 2023.

 

For the marketable securities in gross unrealized loss positions, (a) it is more likely than not that the Company will not be required to sell the investment securities before recovery of the unrealized losses, and (b) the Company expects that the contractual principal and interest will be received on the investment securities.

 

Proceeds from the sale of available for sale marketable securities during the three months ended March 31, 2024 and 2023 were $11,615,000 and $15,492,000, respectively. Investment gains of $344,000 and investment losses of $492,000 were realized on these sales during the three months ended March 31, 2024 and 2023, respectively.

  

 

Note 10 Fair Value Measurements

 

The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs that may be used to measure fair value:

 

 

Level 1  – The valuation is based on quoted prices in active markets for identical instruments.

 

Level 2 – The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model–based valuation techniques for which all significant assumptions are observable in the market.

 

Level 3 – The valuation is based on unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument, or valuations that require significant management judgment or estimation.

 

20

 

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

 

The following table summarizes fair value measurements by level at March 31, 2024 and December 31, 2023 for assets and liabilities measured at fair value on a recurring basis (in thousands):

 

  

Fair Value Measurements Using

 

March 31, 2024

 

Fair

Value

  

Quoted

Prices in

Active
Markets

For Identical

Assets

(Level 1)

  

Significant

Other

Observable

Inputs

(Level 2)

  

Significant

Unobservable

Inputs

(Level 3)

 

Cash and cash equivalents

 $93,982  $93,982  $  $ 

Restricted cash and cash equivalents

  27,150   27,150       

Marketable equity securities

  152,656   152,656       

Corporate debt securities

  59,882   42,611   17,271    

Asset–backed securities

  17,438      16,961   477 

U.S. Treasury securities

  43,004   43,004       

State and municipal securities

  3,992      3,992    

Total financial assets

 $398,104  $359,403  $38,224  $477 

 

 

  

Fair Value Measurements Using

 

December 31, 2023

 

Fair

Value

  

Quoted

Prices in

Active

Markets

For Identical

Assets

(Level 1)

  

Significant

Other

Observable

Inputs

(Level 2)

  

Significant

Unobservable

Inputs

(Level 3)

 

Cash and cash equivalents

 $107,076  $107,076  $  $ 

Restricted cash and cash equivalents

  18,892   18,892       

Marketable equity securities

  137,896   137,896       

Corporate debt securities

  60,171   42,860   17,311    

Asset–backed securities

  17,659      17,210   449 

U.S. Treasury securities

  45,850   45,850       

State and municipal securities

  4,047      4,047    

Total financial assets

 $391,591  $352,574  $38,568  $449 

  

 

Note 11 Goodwill and Other Intangible Assets

 

At March 31, 2024, the Company reviewed the carrying value of goodwill for impairment indicators. As a result of the review, there were no impairment indicators regarding the Company’s goodwill that required a quantitative test to be performed. However, our accounting estimates could materially change from period to period due to changing market factors. We will continue to monitor future events, changes in circumstances, and the potential impact thereof. If actual results are not consistent with our assumptions and estimates, we may be exposed to future goodwill impairment losses.

 

At March 31, 2024, the following table represents the activity related to our goodwill by segment (in thousands):

 

  

Inpatient

Services

  

Homecare

and Hospice

  

All Other

  

Total

 

January 1, 2024

 $3,741  $164,554  $  $168,295 

Additions

            

March 31, 2024

 $3,741  $164,554  $  $168,295 

 

We also have recorded indefinite-lived intangible assets that consist of trade names ($4,340,000) and certificates of need and licenses ($2,698,000).

 

21

  
 

Note 12 - Stock Repurchase Program

 

During the three months ended March 31, 2024, the Company repurchased 101,131 shares of its common stock for a total cost of $9,900,000. During the three months ended March 31, 2023, the Company repurchased 44,349 shares of its common stock for a total cost of $2,482,000. The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued. 

  

 

Note 13 StockBased Compensation

 

NHC recognizes stock–based compensation expense for all stock options granted over the requisite service period using the fair value at the date of grant using the Black–Scholes pricing model. Stock–based compensation totaled $793,000 and $639,000 for the three months ended March 31, 2024 and 2023, respectively. Stock–based compensation is included in “Salaries, wages and benefits” in the interim condensed consolidated statements of operations.

 

At March 31, 2024, the Company had $7,652,000 of unrecognized compensation cost related to unvested stock–based compensation awards. This unrecognized compensation cost will be amortized over an approximate three-year period.

 

Stock Options

 

The following table summarizes the significant assumptions used to value the options granted for the three months ended March 31, 2024 and for the year ended December 31, 2023.

 

  

March 31,

2024

  

December 31,
2023

 

Risk–free interest rate

  4.33%   4.52% 

Expected volatility

  24.1%   29.3% 

Expected life, in years

  2.9   2.9 

Expected dividend yield

  2.64%   4.41% 

 

The following table summarizes our outstanding stock options for the three months ended March 31, 2024 and for the year ended December 31, 2023.

 

  

Number of

Shares

  

Weighted

Average

Exercise Price

  

Aggregate

Intrinsic

Value

 

Options outstanding at January 1, 2023

  445,144  $66.62  $ 

Options granted

  299,278   54.44    

Options exercised

  (103,481)  64.72    

Options cancelled

  (52,407)  60.58    

Options outstanding at December 31, 2023

  588,534   61.30    

Options granted

  245,726   94.07    

Options exercised

  (137,874)  60.95    

Options outstanding at March 31, 2024

  696,386  $72.93  $15,025,015 
             

Options exercisable at March 31, 2024

  174,105  $68.48  $4,531,876 

 

 

Options

Outstanding

March 31, 2024

  

Exercise Prices

 

Weighted Average

Exercise Price

  

Weighted Average

Remaining

Contractual

Life in Years

 

377,405

  

53.94

-

69.19

  

58.92

   

3.5

 

318,981

  

71.64

-

94.10

  

89.51

   

4.0

 

696,386