NATIONAL HEALTHCARE CORP 10-Q

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 June 30 Six Months Ended June 30 2025 2024 2025 2024 Revenues: Net patient revenues $ 363,349 $ 279,918 $ 724,956 $ 565,741 Other revenues 11,561 11,295 23,651 22,648 Government stimulus income - 9,445 - 9,445 Net operating revenues and grant income 374,910 300,658 748,607 597,834 Cost and expenses: Salaries, wages, and benefits 226,534 180,076 454,664 363,214 Other operating 91,943 78,154 184,400 155,583 Facility rent 11,328 10,570 22,693 20,918 Depreciation and amortization 11,015 9,338 21,993 19,924 Total costs and expenses 340,820 278,138 683,750 559,639 Income from operations 34,090 22,520 64,857 38,195 Other income (expense): Non–operating income 5,132 4,956 9,211 10,641 Interest expense ( 1,993 ) - ( 4,099 ) ( 46 ) Unrealized gains/(losses) on marketable equity securities ( 5,061 ) 9,124 5,921 23,523 Income before income taxes 32,168 36,600 75,890 72,313 Income tax provision ( 8,055 ) ( 9,494 ) ( 19,487 ) ( 18,956 ) Net income 24,113 27,106 56,403 53,357 Net income attributable to noncontrolling interest ( 391 ) ( 262 ) ( 476 ) ( 300 ) Net income attributable to National HealthCare Corporation $ 23,722 $ 26,844 $ 55,927 $ 53,057 Earnings per share attributable to National HealthCare Corporation stockholders: Basic $ 1.53 $ 1.74 $ 3.62 $ 3.45 Diluted $ 1.52 $ 1.73 $ 3.59 $ 3.42 Weighted average common shares outstanding: Basic 15,462,135 15,391,535 15,450,286 15,371,150 Diluted 15,599,638 15,555,612 15,587,783 15,530,624 Dividends declared per common share $ 0.64 $ 0.61 $ 1.25 $ 1.20 The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements. 3 Table of Contents NATIONAL HEALTHCARE CORPORATION Interim Condensed Consolidated Statements of Comprehensive Income (unaudited – in thousands) Three Months Ended June 30 Six Months Ended June 30 2025 2024 2025 2024 Net income $ 24,113 $ 27,106 $ 56,403 $ 53,357 Other comprehensive income: Unrealized gains/(losses) on investments in marketable debt securities 1,081 30 2,675 ( 442 ) Reclassification adjustment for realized losses on sales of marketable debt securities 652 1,398 652 1,388 Income tax expense related to items of other comprehensive income ( 291 ) ( 296 ) ( 495 ) ( 251 ) Other comprehensive income, net of tax 1,442 1,132 2,832 695 Net income attributable to noncontrolling interest ( 391 ) ( 262 ) ( 476 ) ( 300 ) Comprehensive income attributable to National HealthCare Corporation $ 25,164 $ 27,976 $ 58,759 $ 53,752 The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements. 4 Table of Contents NATIONAL HEALTHCARE CORPORATION Interim Condensed Consolidated Balance Sheets (in thousands) June 30, 2025 December 31, 2024 unaudited Assets Current Assets: Cash and cash equivalents $ 110,992 $ 76,121 Restricted cash and cash equivalents, current portion 18,155 19,568 Marketable equity securities 146,636 140,064 Restricted marketable equity securities 16,269 23,190 Restricted marketable debt securities, current portion 13,854 11,529 Accounts receivable 142,061 135,325 Inventories 7,892 9,039 Prepaid expenses and other assets 7,368 9,572 Total current assets 463,227 424,408 Property and Equipment: Property and equipment, at cost 1,295,976 1,281,736 Accumulated depreciation and amortization ( 619,357 ) ( 597,447 ) Net property and equipment 676,619 684,289 Other Assets: Restricted cash and cash equivalents, less current portion 1,215 1,233 Restricted marketable debt securities, less current portion 119,847 108,275 Deposits and other assets 10,599 8,837 Operating lease right-of-use assets 63,663 79,167 Goodwill 170,478 170,478 Intangible assets 19,864 19,864 Investments in unconsolidated companies 36,708 27,878 Total other assets 422,374 415,732 Total assets $ 1,562,220 $ 1,524,429 The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements. 5 Table of Contents NATIONAL HEALTHCARE CORPORATION Interim Condensed Consolidated Balance Sheets (continued) (in thousands, except share and per share amounts) June 30, 2025 December 31, 2024 unaudited Liabilities and Stockholders ’ Equity Current Liabilities: Trade accounts payable $ 21,279 $ 25,493 Operating lease liabilities, current portion 32,729 31,841 Accrued payroll 111,644 92,719 Amounts due to third party payors 15,160 15,351 Accrued risk reserves, current portion 32,008 31,096 Other current liabilities 38,506 21,377 Dividends payable 9,919 9,420 Long-term debt, current portion 7,500 7,500 Total current liabilities 268,745 234,797 Long-term debt 102,500 129,500 Operating lease liabilities, less current portion 29,884 45,925 Accrued risk reserves, less current portion 76,974 72,520 Refundable entrance fees 6,107 6,063 Deferred income taxes 34,639 35,550 Other noncurrent liabilities 17,988 16,911 Total liabilities 536,837 541,266 Equity: Common stock, $ .01 par value; 45,000,000 shares authorized; 15,499,173 and 15,450,003 shares, respectively, issued and outstanding 154 154 Capital in excess of par value 234,868 232,530 Retained earnings 788,767 752,193 Accumulated other comprehensive loss ( 1,884 ) ( 4,716 ) Total National HealthCare Corporation stockholders’ equity 1,021,905 980,161 Noncontrolling interest 3,478 3,002 Total equity 1,025,383 983,163 Total liabilities and equity $ 1,562,220 $ 1,524,429 The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements. 