NATIONAL HEALTHCARE CORPORATION Forward-Looking Statements
References throughout this document to the Company includeNational HealthCare Corporation and its wholly owned subsidiaries. In accordance with the Securities and Exchange Commissions "Plain English" guidelines, this Quarterly Report on Form 10-Q has been written in the first person. In this document, the words "we", "our", "ours" and "us" refer only toNational HealthCare Corporation and its wholly-owned subsidiaries and not any other person. This Quarterly Report on Form 10-Q and other information we provide from time to time, contains certain "forward-looking" statements as that term is defined by the Private Securities Litigation Reform Act of 1995. All statements regarding our expected future financial position, results of operations or cash flows, continued performance improvements, ability to service and refinance our debt obligations, ability to finance growth opportunities, ability to control our patient care liability costs, ability to respond to changes in government regulations, ability to execute our three-year strategic plan, and similar statements including, without limitations, those containing words such as "believes", "anticipates", "expects", "intends", "estimates", "plans", and other similar expressions are forward-looking statements. 24
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Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected or contemplated in the forward-looking statements as a result of, but not limited to, the following factors:
? national and local economic conditions, including their effect on the
availability and cost of labor, utilities and materials;
? the effect of government regulations and changes in regulations governing the
healthcare industry, including our compliance with such regulations;
? changes in Medicare and Medicaid payment levels and methodologies and the
application of such methodologies by the government and its fiscal
intermediaries;
? liabilities and other claims asserted against us, including patient care
liabilities, as well as the resolution of current litigation (see Note 16:
Contingencies and Commitments);
? the ability to attract and retain qualified personnel;
? the availability and terms of capital to fund acquisitions and capital
improvements;
? the competitive environment in which we operate;
? our need to make investments continually in our processes and information
systems to protect the privacy of patients, partners and other persons and
reduce the risk of successful cybersecurity attacks;
? damage to our reputation, regulatory penalties, legal claims and liability
under state and federal laws that we could suffer upon any cybersecurity or
privacy breaches;
? the ability to maintain and increase census levels; and
? demographic changes. See the notes to the quarterly financial statements, and "Item 1. Business" in our 2022 Annual Report on Form 10-K for a discussion of various governmental regulations and other operating factors relating to the healthcare industry and the risk factors inherent in them. This may be found on our web site at www.nhccare.com. You should carefully consider these risks before making any investment in the Company. These risks and uncertainties are not the only ones facing us. There may be additional risks that we do not presently know of or that we currently deem immaterial. If any of the risks occur, our business, financial condition or results of operations could be materially adversely affected. In that case, the trading price of our shares of stock could decline, and you may lose all or part of your investment. Given these risks and uncertainties, we can give no assurances that these forward-looking statements will, in fact, transpire and, therefore, caution investors not to place undue reliance on them. OverviewNational HealthCare Corporation ("NHC" or the "Company") is a leading provider of senior health care services. As ofMarch 31, 2023 , we operate or manage, through certain affiliates, 68 skilled nursing facilities with a total of 8,732 licensed beds, 23 assisted living facilities with 1,181 units, five independent living facilities, three behavioral health hospitals, 34 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 southeasternUnited States . Impact of COVID-19 In earlyMarch 2020 , COVID-19, a disease caused by the novel strain of the coronavirus, was characterized as a pandemic by theWorld Health Organization . As a provider of healthcare services, we were significantly exposed to the public health and economic effects of the COVID-19 pandemic.NHC's primary objective was and has remained the same throughout the COVID-19 pandemic: that is to protect the health and safety of our patients, residents, and partners (employees). We continue to follow all guidance from theCenters for Medicare and Medicaid Services ("CMS"), theCenters for Disease Control and Prevention ("CDC"), and state and local health departments to prevent the spread of the disease within our operations. 25
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We began our first vaccination clinics in our skilled nursing facilities inDecember 2020 . As the vaccination clinics progressed and as the vaccine became more accessible, we began to see a significant decline in COVID-19 cases among our operations, as well as a significant decrease in the adverse health events related to COVID. Despite the COVID-19 cases and adverse health events from COVID declining, our operating expenses remained elevated with incentive compensation being paid to attract and retain frontline partners, as well as increased costs of personal protective equipment ("PPE"), sanitizers and cleaning supplies, and COVID-19 testing of our patients and partners. Despite the continued disruption of COVID-19 to our operations, our capital and financial resources, including our overall liquidity, remain strong. Our liquidity provides us with significant flexibility to maintain the strength of our balance sheet in periods of uncertainty or stress.
