Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

References throughout this document to the Company include National 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 to National 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.

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 to Interim Condensed Consolidated Financial Statements included in this Form 10-Q);

●	the status of our lease with National Health Investors, Inc. ("NHI"), including allegations of non-monetary default by NHI and the expiration of the current term at December 31, 2026;

●	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 2024 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.

Overview

National HealthCare Corporation ("NHC" or the "Company") is a leading provider of senior health care services. As of September 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.

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 ending September 30, 2025 was 90.0% compared to 88.3% for the same period a year ago. For the nine months ended September 30, 2025, overall census in our owned and leased skilled nursing facilities was 89.6% compared to 88.6% 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.

Quality of Patient 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's overall performance in these Five-Star ratings versus the skilled nursing industry as of September 30, 2025:

		NHC Ratings				Industry Ratings
Total number of skilled nursing facilities, end of period			80
Number of 4 and 5-star rated skilled nursing facilities			47
Percentage of 4 and 5-star rated skilled nursing facilities			59%				37%
Average rating for all skilled nursing facilities, end of period			3.8				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.

Type of Operation		Description		Size		Location		Placed in Service
Hospice		New Agency		1 agency		Morristown, TN		April 2024
Hospice		New Agency		1 agency		Lawrenceburg, TN		July 2024
Hospice		New Agency		1 agency		Wytheville, VA		August 2024
Hospice		New Agency		1 agency		Clinton, TN		October 2024

On August 1, 2024, the Company purchased the assets of White Oak Management, Inc. ("White Oak"). The White Oak portfolio consisted of 15 skilled nursing facilities, two assisted living facilities, four independent living facilities, and a long-term care pharmacy. The White Oak operations have 1,928 licensed skilled nursing beds, 48 assisted living units, and 302 independent living units in the states of South Carolina and North Carolina.

Accrued Risk Reserves

Our accrued professional liability and workers' compensation reserves totaled $114,032,000 at September 30, 2025 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

In July 2025, CMS released its final rule outlining fiscal year 2026 Medicare payment rates and policy changes for skilled nursing facilities, which began on October 1, 2025. The fiscal year 2026 rule equates to a net 3.2% increase in Medicare Part A payments to SNFs in fiscal year 2026 compared to 2025 levels. The rule includes a market basket increase of 3.3%, an increase of 0.6% to the market basket forecast error adjustment, and a negative 0.7% productivity adjustment. These figures do not incorporate the SNF Value Based Purchasing ("VBP") reduction for certain SNFs subject to the net reduction in payments under the SNF VBP; those adjustments are estimated to total $208.4 million in fiscal year 2026.

In July 2024, CMS released its final rule outlining fiscal year 2025 Medicare payment rates and policy changes for skilled nursing facilities, which began on October 1, 2024. The fiscal year 2025 rule equated to a net 4.2% increase in Medicare Part A payments to SNFs in fiscal year 2025 compared to 2024 levels. The rule included a market basket increase of 3.0%, an increase of 1.7% to the market basket forecast error adjustment, and a negative 0.5% productivity adjustment. This final rule also changed CMS' enforcement policies to impose more equitable and consistent civil monetary penalties ("CMPs") for health and safety violations as part of the agency's ongoing work to increase the safety and care provided in America's nursing homes. CMS revised the regulation to expand the type of CMPs that can be imposed to allow for more per instance and per day CMPs to be imposed, as appropriate. The 2025 final rule also updated the SNF Quality Reporting Program ("QRP") to better account for adverse social conditions that negatively impact individuals' health or healthcare. CMS also finalized its proposal to adopt a data validation process for the SNF QRP beginning the same year.

For the first nine months of 2025, our average Medicare per diem rate for skilled nursing facilities increased 5.9% as compared to the same period in 2024.

Medicaid - Skilled Nursing Facilities

Effective July 1, 2025 and for the fiscal year 2026, the state of Tennessee implemented specific individual nursing facility increases. We estimate the resulting increase in revenue for the 2026 fiscal year will be approximately $3,000,000 annually, or $750,000 per quarter.

Effective October 1, 2025 and for the fiscal year 2026, the state of South Carolina implemented specific individual nursing facility increases. We estimate the resulting increase in revenue for the 2026 fiscal year will be approximately $4,200,000 annually, or $1,050,000 per quarter.