6 Table of Contents NATIONAL HEALTHCARE CORPORATION Interim Condensed Consolidated Statements of Cash Flows (unaudited – in thousands) Six Months Ended June 30 2025 2024 Cash Flows From Operating Activities: Net income $ 56,403 $ 53,357 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 21,993 19,924 Equity in earnings of unconsolidated investments ( 616 ) ( 651 ) Distributions from unconsolidated investments 616 512 Unrealized gains on marketable equity securities ( 5,921 ) ( 23,523 ) Realized gains on sale of marketable securities ( 480 ) ( 350 ) Gain on sale of unconsolidated company - ( 1,024 ) Gain on sale of property and equipment ( 3,606 ) - Deferred income taxes ( 1,406 ) 6,041 Stock–based compensation 2,260 1,969 Changes in operating assets and liabilities: Accounts receivable ( 6,736 ) ( 842 ) Inventories 1,147 754 Prepaid expenses and other assets ( 23 ) 4,489 Operating lease obligations 351 120 Trade accounts payable ( 4,214 ) 2,588 Accrued payroll 18,925 ( 1,873 ) Amounts due to third party payors ( 191 ) ( 151 ) Accrued risk reserves 5,366 5,995 Other current liabilities 17,129 1,300 Other noncurrent liabilities 1,077 ( 8,328 ) Net cash provided by operating activities 102,074 60,307 Cash Flows From Investing Activities: Purchases of property and equipment ( 16,341 ) ( 13,788 ) Proceeds from the sale of unconsolidated company - 2,100 Collections of (investments in) notes receivable 465 ( 210 ) Investments in unconsolidated companies ( 3,205 ) ( 4,856 ) Purchases of marketable securities ( 47,276 ) ( 18,898 ) Proceeds from sale of marketable securities 43,455 34,662 Net cash used in investing activities ( 22,902 ) ( 990 ) Cash Flows From Financing Activities: Repayments under credit facility ( 27,000 ) - Principal payments under finance lease obligations - ( 860 ) Dividends paid to common stockholders ( 18,854 ) ( 18,137 ) Issuance of common shares 6,462 11,239 Repurchase of common shares ( 6,384 ) ( 11,402 ) Entrance fee deposits (refunds) 44 ( 520 ) Net cash used in financing activities ( 45,732 ) ( 19,680 ) Net Increase in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents 33,440 39,637 Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, Beginning of Period 96,922 125,968 Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, End of Period $ 130,362 $ 165,605 Balance Sheet Classifications: Cash and cash equivalents $ 110,992 $ 136,214 Restricted cash and cash equivalents 19,370 29,391 Total Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents $ 130,362 $ 165,605 The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements. 7 Table of Contents NATIONAL HEALTHCARE CORPORATION Interim Condensed Consolidated Statements of Stockholders ’ Equity (in thousands, except share and per share amounts) (unaudited) For the six months ended June 30, 2025 : Common Stock Shares Amount Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Non- controlling Interest Total Stockholders' Equity Balance at January 1, 2025 15,450,003 $ 154 $ 232,530 $ 752,193 $ ( 4,716 ) $ 3,002 $ 983,163 Net income – – – 32,205 – 85 32,290 Other comprehensive income – – – – 1,390 – 1,390 Stock–based compensation – – 1,027 – – – 1,027 Shares sold – options exercised 32,262 – 1,278 – – – 1,278 Repurchase of common shares ( 17,409 ) – ( 1,722 ) – – – ( 1,722 ) Dividends declared to common stockholders ($ 0.61 per share) – – – ( 9,444 ) – – ( 9,444 ) Balance at March 31, 2025 15,464,856 $ 154 $ 233,113 $ 774,954 $ ( 3,326 ) $ 3,087 $ 1,007,982 Net income – – – 23,722 – 391 24,113 Other comprehensive income – – – – 1,442 – 1,442 Stock–based compensation – – 1,233 – – – 1,233 Shares sold – options exercised 77,689 – 5,184 – – – 5,184 Repurchase of common shares ( 43,372 ) – ( 4,662 ) – – – ( 4,662 ) Dividends declared to common stockholders ($ 0.64 per share) – – – ( 9,909 ) – – ( 9,909 ) Balance at June 30, 2025 15,499,173 $ 154 $ 234,868 $ 788,767 $ ( 1,884 ) $ 3,478 $ 1,025,383 8 Table of Contents For the six months ended June 30, 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 Net income – – – 26,844 – 262 27,106 Other comprehensive income – – – – 1,132 – 1,132 Stock–based compensation – – 1,176 – – – 1,176 Shares sold – options exercised 38,849 – 2,827 – – – 2,827 Repurchase of common shares ( 15,636 ) – ( 1,502 ) – – – ( 1,502 ) Dividends declared to common stockholders ($ 0.61 per share) – – – ( 9,408 ) – – ( 9,408 ) Balance at June 30, 2024 15,422,937 $ 154 $ 229,410 $ 722,162 $ ( 5,909 ) $ 2,028 $ 947,845 The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements. 9 Table of Contents NATIONAL HEALTHCARE CORPORATION Notes to Interim Condensed Consolidated Financial Statements June 30, 2025 (unaudited) Note 1 – Description of Business National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. As of June 30, 2025, we operate or manage, through certain affiliates, 80 skilled nursing facilities with a total of 10,329 licensed beds, 26 assisted living facilities with 1,413 units, nine independent living facilities, three behavioral health hospitals, 34 homecare agencies, and 33 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 9 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, 2024 consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by U.S. GAAP. Our audited December 31, 2024 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, 2024 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. 