National HealthCare Corporation (NHC) Earnings Call Transcript & Summary

Thank you, Josh. Last year, at our shareholder meeting in May, NHC was 1.5 months into our saga with COVID. After a long and extremely challenging year, I'm glad to be able to report some positive news about where we are today. In our COVID-19 update, let's talk first about our journey and -- clinically and operationally. For NHC, COVID-19 first appeared at our health care center in Greenfield, Massachusetts on March 19, 2020. NHC used every means feasible to prevent the spread of this insidious and highly contagious virus. Infection control was paramount, and we were subjected to over 150 infection control surveys. We got all the personal protective equipment that we could and utilized it with all of our partners throughout our footprint. And of course, you're aware that center visitation was restricted to partners and essential personnel. There were a number of other things that we did, but those were some of the major things. But despite our best efforts, ultimately the virus, which could be spread through asymptomatic carriers, impacted every NHC health care to varying degrees. In fact, to date, there have been 5,712 patient cases. I might note that, as the virus became more prevalent throughout America and certain of our centers were able to set up designated quarantine COVID wings, we actually admitted over 1,000 of those 5,700 patients to our centers. In addition to the patients, we had 4,837 partner cases, needless to say the virus took a huge toll, but then the good news: The vaccines came to the rescue. The first vaccination clinic for NHC was held on December 22, 2020, late last year. Within 3 months, by March 23, 2021, all 75 of our health care centers had hosted 3 different clinics to allow patients and partners to be vaccinated. As of April 30, 2021, 68.2% of NHC patients were vaccinated, as well as 54.6% of NHC partners. To give you an idea of the effect of the virus -- or of the vaccine: On 12/22/20, when we gave our first vaccination clinic, NHC had 620 active patients and 383 active partners. As of last Friday, April 30, 2021, NHC had 17 active patients, 4 of whom were admitted with COVID; and 23 active partners, a decline of over 98%. Obviously there were financial ramifications to COVID. A lot of that had to do with census. Occupancy at NHC health care centers for January and February 2020, just prior to the pandemic, stood at 92%. That 2-month period represented our highest occupancy in over a decade. However, battling COVID, with no admissions for a good portion of 2020, the week ending December 25, 2020, our census bottomed out at 74.5%. The good news is that, since that time, it's begun to rise. By the week ending April 30, 2021, census had rebounded to 80%. This line graph shows you the census change week by week from October 1, 2020, to April 2021. Again you see the bottoming out around Christmas, 12/25, of 74.5%; and by April 23, that number rising to 80%. What kind of impact did COVID have on our earnings? Well, obviously a major impact. I'm delighted to be able to say that in 2020, despite this awful pandemic, NHC's pretax income was $76,270,000. That number excludes the unrealized gains and losses on marketable securities. In 2020, to get that $76.2 million pretax earnings figure, we took into income $73,685,000 in federal and state stimulus funds. However, it's worth noting that NHC, during that same year, incurred a total of $52,905,251 in extraordinary COVID-related expenses, which included hero pay to our partners, PPE, testing and a host of other direct expenses. And we suffered $46,251,000 in lost revenue, for a total financial impact of $99,156,453. We are extremely grateful for the stimulus funds that we received, but as you can see from that last bullet point, they were desperately needed in light of the expenses and the lost revenue that we incurred. We're obviously very hopeful that the worst part of this COVID pandemic is over, especially in our health care centers. With variants coming on the scene, we don't know that for sure, but we are extremely pleased to have come through this last year and be where we are today with no more active cases of COVID for partners and patients alike. And now I'm going to turn the microphone over to Mr. Mike Ussery, our President and Chief Operating Officer. He is going to present some highlights of 2020.