For the first nine months of 2025, our average Medicaid per diem increased 3.6% compared to the same period in 2024.

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

In November 2024, CMS released its final rule outlining fiscal year 2025 Medicare payment rates. CMS projected payments to home health agencies in fiscal year 2025 will increase by 0.5% or $85 million, relative to the prior year. This increase reflects a 2.7% home health payment update, reduced by a 1.8% decrease that reflects the permanent behavior adjustment and an estimated 0.4% decrease that reflects the updated fixed-dollar loss ratio for outlier payments. As required by the Bipartisan Budget Act of 2018, this rule proposes a permanent prospective adjustment to the CY2025 home health payment rate to account for the impact of implementing the Patient-Driven Groupings Model ("PDGM"). This adjustment accounts for differences between assumed behavior changes and actual behavior changes on estimated aggregate expenditures due to the CY2020 implementation of PDGM and the change to a 30-day unit of payment.

In June 2025, CMS released its proposed rule outlining fiscal year 2026 Medicare payment rates. CMS projects payments to home health agencies in fiscal year 2026 will decrease by 6.4% or $1.1 billion, relative to the prior year. This update includes a 3.2% market basket update, reduced by a 0.8 percentage point cut for productivity. The rule also includes several reductions that CMS proposes as necessary to achieve budget neutral implementation of PDGM, including a 4.1% permanent reduction to the standard payment rate to prevent future overpayments. In addition to the proposed permanent adjustment, CMS also proposes to apply a 5.0% temporary adjustment on a prospective basis to account for retrospective PDGM overpayments. CMS states they are not proposing a future reduction would be applied after fiscal year 2026, but they will continue to analyze claims data each year for further temporary adjustments. CMS states the CMS also proposes a 0.5% reduction related to high-cost outlier payments.

Medicare - Hospice

In August 2025, CMS released its final rule outlining fiscal year 2026 Medicare payment rates. CMS issued a rate increase of 2.6%, or $750 million, effective October 1, 2025. This increase results from the proposed 3.3% inpatient hospital market basket percentage increase reduced by a proposed 0.7% point productivity adjustment, required by law. The FY2026 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 proposed hospice cap amount for FY2026 is $35,361.

In July 2024, CMS released its final rule outlining fiscal year 2025 Medicare payment rates. CMS issued a rate increase of 2.9%, or $790 million, effective October 1, 2024. This increase is the result of a 3.4% market basket increase reduced by a 0.5% productivity adjustment. The FY2025 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 FY2025 is $34,465.

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 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 September 30, 2025
		Inpatient Services				Homecare and Hospice				All Other				Total
Revenues:
Net patient revenues		$	331,349			$	39,640			$	-			$	370,989
Other revenues			393				-				11,279				11,672
Net operating revenues			331,742				39,640				11,279				382,661
Costs and expenses:
Salaries, wages, and benefits			195,745				23,788				13,643				233,176
Other operating			86,745				6,664				3,195				96,604
Rent			8,823				601				1,921				11,345
Depreciation and amortization			10,219				141				798				11,158
Total costs and expenses			301,532				31,194				19,557				352,283
Income/(loss) from operations			30,210				8,446				(8,278	)			30,378
Non-operating income			-				-				4,660				4,660
Interest expense			(1,456	)			-				-				(1,456	)
Unrealized gains on marketable equity securities			-				-				20,827				20,827
Income before income taxes		$	28,754			$	8,446			$	17,209			$	54,409

		Three Months Ended September 30, 2024
		Inpatient Services				Homecare and Hospice				All Other				Total
Revenues:
Net patient revenues		$	293,026			$	35,648			$	-			$	328,674
Other revenues			370				-				11,154				11,524
Net operating revenues and grant income			293,396				35,648				11,154				340,198
Costs and expenses:
Salaries, wages, and benefits			175,241				21,456				16,698				213,395
Other operating			72,384				6,612				3,513				82,509
Rent			8,422				602				1,862				10,886
Depreciation and amortization			9,632				172				815				10,619
Total costs and expenses			265,679				28,842				22,888				317,409
Income/(loss) from operations			27,717				6,806				(11,734	)			22,789
Non-operating income			-				-				4,224				4,224
Interest expense			(1,742	)			-				-				(1,742	)
Unrealized gains on marketable equity securities			-				-				32,767				32,767
Income before income taxes		$	25,975			$	6,806			$	25,257			$	58,038