10 Table of Contents 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. 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 $ 3,377,000 and $ 6,038,000 for the three and six months ended June 30, 2025, respectively. For the three and six months ended June 30, 2024, bad debt expense was $ 2,053,000 and $ 4,524,000 , respectively. As of June 30, 2025 and December 31, 2024, the Company has recorded allowance for doubtful accounts of $ 12,452,000 and $ 9,702,000 , 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 to other healthcare providers, management and accounting services to other healthcare 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. Government Grants We account for government grants in accordance with International Accounting Standards ("IAS") 20, Accounting for Government Grants and Disclosure of Government Assistance, and as such, we recognize grant income on a systematic basis in line with the recognition of specific expenses and lost revenues for which the grants are intended to compensate. For the six months ended June 30, 2024, all conditions related to the Employee Retention Credit ("ERC") were met and the credit was recognized as government stimulus income. The ERC was established by the CARES Act and intended to help businesses retain their workforce and avoid layoffs during the pandemic. The ERC provided a per employee credit to eligible businesses based on a percentage of qualified wages and health insurance benefits paid to employees. The qualified wages and health insurance benefits paid by the Company were related to the second, third and fourth quarters of 2020. 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. In 2025, we contributed land to a newly-formed limited liability company resulting in an equity interest in the new entity. The fair value of the land contributed to the new entity was $ 5,625,000 . The related cost basis of the contributed land was $ 2,019,000 , which resulted in a gain of $ 3,606,000 . The gain has been included in the interim condensed consolidated statements of operations as "other operating expenses." 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 and incentive compensation, which were $ 7,027,000 and $ 13,659,000 for the three and six months ended June 30, 2025, respectively. General and administrative costs were $ 7,226,000 and $ 13,390,000 for the three and six months ended June 30, 2024, respectively. 11 Table of Contents 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, regional 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. 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 or fair value, if acquired. 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. Investments in Unconsolidated Companies We use the equity method to account for our investments in joint ventures in which we have the ability to exercise significant influence. Original investments in these entities are recorded at cost and subsequently adjusted by our share of equity in income or losses. As of June 30, 2025, the majority of our investments in unconsolidated companies relates to a multi-family development that is under construction in Franklin, Tennessee, in which we own a 55 % non-controlling interest. Business Combinations We account for transactions that represent business combinations 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 is below its carrying amount. 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. 12 Table of Contents We are principally self-insured for incidents occurring in all centers owned or leased by us. The coverage includes 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. Continuing Care Contracts We have continuing care retirement centers (“CCRC”) within our operations. Residents at these retirement centers may enter into continuing care contracts with us. 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 June 30, 2025 and December 31, 2024, we have recorded a future service obligation liability in the amount of $ 1,474,000 . 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 of CCRC entrance fees being amortized over the remaining life expectancies of the residents. 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. Recently Adopted Accounting Guidance In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023 - 09 " Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures," which requires companies to disclose disaggregated jurisdictional and categorical information for the tax rate reconciliation, income taxes paid and other income tax related amounts. ASU 2023 - 09 is effective for annual periods beginning with the Company's fiscal year 2025. The Company has adopted the ASU and will include the required disclosures in our annual report. Recent Accounting Guidance Not Yet Adopted In October 2023, the FASB issued ASU 2023 - 06, "Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative," which amends U.S. GAAP to include certain disclosure requirements that are currently required under SEC Regulation S- X or Regulation S-K. Each amendment will be effective on the date on which the SEC removes the related disclosure requirement from SEC Regulation S- X or Regulation S-K. The adoption is not expected to have a material impact