Thank you, Steve. And appreciate that summary so much. And I can't -- I think I would be remiss if we didn't take just a moment to recognize what a tremendous effort our partners made during this overused word, "extraordinary year." We had partners that continued to serve our patients, leadership in the locations in the field that went to extraordinary ends to be able to protect not only patients but partners. And so [ we can't ] leave the importance of the partner effort out during this shareholder meeting. I want to take just a few minutes and talk to you about, again, an extraordinary year and some of the accomplishments we were able to make even during this year, talk a little bit about NHC today and our structure and really our focus and positioning in the senior care business. First of all, this slide is something I share with the shareholders each year, really depicts our positioning in the senior care industry. Again, at the center of this particular slide, we represent our skilled nursing centers. That's the formation. The foundation of NHC was the skilled nursing centers and continues to be the hub of what we do. Most of our services surround and complement or supplement what happens in the skilled nursing centers: our assisted living and independent living, additional residential services but certainly an important part of what we do and areas where we'll continue to expect to see opportunities to grow; providing accounting and financial services for third parties, operators that don't have that expertise themselves. They manage and operate their own centers, but they need our back-office services, so we continue to provide those. Providing rehabilitation services not only in our owned skilled nursing centers but through our home care agencies in outpatient settings and even in third-party contracts providing what are highly trained rehab professionals into a variety of locations. Home care. We're -- all know that we want to be served in our own homes as long as we can. And as the first home care provider in the State of Tennessee, we now provide home care in 3 states. And home care is an important and a growing part and growing in importance in what we do going forward. Hospice. We continue to work with and partner with Caris, our hospice company. We're extremely proud of that partnership; and they continue to perform very, very well. Pharmacy services. We provide pharmacy services primarily to centers that we operate but some third parties out of the 4 institutional pharmacies that we operate. And then management services, where we provide third-party management services, not only those back-office accounting and financial services but actually operational management for third parties in a number of locations. So this depicts the range of services that we provide as a senior care provider. Additionally, something that we focus on a little more as an area of growth is our insurance area. We have provided insurance services in a number of areas for several years. We've provided professional liability insurance to our centers through a company called Premier Plus. We provide workers comp insurance through a company called Premier Group Insurance, but of late, in the last few years, a growing area within the company is an area referred to as an I-SNP. What is an I-SNP? We're good about acronyms. An I-SNP is an Institutional Special Needs Plan. Well, what is an Institutional Special Needs Plan? An Institutional Special Needs Plan is a plan that restricts enrollment to Medicare Advantage. So it's a Medicare Advantage program. Much as you see on television Humana or Cigna or others offering a Medicare replacement or Medicare Advantage plan, our Medicare Advantage plan is available to individuals who are patients in our skilled nursing centers. And they will be in those centers for 90 days or longer, and they're expected to need that level of service that's provided in a skilled nursing facility. So our I-SNP that we developed and actually entered this market in 2017 operates under the name of NHC Advantage. Currently, NHC Advantage operates in Missouri, which is where it was originally rolled out. In 2019, we rolled it out in Tennessee. And we anticipate that this will be an area where we'll continue to find opportunities for growth. So as we exist today, we operate 75 health care centers in 9 states, 24 assisted living in 6 states, 5 independent living operations in 2 states, 1 geriatric psych hospital in Missouri, 35 home care agencies in 3 states and 28 hospice programs in 5 states, a total of 168 operating locations in 10 different states. In addition, we operate or provide the 20 accounting and financial service contracts. Dr. Adams' quote that we live by is you have to keep a balance between quality and earnings. Either one without the other leads to failure. You can't spend money you don't have, and if you don't put money back to improve the services, then the business will fail. And clearly this indicates the importance of a balance. And as we typically like to do, we want to share with you some financial information but additionally some service information that I think you'll find interesting. Of course, our mission statement is that NHC is committed to being the senior care leader in customer and investor satisfaction. I want to take just a moment and mention a couple of metrics on both ends of that spectrum. First of all, in terms of quality ratings. Despite the year that we had, we still performed very, very well. I've described before that the American Health Care Association is the trade organization for skilled nursing centers. We are a participant in the American Health Care Association. The American Health Care Association shares with us that 48.7% of their centers receive either a 4- or a 5-star rating in the CMS ratings, CMS 5-star program. Compared to AHCA's 48.7%, NHC has 78% of its operations, as of the end of the year, are -- 4 or 5 star. Very proud of that. Our average score, you can see the American Health Care Association average score is 3.28, and ours is 4.12. Additionally, we utilize a service called national research center or NRC to measure satisfaction: to measure the satisfaction of our partners, as we refer to our employees; and to measure the satisfaction of our customers. And of all the many, many people that they measure satisfaction for in our space, we received the #2 place award for partner satisfaction, not happy with that. We want to be #1 in both categories, but additionally we are very proud of the fact that we were #1 in customer satisfaction for 2020, excited about both of those. And again those are a great reflection of the work that our partners are doing in the field. Additionally, we want to look at a few of our financial performance metrics, share with you some of the metrics I routinely share with the shareholders. Our revenue for last year, for 2020, was up 3.3%, up to $1.056 billion. Our expenses were up slightly more than that, up 3.5%. I might mention with regard to expenses it was an extraordinary year on really 3 fronts from an expense standpoint. We expended a great amount of money on personal protective equipment, face masks and shields and gowns and gloves and so forth, a significant amount in that arena; a significant amount of what we would call hero pay to our partners; and then the extraordinary expenses around testing both of patients and partners. So despite the fact that we had all of that, our expenses rose only 3.5%. Our income before taxes and investment activity was actually up 0.8 points. Now Steve mentioned some of the stimulus funds and so forth, but really we're very proud of the result. The unrealized gains and losses on marketable securities -- of course, everyone is aware of a number of investments that took losses in 2020. We were no exception to that. Taxes actually went down as a result of the impact of those unrealized losses, so our net income was $41 million, actually down about 38% despite -- or partially explained by again the unrealized gains. Our earnings per share of $2.74, again down essentially the same amount. Pretax income, when you exclude those extraordinary losses on the investments, was actually only down 0.5%. Given the year that we faced, we feel that, that was a remarkable result. Just a couple of other measures quickly. Our accounts receivable, which reflects how are we doing in collecting our outstanding accounts, has oscillated between 33 and 35 days the last 4 years, which is I would tell you exceptional in the industry. Our net cash is actually up from $100 million to over $203 million. I should point out that part of that is related to the accelerated payments that were provided for Medicare payers as well as deferred payroll taxes. Those total something in excess of $70 million, but still our cash is actually up year-over-year. And the dividends of $2.08. Finally, just a couple of other measures. Our debt has actually gone to 0. We have no debt as a company. Our equity increased about $17 million, and obviously a debt-to-equity ratio of 0 is a good thing in that category. So we're extremely pleased with the result we were able to achieve given the year and the headwinds we faced. It's now my pleasure to turn the program back over to Steve.