		Nine Months Ended September 30, 2025
		Inpatient Services				Homecare and Hospice				All Other				Total
Revenues:
Net patient revenues		$	981,838			$	114,107			$	-			$	1,095,945
Other revenues			1,197				-				34,126				35,323
Net operating revenues			983,035				114,107				34,126				1,131,268
Costs and expenses:
Salaries, wages, and benefits			578,824				69,375				39,641				687,840
Other operating			252,064				20,969				7,971				281,004
Rent			26,486				1,790				5,762				34,038
Depreciation and amortization			30,380				402				2,369				33,151
Total costs and expenses			887,754				92,536				55,743				1,036,033
Income/(loss) from operations			95,281				21,571				(21,617	)			95,235
Non-operating income			-				-				13,871				13,871
Interest expense			(5,555	)			-				-				(5,555	)
Unrealized gains on marketable equity securities			-				-				26,748				26,748
Income before income taxes		$	89,726			$	21,571			$	19,002			$	130,299

		Nine Months Ended September 30, 2024
		Inpatient Services				Homecare and Hospice				All Other				Total
Revenues:
Net patient revenues		$	790,664			$	103,751			$	-			$	894,415
Other revenues			710				-				33,462				34,172
Government stimulus income			-				-				9,445				9,445
Net operating revenues and grant income			791,374				103,751				42,907				938,032
Costs and expenses:
Salaries, wages, and benefits			474,190				63,761				38,658				576,609
Other operating			207,883				18,977				11,232				238,092
Rent			24,795				1,736				5,273				31,804
Depreciation and amortization			27,646				545				2,352				30,543
Total costs and expenses			734,514				85,019				57,515				877,048
Income/(loss) from operations			56,860				18,732				(14,608	)			60,984
Non-operating income			-				-				14,865				14,865
Interest expense			(1,788	)			-				-				(1,788	)
Unrealized gains on marketable equity securities			-				-				56,290				56,290
Income before income taxes		$	55,072			$	18,732			$	56,547			$	130,351

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 and nine months ended September 30, 2025 and 2024.

Percentage of Net Operating Revenues

		Three Months Ended September 30								Nine Months Ended September 30
		2025				2024				2025				2024
Net operating revenues and grant income			100.0	%			100.0	%			100.0	%			100.0	%
Costs and expenses:
Salaries, wages, and benefits			60.9				62.7				60.8				61.5
Other operating			25.2				24.3				24.8				25.4
Facility rent			3.0				3.2				3.0				3.4
Depreciation and amortization			3.0				3.1				2.9				3.3
Total costs and expenses			92.1				93.3				91.5				93.6
Income from operations			7.9				6.7				8.5				6.4
Non-operating income			1.2				1.3				1.2				1.5
Interest expense			(0.4	)			(0.5	)			(0.5	)			(0.1	)
Unrealized gains on marketable equity securities			5.5				9.6				2.4				6.1
Income before income taxes			14.2				17.1				11.6				13.9
Income tax provision			(3.5	)			(4.5	)			(3.0	)			(3.7	)
Net income			10.7				12.6				8.6				10.2
Net (income)/loss attributable to noncontrolling interest			(0.4	)			0.0				(0.2	)			0.0
Net income attributable to stockholders of NHC			10.3				12.6				8.4				10.2

Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024

Results for the quarter ended September 30, 2025 compared to the third quarter of 2024 include a 12.5% increase in net operating revenues. The net operating revenues increase was due to a 8.7% increase in same-facility net operating revenues, as well as the August 1, 2024 acquisition of White Oak.

For the quarter ended September 30, 2025, GAAP net income attributable to NHC was $39,239,000 compared to net income of $42,789,000 for the same period in 2024. Excluding the unrealized gains and losses in our marketable equity securities portfolio and other non-GAAP adjustments, adjusted net income for the quarter ended September 30, 2025 was $24,744,000 compared to $19,910,000 for the same period in 2024, an increase of 24.3%. The increase in non-GAAP earnings for the three months ended September 30, 2025 compared to the same period in 2024 was primarily due to the continued increase in skilled nursing census, skilled nursing per diem increases from some of our government payors, the continued reduction of agency staffing expense, and the White Oak operations being accretive to earnings.