Legislation and Government Stimulus Due to COVID-19
TheU.S. government enacted several laws beginning inMarch 2020 designed to help the nation respond to the COVID-19 pandemic. The new laws impacted healthcare providers in a variety of ways, but the largest legislation from a monetary relief perspective was the CARES Act. Through the CARES Act, as well as the PPPCHE, the federal government allocated$178 billion to thePublic Health and Social Services Emergency Fund , which is referred to as theProvider Relief Fund .The Provider Relief Fund is administered through grants and other mechanisms to skilled nursing providers, home health providers, hospitals, and other Medicare and Medicaid enrolled providers to cover unreimbursed health care related expenses or lost revenue attributable to the public health emergency resulting from COVID-19.The Provider Relief Fund grants come with terms and condition certifications in which all providers are required to submit documents to ensure the funds are used for healthcare-related expenses or lost revenue attributable to COVID-19. The Company recorded$0 and$10,620,000 of government stimulus income from the Provider Relief Funds for the three months endedMarch 31, 2023 and 2022, respectively. The grant income was determined on a systematic basis in line with the recognition of specific expenses and lost revenues for which the grants are intended to compensate. The Company's assessment of whether the terms and conditions for amounts received have been met for income recognition and the Company's related income calculation considered all frequently asked questions and other interpretive guidance issued to date by theU.S. Department of Health and Human Services ("HHS"). We have also received supplemental Medicaid payments from many of the states in which we operate to help mitigate the incremental costs resulting from the COVID-19 public health emergency. We have recorded$4,883,000 and$5,538,000 in net patient revenues for these supplemental Medicaid payments for the three months endedMarch 31, 2023 and 2022, respectively.
Summary of Goals and Areas of Focus
Occupancy A primary area of management focus continues to be the rates of occupancy within our skilled nursing facilities. The overall census in owned and leased skilled nursing facilities for the three months endingMarch 31, 2023 was 87.4% compared to 82.7% for the same period a year ago. Due to America's healthcare labor shortage, the challenge of maintaining desirable patient census levels has been amplified. Management has undertaken a number of steps in order to best position our current and future health care facilities. This includes working internally to examine and improve systems to be most responsive to referral sources and payors, as well as find creative initiatives to retain and attract qualified healthcare professionals. Additionally,NHC is in various stages of partnerships with hospital systems, payors, and other post-acute alliances to better position ourselves so we are an active participant in the delivery of post-acute healthcare services. 26
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Table of Contents Quality ofPatient Care CMS introduced the Five-Star Quality Rating System to help consumers, their families and caregivers compare skilled nursing facilities more easily. The Five-Star Quality Rating System gives each skilled nursing operation a rating ranging between one and five stars in various categories (five stars being the best). The Company has always strived for patient-centered care and quality outcomes as precursors to outstanding financial performance.
The tables below summarize
NHC Ratings Industry Ratings Total number of skilled nursing facilities, end of period
68
Number of 4 and 5-star rated skilled nursing facilities 40
Percentage of 4 and 5-star rated skilled nursing
facilities 59% 37%
Average rating for all skilled nursing facilities, end
of period 3.6 2.9
Development and Growth
We are undertaking to expand our senior care operations while protecting our
existing operations and markets. The following table lists our recent
development activities.
Placed
Type of in
Operation Description Size Location Service
January
Homecare New Office 1 office Anderson, SC 2022
March
Hospice New Office 1 office Tullahoma, TN 2022
Behavioral
Health April
Hospital New Facility 64 beds Knoxville, TN 2022
Behavioral
Health June
Hospital New Facility 16 beds St. Louis, MO 2022
March
Hospice New Office 1 office Cedar Bluff, VA 2023
Accrued Risk Reserves
Our accrued professional liability and workers' compensation reserves totaled
$105,626,000 at March 31, 2023 and are a primary area of management focus. We
have set aside restricted cash and cash equivalents and marketable securities to
fund our estimated professional liability and workers' compensation liabilities.