on the Company's financial statements as these requirements were previously incorporated under the SEC Regulations. In November 2024, the FASB issued ASU 2024 - 03 "Disaggregation of Income Statement Expenses," which requires the Company to disaggregate key expense categories such as employee compensation and depreciation within its financial statements. ASU 2024 - 03 is effective for annual periods beginning with the Company's fiscal year 2027, and interim periods with the Company's fiscal year 2028, with early adoption permitted. We are currently evaluating the impact this ASU will have on the company's financial statements and related disclosures. Reclassifications Certain accounts in the prior-year financial statements have been reclassified for comparative purposes to conform to the presentation in the current-year financial statements. 13 Table of Contents 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 June 30 Six Months Ended June 30 2025 2024 2025 2024 Net patient revenues: Inpatient services $ 325,012 $ 245,385 $ 650,490 $ 497,638 Homecare and hospice 38,337 34,533 74,466 68,103 Total net patient revenues $ 363,349 $ 279,918 $ 724,956 $ 565,741 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 June 30 Six Months Ended June 30 Source 2025 2024 2025 2024 Medicare 31 % 33 % 31 % 33 % Managed Care 12 % 10 % 12 % 10 % Medicaid 30 % 29 % 30 % 29 % Private Pay and Other 27 % 28 % 27 % 28 % Total 100 % 100 % 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. 14 Table of Contents 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. State Relief Supplemental Funding The Company received supplemental Medicaid payments from various states. 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 $ 1,812,000 and $ 2,585,000 in net patient revenues for these supplemental Medicaid payments for the three months ended June 30, 2025 and 2024, respectively. We have recorded $ 3,684,000 and $ 6,047,000 in net patient revenues for these supplemental Medicaid payments for the six months ended June 30, 2025 and 2024, respectively. Third Party Payors Laws and regulations governing 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 $ 15,160,000 and $ 15,351,000 as of June 30, 2025 and December 31, 2024, 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 June 30 Six Months Ended June 30 2025 2024 2025 2024 Rental income $ 6,172 $ 6,028 $ 12,623 $ 11,987 Management and accounting services fees 4,085 4,081 8,508 8,518 Insurance services 831 816 1,645 1,688 Other 473 370 875 455 Total other revenues $ 11,561 $ 11,295 $ 23,651 $ 22,648 15 Table of Contents 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. NHI is a publicly-traded real estate investment trust. Mr. Robert G. Adams, non-executive Chairman of the NHC Board, also serves on the Board of Directors of NHI. Management Fees from National Health Corporation We manage five skilled nursing facilities owned by National Health Corporation (“National”). We recognized management fees and interest on management fees from these facilities of $ 1,376,000 and $ 1,346,000 for the three months ended June 30, 2025 and 2024, respectively. We recognized management fees and interest on management fees of $ 2,784,000 and $ 2,666,000 from these facilities for the six months ended June 30, 2025 and 2024, respectively. Insurance Services For workers’ compensation insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ended June 30, 2025 and 2024 were $ 541,000 and $ 527,000 , respectively. The premium revenues reflected in the interim condensed consolidated statements of operations for the six months ended June 30, 2025 and 2024 were $ 1,066,000 and $ 1,109,000 , 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 June 30, 2025 and 2024 were $ 289,000 and $ 289,000 , respectively. The premium revenues reflected in the interim condensed consolidated statements of operations for the six months ended June 30, 2025 and 2024 were $ 579,000 and $ 579,000 , 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 – Non – Operating Income Non–operating income is comprised of the following (in thousands) : Three Months Ended June 30 Six Months Ended June 30 2025 2024 2025 2024 Dividends and net realized gains and losses on sales of securities $ 1,928 $ 1,724 $ 3,882 $ 3,780 Interest income 2,588 2,648 4,713 5,186 Equity in earnings of unconsolidated investments 616 584 616 651 Gain on sale of unconsolidated company - - - 1,024 Total non-operating income $ 5,132 $ 4,956 $ 9,211 $ 10,641 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. 