Net operating revenues and grant income

Net patient revenues increased $42,315,000, or 12.9%, compared to the same period last year.

The total census at owned and leased skilled nursing facilities for the quarter averaged 90.0%, compared to an average of 88.3% for the same quarter a year ago. Overall, the composite skilled nursing facility per diem was flat compared to the same quarter a year ago. Our Medicare per diem rates increased 6.1% and managed care per diem rates decreased 7.1% compared to the same quarter a year ago. The average managed care per diem is lower due to the delayed timing of incentive quality payments from our NHC Advantage managed care program. Excluding the incentive quality payments from NHC Advantage, the average Medicare Advantage skilled nursing per diem increased 2.7% during the third quarter of 2025 compared to the same period a year ago. Medicaid per diem rates decreased 1.9% and private pay per diem rates increased 3.5% compared to the same quarter a year ago. For the three months ended September 30, 2025 and 2024, respectively, $1,838,000 and $5,267,000 have been included in our net patient revenues for supplemental Medicaid payments.

The White Oak operations attributed to an increase of $20,026,000 in net patient revenues for the quarter ended September 30, 2025 compared to the same period in 2024.

Other revenues increased $148,000, or 1.3%, compared to the same quarter last year, as further detailed in Note 4 to our interim condensed consolidated financial statements.

Total costs and expenses

Total costs and expenses for the three months ended September 30, 2025 compared to the same period of 2024 increased $34,874,000, or 11.0% to $352,283,000 from $317,409,000.

Salaries, wages, and benefits increased $19,781,000, or 9.3%, to $233,176,000 from $213,395,000. Salaries, wages, and benefits as a percentage of net operating revenues was 60.9% compared to 62.7% for the three months ended September 30, 2025 and 2024, respectively. Although we continue to face workforce and labor shortages within all of our operations, we are working diligently to find solutions to reduce and eliminate agency nurse staffing expense within our healthcare operations. For the third quarter of 2025, our agency nurse staffing expense was $1,207,000 compared to $3,099,000 for the third quarter of 2024.

The White Oak operations attributed to an increase of $13,158,000 in salaries, wages, and benefits for the three months ended September 30, 2025 compared to the same period in the prior year.

Other operating expenses increased $14,095,000, or 17.1%, to $96,604,000 for the 2025 period compared to $82,509,000 for the 2024 period. Other operating expenses as a percentage of net operating revenues was 25.2% and 24.3% for the three months ended September 30, 2025 and 2024, respectively. The White Oak operations attributed to an increase of $5,357,000 in other operating expenses for the three months ended September 30, 2025 as compared to the same period in the prior year. We also incurred unfavorable claims activity within our professional liability captive insurance company during the third quarter of 2025. The unfavorable claims activity resulted in additional other operating expenses of $4,219,000 for the third quarter of 2025 compared to the same period in the prior year.

Other income

Non-operating income increased by $436,000 compared to the same period last year, as further detailed in Note 5 to our interim condensed consolidated financial statements.

Income taxes

The income tax provision for the three months ended September 30, 2025 is $13,400,000 (an effective income tax rate of 24.6%).

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 to NHC in its 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 subsidiary earnings based on ownership interest.

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

Results for the nine months ended September 30, 2025 compared to the same period of 2024 include a 20.6% increase in net operating revenues and grant income. The net operating revenues increase was due to a 9.2% increase in same-facility net operating revenues, as well as the August 1, 2024 acquisition of White Oak.

For the nine months ended September 30, 2025, GAAP net income attributable to NHC was $95,166,000 compared to net income of $95,846,000 for the same period in 2024. Excluding the unrealized gains in our marketable equity securities portfolio and other non-GAAP adjustments, adjusted net income for the nine months ended September 30, 2025 was $75,293,000 compared to $50,909,000 for the same period in 2024, an increase of 47.9%. The increase in non-GAAP earnings for the nine months ended September 30, 2025 compared to the same period in 2024 was primarily due to the continued increase in skilled nursing census, skilled nursing per diem increases from some of our government payors, the continued reduction of agency staffing expense, and the White Oak operations being accretive to earnings.