As to exposure for professional liability claims, we have developed performance
certification criteria to measure and bring focus to the patient care issues
most likely to produce professional liability exposure, including in-house
acquired pressure ulcers, significant weight loss and numbers of falls. These
programs for certification, which we regularly modify and improve, have produced
measurable improvements in reducing these incidents. Our experience is that
achieving goals in these patient care areas improves both patient and employee
satisfaction.
Government Reimbursement Programs
Medicare - Skilled Nursing Facilities
InJuly 2022 , CMS released its final rule outlining fiscal year 2023 Medicare payment rates and policy changes for skilled nursing facilities, which began onOctober 1, 2022 . The fiscal year 2023 rule provided for an approximate 2.7% increase, or$904 million , compared to 2022 levels. The net increase includes a 3.9% market-basket increase plus a 1.5% market basket forecast error adjustment, less a 0.3% productivity adjustment and a 2.3% decrease in the FY 2023 SNF PPS rates as a result of the recalibrated parity adjustment. The recalibrated parity adjustment is a total of 4.6% and is being phased in over the next two years (2.3% annually). InApril 2023 , CMS released its proposed rule outlining fiscal year 2024 Medicare payment rates and policy changes for skilled nursing facilities, which will begin onOctober 1, 2023 . The fiscal year 2024 proposed rule equates to a net increase of 3.7%, or approximately$1.2 billion , in Medicare Part A payments to SNFs in fiscal year 2024 compared to 2023 levels. The proposed rule includes a 2.7% market basket rate increase, a 3.6% market basket forecast error adjustment, less a 0.2% productivity adjustment, as well as a negative 2.3%, or approximately$745 million , decrease in 2024 SNF Payment Prospective Systems rates as a result of the second phase of the Patient Driven Payment Model parity adjustment recalibration.
For the first three months of 2023, our average Medicare per diem rate for skilled nursing facilities increased 2.1% as compared to the same period in 2022.
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Medicaid - Skilled Nursing Facilities
Effective
EffectiveOctober 1, 2022 and for the fiscal year 2023, the state ofSouth Carolina implemented specific individual nursing facility increases. We estimate the resulting increase in revenue for the 2023 fiscal year will be approximately$3,735,000 annually, or$934,000 per quarter. We have also received from many of the states in which we operate supplemental Medicaid payments to help mitigate the incremental costs resulting from the COVID-19 public health emergency. We have recorded$4,883,000 and$5,538,000 in net patient revenues for these supplemental Medicaid payments for the three months endedMarch 31, 2023 and 2022, respectively.
For the first three months of 2023, our average Medicaid per diem increased 3.6% compared to the same period in 2022.
State Medicaid plans subject to budget constraints are of particular concern to us. Changes in federal funding coupled with state budget problems and Medicaid expansion under the Affordable Care Act have produced an uncertain environment. Some states will not keep pace with post-acute healthcare inflation. States are currently under pressure to pursue other alternatives to skilled nursing care such as community and home-based services. Medicaid programs are funded jointly by the federal government and the states and are administered by states under approved plans. Most state Medicaid payments are made under a prospective payment system or under programs which negotiate payment levels with individual providers. Some states use, or have applied to use, waivers granted by CMS to implement expansion, impose different eligibility or enrollment restrictions, or otherwise implement programs that vary from federal standards.
Medicare - Homecare Programs
InOctober 2022 , CMS released its final rule outlining fiscal year 2023 Medicare payment rates. CMS projects payments to home health agencies in fiscal year 2023 will increase in aggregate by 0.7%, or$125 million . The increase reflects the effects of the home health payment update percentage of 4.0%, a permanent behavioral assumption adjustment resulting in a decrease of 3.5%, and an estimated 0.2% increase that reflects the effects of an update to the fixed-dollar loss ratio used in determining outlier payments. Medicare - Hospice InJuly 2022 , CMS released its final rule outlining fiscal year 2023 Medicare payment rates. CMS issued a rate increase of 3.8%, or$825 million , effectiveOctober 1, 2022 . The increase is the result of a 4.1% inpatient hospital market basket increase reduced by a 0.3% productivity adjustment. The FY2023 hospice payment update also includes an update to the statutory aggregate cap amount, which limits the overall payments per patient that are made annually. The cap amount for FY2023 would be$32,487 . 28
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Segment Reporting
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.