16 Table of Contents The Company’s CODM evaluates performance including pretax earnings 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 June 30, 2025 Inpatient Services Homecare and Hospice All Other Total Revenues: Net patient revenues $ 325,012 $ 38,337 $ - $ 363,349 Other revenues 430 - 11,131 11,561 Net operating revenues 325,442 38,337 11,131 374,910 Costs and expenses: Salaries, wages, and benefits 190,641 23,183 12,710 226,534 Other operating 83,450 7,046 1,447 91,943 Rent 8,828 581 1,919 11,328 Depreciation and amortization 10,099 131 785 11,015 Total costs and expenses 293,018 30,941 16,861 340,820 Income/(loss) from operations 32,424 7,396 ( 5,730 ) 34,090 Non-operating income - - 5,132 5,132 Interest expense ( 1,993 ) - - ( 1,993 ) Unrealized losses on marketable equity securities - - ( 5,061 ) ( 5,061 ) Income/(loss) before income taxes $ 30,431 $ 7,396 $ ( 5,659 ) $ 32,168 Three Months Ended June 30, 2024 Inpatient Services Homecare and Hospice All Other Total Revenues: Net patient revenues $ 245,385 $ 34,533 $ - $ 279,918 Other revenues 324 - 10,971 11,295 Government stimulus income - - 9,445 9,445 Net operating revenues and grant income 245,709 34,533 20,416 300,658 Costs and expenses: Salaries, wages, and benefits 148,059 21,296 10,721 180,076 Other operating 66,813 6,394 4,947 78,154 Rent 8,262 567 1,741 10,570 Depreciation and amortization 8,383 186 769 9,338 Total costs and expenses 231,517 28,443 18,178 278,138 Income from operations 14,192 6,090 2,238 22,520 Non-operating income - - 4,956 4,956 Interest expense - - - Unrealized gains on marketable equity securities - - 9,124 9,124 Income before income taxes $ 14,192 $ 6,090 $ 16,318 $ 36,600 17 Table of Contents Six Months Ended June 30, 2025 Inpatient Services Homecare and Hospice All Other Total Revenues: Net patient revenues $ 650,490 $ 74,466 $ - $ 724,956 Other revenues 803 - 22,848 23,651 Net operating revenues and grant income 651,293 74,466 22,848 748,607 Costs and expenses: Salaries, wages, and benefits 383,078 45,587 25,999 454,664 Other operating 165,319 14,304 4,777 184,400 Rent 17,662 1,189 3,842 22,693 Depreciation and amortization 20,161 261 1,571 21,993 Total costs and expenses 586,220 61,341 36,189 683,750 Income/(loss) from operations 65,073 13,125 ( 13,341 ) 64,857 Non-operating income - - 9,211 9,211 Interest expense ( 4,099 ) - - ( 4,099 ) Unrealized gains on marketable equity securities - - 5,921 5,921 Income before income taxes $ 60,974 $ 13,125 $ 1,791 $ 75,890 Six Months Ended June 30, 2024 Inpatient Services Homecare and Hospice All Other Total Revenues: Net patient revenues $ 497,638 $ 68,103 $ - $ 565,741 Other revenues 339 - 22,309 22,648 Government stimulus income - - 9,445 9,445 Net operating revenues and grant income 497,977 68,103 31,754 597,834 Costs and expenses: Salaries, wages, and benefits 298,949 42,305 21,960 363,214 Other operating 135,496 12,367 7,720 155,583 Rent 16,374 1,133 3,411 20,918 Depreciation and amortization 18,013 374 1,537 19,924 Total costs and expenses 468,832 56,179 34,628 559,639 Income/(loss) from operations 29,145 11,924 ( 2,874 ) 38,195 Non-operating income - - 10,641 10,641 Interest expense ( 46 ) - - ( 46 ) Unrealized gains on marketable equity securities - - 23,523 23,523 Income before income taxes $ 29,099 $ 11,924 $ 31,290 $ 72,313 Note 7 – Long-Term Leases Operating Leases At June 30, 2025, 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 $ 32,225,000 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 $ 9,903,000 and $ 9,814,000 for the three months ended June 30, 2025 and 2024, respectively. Total facility rent expense to NHI was $ 19,814,000 and $ 19,286,000 for the six months ended June 30, 2025 and 2024, respectively. 18 Table of Contents Minimum Lease Payments The following table summarizes the maturity of our operating lease liabilities as of June 30, 2025 ( in thousands ): Operating Leases 2026 $ 35,736 2027 19,031 2028 2,155 2029 1,777 2030 1,575 Thereafter 11,061 Total minimum lease payments 71,335 Less: amounts representing interest ( 8,722 ) Present value of future minimum lease payments 62,613 Less: current portion ( 32,729 ) Noncurrent lease liabilities $ 29,884 19 Table of Contents 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 June 30 Six Months Ended June 30 2025 2024 2025 2024 Basic: Weighted average common shares outstanding 15,462,135 15,391,535 15,450,286 15,371,150 Net income attributable to National HealthCare Corporation $ 23,722 $ 26,844 $ 55,927 $ 53,057 Earnings per common share, basic $ 1.53 $ 1.74 $ 3.62 $ 3.45 Diluted: Weighted average common shares outstanding 15,462,135 15,391,535 15,450,286 15,371,150 Effects of dilutive instruments 137,503 164,077 137,497 159,474 Weighted average common shares outstanding 15,599,638 15,555,612 15,587,783 15,530,624 Net income attributable to National HealthCare Corporation $ 23,722 $ 26,844 $ 55,927 $ 53,057 Earnings per common share, diluted $ 1.52 $ 1.73 $ 3.59 $ 3.42 For the three and six months ended June 30, 2025, 269,351 stock options were excluded from the calculation of diluted weighted average shares of common stock outstanding because the inclusion of these securities would have an anti-dilutive impact. For the three and six months ended June 30 2024, 233,486 of 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) : June 30, 2025 December 31, 2024 Amortized Cost Fair Value Amortized Cost Fair Value Investments available for sale: Marketable equity securities $ 30,176 $ 146,636 $ 30,176 $ 140,064 Restricted investments available for sale: Marketable equity securities 12,263 16,269 18,534 23,190 Corporate debt securities 60,995 60,888 58,927 57,471 Asset-based securities 14,327 13,381 15,593 14,410 U.S. Treasury securities 56,631 55,718 46,811 44,186 State and municipal securities 3,736 3,714 3,787 3,737 $ 178,128 $ 296,606 $ 173,828 283,058 20 Table of Contents Included in the marketable equity securities are the following (in thousands, except share amounts): June 30, 2025 December 31, 2024 Shares Cost Fair Value Shares Cost Fair Value NHI Common Stock 1,630,642 $ 24,734 $ 114,341 1,630,642 $ 24,734 $ 113,003 The amortized cost and estimated fair value of debt securities classified as available for sale, by contractual maturity, are as follows (in thousands) : June 30, 2025 December 31, 2024 Cost Fair Value Cost Fair Value Maturities: Within 1 year $ 31,840 $ 31,665 $ 25,707 $ 25,317 1 to 5 years 63,525 62,311 66,117 63,379 6 to 10 years 39,769 39,280 32,648 30,606 Over 10 years 555 445 646 502 $ 135,689 $ 133,701 $ 125,118 $ 119,804 Gross unrealized gains related to marketable equity securities are $ 120,859,000 and $ 115,259,000 as of June 30, 2025 and December 31, 2024, respectively. Gross unrealized losses related to marketable equity securities are $ 393,000 and $ 715,000 as of June 30, 2025 and December 31, 2024, respectively. For the three months ended June 30, 2025 and 2024, the Company recognized net unrealized losses of $ 5,061,000 and net unrealized gains of $ 9,124,000 , respectively, for the changes in fair market value of the marketable equity securities in the interim condensed consolidated statements of operations. For the six months ended June 30, 2025 and 2024, the Company recognized net unrealized gains of $ 5,921,000 and $ 23,523,000 , 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 $ 1,044,000 and $ 135,000 as of June 30, 2025 and December 31, 2024, respectively. Gross unrealized losses related to available for sale marketable debt securities are $ 3,032,000 and $ 5,449,000 as of June 30, 2025 and December 31, 2024, 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 six months ended June 30, 2025 and 2024. For the marketable debt 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 six months ended June 30, 2025 and 2024 were $ 43,455,000 and $ 34,662,000 , respectively. Investment gains of $ 480,000 and $ 350,000 were realized on these sales during the six months ended June 30, 2025 and 2024, 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. 21 Table of Contents 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 June 30, 2025 and December 31, 2024 for assets and liabilities measured at fair value on a recurring basis (in thousands) : Fair Value Measurements Using June 30, 2025 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 $ 110,992 $ 110,992 $ – $ – Restricted cash and cash equivalents 19,370 19,370 – – Marketable equity securities 162,905 162,905 – – Corporate debt securities 60,888 37,152 23,736 – Asset–backed securities 13,381 – 13,381 – U.S. Treasury securities 55,718 55,718 – – State and municipal securities 3,714 800 2,914 – Total financial assets $ 426,968 $ 386,937 $ 40,031 $ – Fair Value Measurements Using December 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 $ 76,121 $ 76,121 $ – $ – Restricted cash and cash equivalents 20,801 20,801 – – Marketable equity securities 163,254 163,254 – – Corporate debt securities 57,471 43,656 13,815 – Asset–backed securities 14,410 – 14,410 – U.S. Treasury securities 44,186 44,186 – – State and municipal securities 3,737 806 2,931 – Total financial assets $ 379,980 $ 348,824 $ 31,156 $ – Note 11 – Goodwill and Other Intangible Assets At June 30, 2025, we evaluated potential triggering events that might be indicators that our goodwill and indefinite lived intangibles were impaired. 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. 22 Table of Contents At June 30, 2025, the following table represents the activity related to our goodwill by segment ( in thousands ): Inpatient Services Homecare and Hospice All Other Total January 1, 2025 $ 5,924 $ 164,554 $ – $ 170,478 Additions – – – – June 30, 2025 $ 5,924 $ 164,554 $ – $ 170,478 Indefinite-lived intangible assets consist of the following (in thousands) : June 30, 2025 December 31, 2024 Trade names $ 15,896 $ 15,896 Certificates of need 1,756 1,756 Licenses 2,212 2,212 Total $ 19,864 $ 19,864 Note 12 - Stock Repurchase Program During the six months ended June 30, 2025, the Company repurchased 60,781 shares of its common stock for a total cost of $ 6,384,000 . During the six months ended June 30, 2024, the Company repurchased 116,767 shares of its common stock for a total cost of $ 11,402,000 . The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued. Note 13 – Stock – Based 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 $ 1,233,000 and $ 1,175,000 for the three months ended June 30, 2025 and 2024, respectively. Stock-based compensation totaled $ 2,260,000 and $ 1,969,000 for the six months ended June 30, 2025 and 2024, respectively. Stock–based compensation is included in “Salaries, wages and benefits” in the interim condensed consolidated statements of operations. At June 30, 2025, the Company had $ 8,425,000 of unrecognized compensation cost related to unvested stock–based compensation awards. This unrecognized compensation cost will be amortized over an approximate two -year period. Stock Options The following table summarizes the significant assumptions used to value the options granted for the six months ended June 30, 2025 and for the year ended December 31, 2024. June 30, 2025 December 31, 2024 Risk–free interest rate 4.13 % 4.40 % Expected volatility 27.0 % 24.1 % Expected life, in years 2.9 2.9 Expected dividend yield 2.80 % 2.63 % The following table summarizes our outstanding stock options for the six months ended June 30, 