Thank you, Mike. I do need to announce that the web portal is now open for questions, if you would like to submit those; appreciate Mike's overview of 2020. And of course, I shared with you earlier that it was the year of COVID that we're glad to see behind us. There were, however, some significant accomplishments despite our struggles with the virus. And to share with you these significant events, 2 or 3 of which Mike touched on: February 27 of last year, we purchased a 75% interest in NHC Fort Sanders in Knoxville, Tennessee. This is a health care center, a skilled nursing facility that we had operated since the late 1970s; and we've managed it all that time and been a 25% owner. So at the end of February last year, we took out the interests of the other partners, and we now own 100% of that building. On April 1, 2020, we began management of West Meade Place, a [Audio Gap] it had suffered from [Audio Gap] last year. And then right at the end of the year, we began construction of the 64-bed Knoxville Center for Behavioral Medicine in Knoxville, Tennessee. Earlier when Mike reported on the scope of NHC's operations, he noted that we operate currently one 16-bed geriatric psychiatric hospital in Osage Beach, Missouri. We frankly see behavioral health, particularly for geri psych patients, as a growth area for NHC. We were privileged to be approached by 2 major health care centers in the Knoxville area, UT Medical Center as well as Tennova health. And along with our psychiatric partner Reliant, we have formed a quad venture, where we will be the majority owner of the property and the majority owner of the opco. And we look forward to seeing that going into operations in 2021. 2 days later, we began construction of a 16-bed geri psych hospital called the Maryland Heights center for behavioral medicine. It is going to be built adjacent to a 205-bed skilled nursing center that we have operated for a number of years in the suburb of St. Louis, Missouri. And then also in December, on the 22nd, 2020, we opened a 30-bed addition at NHC HealthCare Kingsport, Tennessee. We had purchased that property in 2011 and had renovated it to operate 60 beds. And with this 30-bed addition, it will now support 90 beds in its operation. So despite the headwinds of COVID, we made a lot of significant progress in 2020. And we look forward to 2021 and beyond for some exciting things in the future. And now it's my privilege to turn the program back over to our Chairman, Robert Adams.

Thank you, Steve. Thank you, Josh. Thank you, Mike. That was a very informative and well-done presentation. Okay, I guess, at this time, I will close the question portal and report that we have 0 questions, which will allow us to move on. I guess I will just say that 2020 was a very unique year. It's a challenging year. I would like to thank the Board of Directors. I would like to thank management and the 14,000 NHC partners for their commitment to battling the unknown challenges of the COVID pandemic. And I think for all of us, that we're looking forward to 2021 and a return to normalcy. And hopefully, that's what we will get. Well, if there's no other business, I will announce that the meeting is adjourned. Thank you all for attending. Appreciate your support of NHC.

Thank you. And now the Annual Meeting of the Shareholders has now come to an end. For any further details, please visit National HealthCare Corporation's website, nhccare.com. Thank you for attending. You may now disconnect.