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, 2023
Inpatient Homecare
Services and Hospice All Other Total
Revenues and grant income:
Net patient revenues $ 226,169 $ 31,838 $ - $ 258,007
Other revenues 271 - 11,285 11,556
Net operating revenues and grant income 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 Three Months Ended March 31, 2022 Inpatient Homecare Services and Hospice All Other Total Revenues: Net patient revenues$ 224,842 $ 31,495 $ -$ 256,337 Other revenues 114 - 11,912 12,026 Government stimulus income 10,620 - - 10,620 Net operating revenues and grant income 235,576 31,495
11,912 278,983
Costs and expenses: Salaries, wages, and benefits 142,185 19,401 9,108 170,694 Other operating 64,383 7,095 2,607 74,085 Rent 8,347 592 1,126 10,065 Depreciation and amortization 8,838 113 806 9,757 Interest 165 - - 165 Total costs and expenses 223,918 27,201 13,647 264,766 Income/(loss) from operations 11,658 4,294 (1,735 ) 14,217 Non-operating income - - 3,199 3,199 Unrealized gains on marketable equity securities - - 3,126 3,126 Income before income taxes$ 11,658 $ 4,294 $ 4,590 $ 20,542 29
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Non-GAAP Financial Presentation
The Company is providing certain non-GAAP financial measures as the Company believes that these figures are helpful in allowing investors to more accurately assess the ongoing nature of the Company's operations and measure the Company's performance more consistently across periods. Therefore, the Company believes this information is meaningful in addition to the information contained in the GAAP presentation of financial information. The presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.
Specifically, the Company believes the presentation of non-GAAP financial information that excludes the unrealized gains or losses on our marketable equity securities, operating results for the newly constructed healthcare facilities or start-up operations not at full capacity, and share-based compensation expense is helpful in allowing investors to assess the Company's operations more accurately.
The operating results for the newly constructed healthcare facilities not at full capacity for the three months endedMarch 31, 2023 include facilities that began operations from 2021 to 2023, which is two behavioral health hospitals, one homecare agency, and two hospice agencies. For the three months endedMarch 31, 2022 , included are facilities that began operations from 2020 to 2022, which is two behavioral health hospitals.
The tables below provide reconciliations of GAAP to non-GAAP items (dollars in thousands, except per share data):
Three Months Ended
March 31
2023 2022
Net income attributable to National Healthcare
Corporation $ 11,723 $ 15,318
Non-GAAP adjustments
Unrealized gains on marketable equity securities (1,386 ) (3,126 )
Operating results for newly opened facilities or
agencies not at full capacity 1,217 743
Share-based compensation expense 639
712
Income tax (benefit)/provision on non-GAAP adjustments (122 ) 434 Non-GAAP Net income$ 12,071 $ 14,081 GAAP diluted earnings per share$ 0.76 $ 0.99 Non-GAAP adjustments Unrealized gains on marketable equity securities (0.06 ) (0.15 ) Operating results for newly opened facilities or agencies not at full capacity 0.06
0.04
Share-based compensation expense 0.03
0.03
Non-GAAP diluted earnings per share$ 0.79 $ 0.91 30
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Table of Contents Results of Operations The following table and discussion set forth items from the interim condensed consolidated statements of operations as a percentage of net operating revenues and grant income for the three months endedMarch 31, 2023 and 2022. Percentage of Net Operating Revenues and Grant Income Three Months Ended March 31 2023 2022 Net operating revenues and grant income 100.0 % 100.0 % Costs and expenses: Salaries, wages, and benefits 62.3 61.2 Other operating 26.5 26.6 Facility rent 3.7 3.5 Depreciation and amortization 3.7 3.5 Interest 0.1 0.1 Total costs and expenses 96.3 94.9 Income from operations 3.7 5.1 Non-operating income 1.6 1.2 Unrealized gains on marketable equity securities 0.5 1.1 Income before income taxes 5.8 7.4 Income tax provision (1.6 ) (1.9 ) Net income 4.2 5.5