2025 and for the year ended December 31, 2024. Number of Shares Weighted Average Exercise Price Aggregate Intrinsic Value Options outstanding at January 1, 2024 588,534 $ 61.30 $ – Options granted 297,783 94.42 – Options exercised ( 219,973 ) 64.73 – Options cancelled ( 35,102 ) 79.20 – Options outstanding at December 31, 2024 631,242 74.73 – Options granted 306,851 91.45 – Options exercised ( 98,570 ) 65.47 – Options cancelled ( 6,333 ) 78.77 – Options outstanding at June 30, 2025 833,190 $ 81.96 $ 20,875,000 Options exercisable at June 30, 2025 309,544 $ 73.00 $ 10,528,000 23 Table of Contents Options Outstanding June 30, 2025 Exercise Prices Weighted Average Exercise Price Weighted Average Remaining Contractual Life in Years 271,823 $53.94 - $ 71.64 $ 59.55 2.3 561,367 $90.62 - $ 106.48 92.81 4.3 833,190 $ 81.96 3.6 Note 14 – Income Taxes The Company's income tax provision as a percentage of our income before income taxes was 25.0 % and 25.9 % for the three months ended June 30, 2025 and 2024, respectively. The Company's income tax provision as a percentage of our income before income taxes was 25.7 % and 26.2 % for the six months ended June 30, 2025 and 2024, respectively. Typically, these percentages vary from the U.S. federal statutory income tax rate of 21 % primarily due to state income taxes, excess tax benefits from stock-based compensation, benefits resulting from the lapsing of statute of limitations of items in our tax contingency reserve, and non-deductible expenses. For the three months and six months ended June 30, 2025, the accrual of state income tax was the most significant reconciling item. For the three and six months ended June 30, 2024, the accrual of state income tax was the only significant reconciling items. 24 Table of Contents Our quarterly income tax provision, and our estimate of our annual effective income tax rate, is subject to variation due to several factors, including volatility based on the amount of pre-tax income or loss. The Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2021 (with certain state exceptions). Note 15 – Long-Term Debt Long–term debt consists of the following ( dollars in thousands ): Interest rate at June 30, 2025 (Variable) Maturity June 30, 2025 December 31, 2024 Credit facility, interest payable monthly 5.8% 2029 $ 110,000 $ 137,000 Less current portion ( 7,500 ) ( 7,500 ) Total long-term debt $ 102,500 $ 129,500 On August 1, 2024, the Company entered into a $ 200,000,000 senior credit facility with a five -year term consisting of a $ 150,000,000 term facility and a $ 50,000,000 revolving line of credit (the “Credit Facility”). The Credit Facility is for general corporate purposes, including working capital and acquisitions. The loans bear interest at either (i) Term Secured Overnight Financing Rate (“SOFR”) for interest periods of one, three or six months, plus the applicable margin or, at NHC’s option, (ii) the Base Rate plus the applicable margin. The applicable margin is an interest rate per annum between 1.30 % and 1.65 % for Term SOFR loans and between .30% and .65% for Base Rate loans, depending upon the Company meeting certain conditions. The revolving line of credit contains a commitment fee equal to 0.25 % of the unused borrowing capacity. There are no amounts outstanding on the revolving line of credit at June 30, 2025. NHC’s obligations under the Credit Facility are unsecured. The Credit Facility contains customary representations and warranties, financial covenants, and other customary affirmative and negative covenants. The Credit Facility also contains customary events of default. As of June 30, 2025, the Company is compliant with all financial covenants. Based on level 2 inputs, the carrying value of the Company's long-term debt is considered to approximate the fair value of such debt based upon the interest rates that the Company believes it can currently obtain for similar debt. The aggregate maturities of long–term debt for the five years subsequent to June 30, 2025 are as follows (in thousands) : Long–Term Debt 2025 $ 3,750 2026 7,500 2027 7,500 2028 7,500 2029 83,750 Total $ 110,000 25 Table of Contents Note 16 – Contingencies and Commitments Accrued Risk Reserves We have wholly–owned limited purpose insurance companies that insure risks related to workers’ compensation and general and professional liability insurance claims both for our owned and leased entities and certain of the entities to which we provide management or accounting services. The liability we have recognized for reported claims and estimates for incurred but unreported claims totals $ 108,982,000 and $ 103,616,000 at June 30, 2025 and December 31, 2024, respectively. The liability is included in accrued risk reserves in the interim condensed consolidated balance sheets and is subject to adjustment for actual claims incurred. It is possible that these claims plus unasserted claims could exceed our insurance coverages and our reserves, which could have a material adverse effect on our consolidated financial position, results of operations and cash flows. As a result of the terms of our insurance policies and our use of wholly owned limited purpose insurance companies, we have retained significant insurance risk with respect to workers’ compensation and general and professional liability. We