Net operating revenues and grant income

Net patient revenues increased $201,530,000, or 22.5%, compared to the same period last year.

The total census at owned and leased skilled nursing facilities for the nine months ended September 30, 2025 averaged 89.6%, compared to an average of 88.6% for the same period a year ago. Overall, the composite skilled nursing facility per diem increased 3.7% compared to the same period a year ago. Our Medicare per diem rates increased 5.9% and managed care per diem rates increased 2.0% compared to the same period a year ago. The average managed care per diem is lower due to the delayed timing of incentive quality payments from our NHC Advantage managed care program. Excluding the incentive quality payments from NHC Advantage, the average Medicare Advantage skilled nursing per diem increased 5.3% for the nine months ending September 30, 2025 compared to the same period a year ago. Medicaid and private pay per diem rates increased 3.6% and 7.2%, respectively, compared to the same period a year ago. For the nine months ended September 30, 2025 and 2024, respectively, $5,522,000 and $11,314,000 have been included in our net patient revenues for supplemental Medicaid payments.

The White Oak operations attributed to an increase of $133,606,000 in net patient revenues for the nine months ended September 30, 2025 compared to the same period in 2024.

Other revenues increased $1,151,000, or 3.4%, compared to the same period last year, as further detailed in Note 4 to our interim condensed consolidated financial statements.

Total costs and expenses

Total costs and expenses for the nine months ended September 30, 2025 compared to the same period of 2024 increased $158,985,000, or 18.1% to $1,036,033,000 from $877,048,000.

Salaries, wages, and benefits increased $111,231,000, or 19.3%, to $687,840,000 from $576,609,000. Salaries, wages, and benefits as a percentage of net operating revenues was 60.8% compared to 61.5% for the nine months ended September 30, 2025 and 2024, respectively. Although we continue to face workforce and labor shortages within all of our operations, we are working diligently to find solutions to reduce and eliminate agency nurse staffing expense within our healthcare operations. For the nine months ended September 30, 2025, our agency nurse staffing expense was $3,675,000 compared to $12,483,000 for the same period of 2024.

The White Oak operations attributed to an increase of $87,741,000 in salaries, wages, and benefits for the nine months ended September 30, 2025 compared to the same period in the prior year.

Other operating expenses increased $42,912,000, or 18.0%, to $281,004,000 for the 2025 period compared to $238,092,000 for the 2024 period. Other operating expenses as a percentage of net operating revenues was 24.8% and 25.4% for the nine months ended September 30, 2025 and 2024, respectively. The White Oak operations attributed to an increase of $30,941,000 in other operating expenses for the nine months ended September 30, 2025 as compared to the same period in the prior year. We have also incurred unfavorable claims activity within our professional liability captive insurance company during 2025. The unfavorable claims activity resulted in additional other operating expenses of $6,685,000 for the nine months ending September 30, 2025 compared to the same period in the prior year.

During the second quarter of 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. This gain was netted with other operating expenses resulting in a decrease of $3,606,000 in other operating expenses as compared to the same period in the prior year.

Other income

Non-operating income decreased by $994,000 compared to the same period last year, as further detailed in Note 5 to our interim condensed consolidated financial statements. In January 2024, the Company sold its 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

Income taxes

The income tax provision for the nine months ended September 30, 2025 is $32,887,000 (an effective income tax rate of 25.2%).

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, gains on sales of assets, and share-based compensation expense is helpful in allowing investors to assess the Company's operations more accurately.

The tables below provide reconciliations of GAAP to non-GAAP items (dollars in thousands, except per share data):