Net loss/(income) attributable to noncontrolling interest 0.1
0.0
Net income attributable to stockholders of NHC 4.3 % 5.5 %
Three Months Ended
Results for the quarter endedMarch 31, 2023 compared to the first quarter of 2022 include a 3.4% decrease in net operating revenues and grant income. The net operating revenues and grant income decrease was primarily driven by the reduction in government stimulus income of$10,620,000 during the first quarter of 2023 compared to the same period a year ago, as well as us exiting the seven skilled nursing facilities inMassachusetts andNew Hampshire during the third quarter of 2022. Excluding the government stimulus income and the seven skilled nursing facilities inMassachusetts andNew Hampshire , same-facility net operating revenues increased 7.1% during the first quarter of 2023 compared to the same period a year ago. For the quarter endedMarch 31, 2023 , GAAP net income attributable toNHC was$11,723,000 compared to net income of$15,318,000 for the same period in 2022. Excluding the unrealized gains in our marketable equity securities portfolio and other non-GAAP adjustments, adjusted net income for the quarter endedMarch 31, 2023 was$12,071,000 compared to$14,081,000 for the same period in 2022. The decrease in adjusted net income for the first quarter of 2023 compared to the first quarter of 2022 was primarily due to the$10,620,000 less in government stimulus income recorded during the current quarter.
Net operating revenues and grant income
Net patient revenues increased
The total census at owned and leased skilled nursing facilities for the quarter averaged 87.4%, compared to an average of 82.7% for the same quarter a year ago. Overall, the composite skilled nursing facility per diem increased 3.3% compared to the same quarter a year ago. Our Medicare per diem rates increased 2.1% and managed care per diem rates increased 2.7% compared to the same quarter a year ago. Medicaid and private pay per diem rates increased 3.6% and 3.1%, respectively, compared to the same quarter a year ago. For the three months endedMarch 31, 2023 and 2022, respectively,$4,883,000 and$5,538,000 have been included in our net patient revenues for supplemental COVID-19 Medicaid payments. InSeptember 2022 , the Company transferred the operations of seven skilled nursing facilities located inMassachusetts andNew Hampshire resulting in net patient revenues decreasing$16,603,000 for the three months endedMarch 31, 2023 compared to the same quarter last year.
Other revenues decreased
During the three months endedMarch 31, 2023 and 2022, respectively, we recorded$0 and$10,620,000 in government stimulus income related to funds received from theCARES Act Provider Relief Fund . See Note 3 - Coronavirus Pandemic for additional information. 31
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Table of Contents Total costs and expenses
Total costs and expenses for the three months ended
Salaries, wages, and benefits decreased$2,870,000 , or 1.7%, to$167,824,000 from$170,694,000 . Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 62.3% compared to 61.2% for the three months endedMarch 31, 2023 and 2022, respectively. We continue to face workforce and labor shortages within all of our operations, which increases wage pressure in regards to retaining and attracting qualified healthcare partners (employees). The labor and workforce shortages have resulted in us contracting with agency nurse staffing companies. The agency nurse staffing companies charge inflated hourly rates; therefore, we are working diligently to find solutions to reduce and eliminate the agency nurse staffing within our healthcare operations. For the quarter endedMarch 31, 2023 , our agency nurse staffing expense decreased$4,941,000 , or approximately 34%, compared to the same period a year ago.