consider the professional services of independent actuaries to assist us in estimating our exposures for claims obligations (for both asserted and unasserted claims) related to deductibles and exposures in excess of coverage limits, and we maintain reserves for these obligations. Such estimates are based on many variables including historical and statistical information and other factors. Workers ’ Compensation For workers’ compensation, we utilize a wholly–owned Tennessee domiciled property/casualty insurance company to write coverage for NHC affiliates and for third–party customers. Policies are written for a duration of twelve months and cover only risks related to workers’ compensation losses. All customers are companies which operate in the senior care industry. Business is written on a direct basis. General and Professional Liability Insurance and Lawsuits The senior care industry has experienced significant increases in both the number of personal injury/wrongful death claims and in the severity of awards based upon 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. The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards. Additional insurance is purchased through third party providers that serve to supplement the coverage provided through our wholly owned captive insurance company. There is certain additional litigation incidental to our business, none of which, based upon information available to date, would be material to our financial position, results of operations, or cash flows. In addition, the long–term care industry is continuously subject to scrutiny by governmental regulators, which could result in litigation or claims related to regulatory compliance matters. 26 Table of Contents Civil Investigative Demand / Qui Tam Complaint On or about May 21, 2024, Caris Healthcare, L.P. (“Caris”) received a Civil Investigative Demand (“CID”) from the U.S. Attorney’s Office for the Eastern District of Tennessee. The CID requested the production of certain medical records for patients at Caris’ Nashville office and other documents related to the billing for hospice services for the period of January 1, 2019, through the date of the CID. The Company cooperated with respect to the requests. On June 23, 2025, a Notice of Election to Decline Intervention (the “Notice of Declination”) was filed by the United States of America, the State of Tennessee, the Commonwealth of Virginia, and the State of Georgia, in a case styled U.S. ex rel. Marshall v. Caris HealthCare, L.P., Case No. 3:23 -CV- 00330, in the U.S. District Court for the Eastern District of Tennessee (the “Qui Tam Case”). Subsequent to the Notice of Declination filing, an underlying qui tam complaint, originally filed on September 12, 2023, was unsealed. Given that the government has declined to intervene in the Qui Tam Case, the relators have 90 days to effectuate service should they choose to proceed. Caris denies all allegations and liability in the Qui Tam Case and intends to vigorously defend the matter. Governmental Regulations Laws and regulations governing 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. Indemnities From time to time, the Company enters into certain types of contracts that contingently require it to indemnify parties against third -party claims. These contracts primarily include (i) certain real estate leases, under which the Company may be required to indemnify property owners or prior facility operators for post-transfer liabilities and other claims arising from the Company’s use of the applicable premises, (ii) operations transfer agreements, in which the Company agrees to indemnify past operators of facilities against certain liabilities arising from the transfer of the operation and/or the operation thereof after the transfer to the Company or its subsidiary, (iii) certain lending agreements, under which the Company may be required to indemnify the lender against various claims and liabilities, (iv) certain agreements by and between the Company and/or its subsidiaries or affiliates, and (v) certain agreements with the Company officers, directors and others, under which the Company may be required to indemnify such persons for liabilities arising out of the nature of their relationship to the Company and/or its subsidiaries and affiliates. The terms of such obligations vary by contract and, in most instances, do not expressly state or include a specific or maximum dollar amount. Generally, amounts under these contracts cannot be reasonably estimated until a specific claim is asserted. Note 17 – Subsequent Events On July 4, 2025, President Donald Trump signed into law the One Big Beautiful Bill Act (“OBBBA”). The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing, and the business interest expense limitation. ASC 740, Income Taxes , requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. Consequently, as of the date of enactment, and during the year ended December 31, 2025, the Company will evaluate all deferred tax balances under the newly enacted tax law and identify any other changes required to its financial statements as a result of the OBBBA. The Company is still evaluating the impact of the OBBBA, and the results of such evaluations will be reflected on the Company’s Form 10 -K for the year ended December 31, 2025.