		Three Months Ended September 30								Nine Months Ended September 30
		2025				2024				2025				2024
Net income attributable to National Healthcare Corporation		$	39,239			$	42,789			$	95,166			$	95,846
Non-GAAP adjustments:
Unrealized gains on marketable equity securities			(20,827	)			(32,767	)			(26,748	)			(56,290	)
Operating results for newly opened facilities or agencies not at full capacity			-				120				-				140
Share-based compensation expense			1,239				1,093				3,499				3,062
Gain on sale of property and equipment			-				-				(3,606	)			-
Gain on sale of unconsolidated company			-				-				-				(1,024	)
Acquisition-related expenses			-				637				-				2,831
Employee retention credit			-				-				-				(9,445	)
Income tax expense on non-GAAP adjustments			5,093				8,038				6,982				15,789
Non-GAAP Net income		$	24,744			$	19,910			$	75,293			$	50,909
GAAP diluted earnings per share		$	2.50			$	2.73			$	6.10			$	6.15
Non-GAAP adjustments:
Unrealized gains on marketable equity securities			(1.33	)			(2.09	)			(1.71	)			(3.59	)
Operating results for newly opened facilities or agencies not at full capacity			-				0.01				-				0.01
Share-based compensation expense			0.08				0.07				0.22				0.20
Gain on sale of property and equipment			-				-				(0.23	)			-
Gain on sale of unconsolidated company			-				-				-				(0.07	)
Acquisition-related expenses			-				0.04				-				0.18
Employee retention credit			-				-				-				(0.62	)
Income tax expense on non-GAAP adjustments			0.33				0.51				0.45				1.01
Non-GAAP diluted earnings per share		$	1.58			$	1.27			$	4.83			$	3.27

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, long-term debt payments, 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):

		Nine Months Ended September 30								Nine Month Change
		2025				2024				$				%
Cash, cash equivalents, restricted cash, and restricted cash equivalents, at beginning of period		$	96,922			$	125,968			$	(29,046	)			(23.1	)%
Cash provided by operating activities			168,271				94,514				73,757				78.0
Cash used in investing activities			(20,924	)			(225,048	)			204,124				90.7
Cash (used in)/provided by financing activities			(92,735	)			119,640				(212,375	)			(177.5	)
Cash, cash equivalents, restricted cash, and restricted cash equivalents, at end of period		$	151,534			$	115,074			$	36,460				31.7	%

Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2025 was $168,271,000 as compared to $94,514,000 in the same period last year. Cash provided by operating activities consisted of net income of $97,412,000 and adjustments for non-cash items of $8,384,000. There was cash provided by working capital in the amount of $62,731,000 for the nine months ended September 30, 2025 compared to $7,015,000 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, gain on sale of an unconsolidated company, gain on sale of property and equipment, deferred taxes, and stock compensation.

Investing Activities

Net cash used in investing activities totaled $20,924,000 for the nine months ended September 30, 2025, compared to $225,048,000 for the nine months ended September 30, 2024. Cash used for property and equipment additions was $26,049,000 and $19,944,000 for the nine months ended September 30, 2025 and 2024, respectively. In 2025, we contributed capital of $3,123,000 for two joint venture, multi-family developments that are under construction in Nashville, Tennessee compared to $8,370,000 for the same period in the prior year. Proceeds from the sale of marketable securities, net of purchases, resulted in cash provided by investing activities of $7,736,000 for the nine months ended September 30, 2025 compared to $15,040,000 for the same period a year ago.

On August 1, 2024, the acquisition of White Oak Senior Living resulted in cash used of $215,896,000. In January 2024, the Company sold its ownership interest in a homecare agency resulting in proceeds from the sale of $2,100,000.

Financing Activities

Net cash used in financing activities totaled $92,735,000 for the nine months ended September 30, 2025 compared to cash provided by financing activities in the amount of $119,640,000 for the nine months ended September 30, 2024. During the first nine months of 2025, cash of $63,875,000 was used to pay down the outstanding principal balance of the long-term debt. Cash used for dividend payments to common stockholders totaled $28,773,000 in the current year period compared to $27,545,000 for the same period a year ago. Proceeds from the issuance of common stock totaled $9,415,000 and $13,471,000 for the nine months ended September 30, 2025 and 2024, respectively. We repurchased common shares outstanding in the amount of $9,566,000 and $13,502,000 for the nine months ended September 30, 2025 and 2024, respectively.

In 2024, the funding for the White Oak acquisition was provided by the Company's cash on hand and borrowings under the credit facility of $150,000,000.

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, we have current cash on hand of $130,629,000 and unrestricted marketable equity securities of $166,754,000. We also have unencumbered real estate and the borrowing capacity on our $50 million available line of credit. We believe these various resources are adequate to meet our contractual obligations and 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 $130,629,000, our unrestricted marketable equity securities of $166,754,000, and our borrowing capacity on the $50 million available line of credit. We also have substantial value in our unencumbered real estate assets, which could potentially be used as collateral in future borrowing opportunities.

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 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.