In
Other operating expenses decreased$2,596,000 , or 3.5%, to$71,489,000 for the 2023 period compared to$74,085,000 for the 2022 period. Other operating expenses as a percentage of net operating revenues and grant income was 26.5% and 26.6% for the three months endedMarch 31, 2023 and 2022, respectively. The transfer of the operations of the seven skilled nursing facilities located inMassachusetts andNew Hampshire , as noted above, resulted in other operating expenses decreasing$5,206,000 for the three months endedMarch 31, 2023 compared to the same quarter last year. We continue to face inflationary pressures in certain categories within other operating expenses as well, such as food/dietary supplies and drugs/pharmaceutical supplies. Other income
Non-operating income increased by
Income taxes
The income tax provision for the three months ended
Noncontrolling interest The noncontrolling interest in subsidiaries is presented within total equity of the Company's consolidated balance sheets. The Company presents the noncontrolling interest and the amount of consolidated net income attributable toNHC in its consolidated statements of operations. The Company's earnings per share is calculated based on net income attributable toNHC's stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of subsidiary earnings based on ownership interest.
Three Months Ended
Results for the quarter ended
For the quarter endedMarch 31, 2022 , GAAP net income attributable toNHC was$15,318,000 compared to net income of$21,267,000 for the same period in 2021. Excluding the unrealized gains in our marketable equity securities portfolio and other non-GAAP adjustments, adjusted net income for the quarter endedMarch 31, 2022 was$14,081,000 compared to$16,592,000 for the same period in 2021. The decrease in adjusted net income for the first quarter of 2022 compared to the first quarter of 2021 was primarily due to less government stimulus income recorded during the current quarter, as well as higher inflationary pressures on labor costs.
Net operating revenues and grant income
Net patient revenues increased
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The total census at owned and leased skilled nursing facilities for the quarter averaged 82.7%, compared to an average of 76.8% for the same quarter a year ago. Overall, the composite skilled nursing facility per diem increased 2.9% compared to the same quarter a year ago. Our Medicare per diem rates increased 1.2% and managed care per diem rates increased 6.9% compared to the same quarter a year ago. Medicaid and private pay per diem rates increased 4.8% and 9.2%, respectively, compared to the same quarter a year ago. For the three months endedMarch 31, 2022 and 2021, respectively,$5,538,000 and$3,955,000 have been included in our net patient revenues for these supplemental COVID-19 Medicaid payments.
In
Other revenues increased
During the three months ended
Total costs and expenses Total costs and expenses for the three months endedMarch 31, 2022 compared to the same period of 2021 increased$29,015,000 , or 12.3% to$264,766,000 from$235,751,000 . Salaries, wages, and benefits increased$21,535,000 , or 14.4%, to$170,694,000 from$149,159,000 . Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 61.2% compared to 59.4% for the three months endedMarch 31, 2022 and 2021, respectively. Our Caris acquisition increased salaries, wages, and benefits$10,224,000 in the first quarter of 2022 compared to the same quarter a year ago. We continue to face tremendous workforce and labor shortages within all of our operations, which increases wage pressure and inflation in regard to retaining and attracting qualified healthcare partners (employees). With the workforce environment being so challenging, the largest expense increase from a labor standpoint is in our agency nurse staffing. Our agency nurse staffing expense increased$12,435,000 for the first quarter of 2022 compared to the same quarter a year ago. Other operating expenses increased$7,961,000 , or 12.0%, to$74,085,000 for the 2022 period compared to$66,124,000 for the 2021 period. Other operating expenses as a percentage of net operating revenues and grant income was 26.6% and 26.3% for the three months endedMarch 31, 2022 and 2021, respectively. Our Caris acquisition increased other operating expenses$5,104,000 in the first quarter of 2022 compared to the same quarter a year ago. We continue to face inflationary pressures in certain categories within other operating expenses as well, such as food/dietary supplies and drugs/pharmaceutical supplies. Other income
Non-operating income decreased by
Income taxes
The income tax provision for the three months ended
Noncontrolling interest The noncontrolling interest in subsidiaries is presented within total equity of the Company's consolidated balance sheets. The company presents the noncontrolling interest and the amount of consolidated net income attributable toNHC in its consolidated statements of operations. The Company's earnings per share is calculated based on net income attributable toNHC's stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of subsidiary earnings based on ownership interest.
