Nutex Health Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Nutex operates 19 hospital facilities in eight states and a population health management business. The April 2022 merger with Clinigence means Q1 2023 includes that business, while Q1 2022 does not; reported year-over-year comparisons are therefore not fully comparable.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $56.3 million | $79.1 million |
| Hospital division revenue | $49.3 million | $79.1 million |
| Population health revenue | $7.0 million | Not included |
| Operating income (loss) | $(4.4) million | $29.2 million |
| Net income (loss) attributable to Nutex | $(5.1) million | $21.4 million |
| Diluted earnings (loss) per share | $(0.01) | $0.04 |
| Adjusted EBITDA | $2.4 million | $24.2 million |
| Cash from operating activities | $1.1 million | $35.7 million |
Hospital revenue fell 38%; patient visits declined 36%, to 33,085 from 51,743. Management attributed much of the visit comparison to elevated COVID-related activity in Q1 2022. Hospital segment operating income was $4.8 million, versus $35.8 million. Population health generated $7.0 million revenue and $0.1 million operating income in Q1 2023.
Gross profit was $4.8 million, approximately 8.6% of revenue, compared with $35.8 million, approximately 45.3%, in Q1 2022. The 2023 operating loss includes $9.3 million of corporate and other costs, including $1.9 million stock compensation and $0.2 million facility-closing costs. The $1.9 million stock issuance to Apollo Medical Holdings for IPA management services was an out-of-period adjustment; the company said it should have been recorded in Q4 2022 and was not material for revision.
Cash and cash equivalents were $32.8 million at March 31, down from $34.3 million at year-end. Current assets were $88.7 million and current liabilities $47.9 million. Accounts receivable was $51.0 million. Capital expenditures were $4.4 million; cash decreased $1.4 million during the quarter.
Reported debt was $38.3 million before debt issuance costs and current/long-term classification, including $2.7 million of lines of credit. Separately, finance lease liabilities totaled approximately $225.5 million and operating lease liabilities approximately $18.1 million. The company had $3.1 million remaining availability under lines of credit. It was not in compliance with the debt-service-coverage covenant on one term loan with a $1.0 million balance, classified as current.
Changes, outlook and risks
- Management cited lower patient volume and collections, increased employee and contractor costs, and investment in staffing as contributors to weaker results. Three facilities closed in January 2023.
- Management said existing cash, borrowing capacity and Yorkville proceeds were expected to support operating and growth needs for at least 12 months. It also noted that future financing may be needed and that planned growth and capital expenditures require capital. No specific revenue or earnings guidance was provided.
- After quarter-end, Nutex entered a Yorkville pre-paid advance agreement. It received a $15 million advance at 90% of face value ($12.8 million before expenses); a further $10 million payment was conditional on stock-price criteria. Yorkville converted $2.0 million of principal into 3,856,267 shares after quarter-end. The arrangement may cause substantial dilution, and certain trigger events could require monthly cash payments of up to $7.5 million plus accrued interest and a 6% premium. Further advances and share issuance are subject to market, Nasdaq and agreement conditions.
- The company reported that insurer payments for emergency-service claims had declined approximately 30% since the No Surprises Act took effect. It is pursuing independent dispute resolution, with outcomes varying; further reimbursement reductions or regulatory changes could adversely affect results.
- Disclosure controls were deemed ineffective as of March 31, 2023 because of previously identified material weaknesses involving system access, financial-reporting controls and spreadsheet accuracy. Remediation efforts were ongoing and had not been validated. Management said the weaknesses had not caused a material misstatement in the periods presented.
- Related-party arrangements include leases from entities owned partly by related parties, advances from an affiliate controlled by the CEO, and Physician LLCs owned or controlled in part by related parties. The company stated that no litigation was expected to have a material adverse effect and reported no material off-balance-sheet arrangements.
Important facts for investors to verify
- How much of the revenue and earnings decline reflects COVID-related comparison effects, reimbursement changes, patient volume, and the different segment mix after the Clinigence merger.
- Cash collection trends, accounts-receivable quality, and the financial effect of the reported 30% decline in insurer payments and the IDR process.
- The covenant breach, its cure or waiver status, and upcoming debt maturities, including the term loan maturity beginning in April 2023.
- Yorkville funding conditions, actual net proceeds, conversion and dilution terms, potential cash-payment triggers, and whether additional financing will be required.
- Progress in remediating material weaknesses and the effect of substantial finance lease obligations and related-party arrangements on liquidity and financial reporting.