Liquidity, Capital Resources, and Financial Condition
Our primary sources of cash include revenues from the operations of our
healthcare and senior living facilities, management and accounting services,
rental income, and investment income. Our primary uses of cash include salaries,
wages and other operating costs of our healthcare and senior living facilities,
the cost of additions to and acquisitions of real property, facility rent
expenses, and dividend distributions. These sources and uses of cash are
reflected in our interim condensed consolidated statements of cash flows and are
discussed in further detail below.
The following is a summary of our sources and uses of cash flows (dollars in
thousands):
Three Months Ended
March 31 Three Month Change
2023 2022 $ %
Cash, cash equivalents, restricted cash,
and restricted cash equivalents, at
beginning of period $ 74,865 $ 119,743 $ (44,878 ) (37.5 )
Cash provided by/(used in) operating activities 13,857 (27,457 )
41,314 150.5
Cash used in investing activities (1,427 ) (5,920 )
4,493 75.9
Cash used in financing activities (12,619 ) (10,450 )
(2,169 ) (20.8 )
Cash, cash equivalents, restricted cash, and restricted cash equivalents, at end of period$ 74,676 $ 75,916 $ (1,240 ) (1.6 ) 33
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Table of Contents Operating Activities Net cash provided by operating activities for the three months endedMarch 31, 2023 was$13,857,000 as compared to cash used in operating activities of$27,457,000 in the same period last year. Cash provided by operating activities consisted of net income of$11,285,000 and adjustments for non-cash items of$8,097,000 . There was cash used for working capital needs in the amount of$6,017,000 for the three months endedMarch 31, 2023 compared to$52,250,000 for the same period a year ago. Included in the adjustments for non-cash items are depreciation expense, equity in earnings of unconsolidated investments, unrealized gains on our marketable equity securities, deferred taxes, and stock compensation. Investing Activities Net cash used in investing activities totaled$1,427,000 for the three months endedMarch 31, 2023 , compared to$5,920,000 for the three months endedMarch 31, 2022 . Cash used for property and equipment additions was$6,640,000 and$8,962,000 for the three months endedMarch 31, 2023 , and 2022, respectively. Proceeds from the sale of marketable securities, net of purchases, resulted in cash provided by investing activity of$5,211,000 and$2,818,000 for the three months endedMarch 31, 2023 and 2022, respectively. Financing Activities Net cash used in financing activities totaled$12,619,000 for the three months endedMarch 31, 2023 compared to$10,450,000 for the three months endedMarch 31, 2022 . We made principal payments under our finance lease obligations in the amount of$1,218,000 and$1,147,000 for the three months endedMarch 31, 2023 and 2022, respectively. Cash used for dividend payments to common stockholders totaled$8,748,000 in the current year period compared to$8,493,000 for the same period a year ago. We repurchased common shares outstanding in the amount of$2,482,000 in the current year period compared to$146,000 for the same period a year ago. Short-term liquidity We expect to meet our short-term liquidity requirements primarily from our cash flows from operating activities. In addition to cash flows from operations, our current cash on hand of$46,144,000 and our marketable equity and debt securities of$118,647,000 are expected to be adequate to meet our contractual obligations, operating liquidity, and our growth and development plans in the next twelve months. Long-term liquidity We expect to meet our long-term liquidity requirements primarily from our cash flows from operating activities, our current cash on hand of$46,144,000 and our marketable equity and debt securities of$118,647,000 . We also have substantial value in our unencumbered real estate assets which could potentially be used as collateral in future borrowing opportunities. AtMarch 31, 2023 , we do not have any long-term debt. Our ability to meet our long-term contractual obligations, and to finance our operating requirements and growth plans will depend upon our future performance. Our future performance will be affected by business, economic, financial and other factors, including potential changes in state and federal government payment rates for healthcare, customer demand, success of our marketing efforts, pressures from competitors, and the state of the economy, including the state of financial and credit markets, as well as many unforeseen factors.
Commitment and Contingencies
Governmental Regulations
Laws and regulations governing the Medicare, Medicaid and other federal
healthcare programs are complex and subject to interpretation. Management
believes that it is following all applicable laws and regulations in all
material respects. However, compliance with such laws and regulations can be
subject to future government review and interpretation as well as significant
regulatory action including fines, penalties, and exclusions from the Medicare,
Medicaid, and other federal healthcare programs.
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