Nutex Health Inc. annual report, FY2023

Nutex Health Inc. — 2023 Form 10-K

Reporting period: Fiscal year ended December 31, 2023; filed March 28, 2024. Nutex operates 20 hospitals across eight states and a population health management (PHM) business with physician networks and healthcare data software. It reports hospital, PHM, and real estate segments. The 2022 comparison includes Clinigence only from the April 2022 merger date, limiting comparability.

Financial performance and position

Metric	2023	2022
Revenue	$247.6 million	$219.3 million
Operating income (loss)	$(31.8) million	$(406.6) million
Net income (loss) attributable to Nutex	$(45.8) million; $(0.07) per share	$(424.8) million; $(0.67) per share
Adjusted EBITDA (non-GAAP)	$10.8 million	$12.5 million
Cash from operating activities	$1.3 million	$50.6 million

• Revenue rose 12.9%. Hospital revenue increased 10% to $218.1 million, despite patient visits declining about 11% to 144,058. PHM revenue grew to $29.6 million from $20.8 million; the 2022 comparison reflects fewer post-merger reporting months. PHM recorded a $1.6 million segment operating loss.
• Hospital segment operating income increased to $36.3 million from $15.0 million. Consolidated operating results remained negative after $66.5 million of corporate and other costs, including $30.2 million of asset and goodwill impairments and $33.2 million of general and administrative expense.
• The net loss narrowed substantially from 2022, when Nutex recorded a $398.1 million non-cash goodwill impairment. Adjusted EBITDA nevertheless declined 13.7%, which management attributed in part to start-up costs at four hospitals opened in 2023.
• Cash and cash equivalents were $22.0 million at year-end, down from $34.3 million. Current assets were $90.8 million and current liabilities $58.3 million. Operating cash flow was only $1.3 million; capital expenditures were $9.5 million and distributions to noncontrolling owners were $5.2 million.
• Reported debt was $42.4 million gross, including $14.2 million scheduled to mature in 2024; the balance sheet also included $218.2 million of finance lease liabilities and $17.1 million of operating lease liabilities. Nutex had $1.4 million of available line-of-credit capacity. It was out of compliance with a debt-service coverage covenant on a term loan with a $0.3 million balance, classified as current.

Material changes and unusual items

• Insurer payment pressure under the No Surprises Act (NSA) remains central to hospital collections. Management reported emergency-service payments improved 5% in 2023 versus 2022, while physician-service payments declined 10%; it described the combined impact as a 3% increase. Nutex submitted 90,000 cases for IDR open negotiation in 2023, versus 28,000 in 2022, with associated administrative burden and collection delays.
• 2023 included $29.1 million of asset impairment and $1.1 million of goodwill impairment tied to facility closures. Two Texas hospitals closed in January 2024; estimated severance costs of approximately $0.2 million were expected in first-quarter 2024. The filing also identifies two facility closures in January 2023.
• Interest expense increased to $16.3 million from $12.5 million, including costs associated with the Yorkville pre-paid advance and September convertible-note offering. The Yorkville advance was paid off in January 2024 and terminated the following month.
• Subsequent financing included a January 2024 equity-and-warrant offering with $10.0 million gross proceeds ($9.3 million net). In March 2024, the conversion and warrant exercise prices on the September 2023 notes and warrants were reduced from $0.40 to $0.20, increasing potential share issuance. These transactions occurred after year-end.
• The independent auditor gave an unqualified opinion on the financial statements, but an adverse opinion on internal control over financial reporting. Management identified material weaknesses in financial-system access and change controls, financial reporting processes and spreadsheet controls; disclosure controls were also deemed ineffective. Remediation efforts were ongoing and not yet validated as effective.

Outlook, risks and contingencies

• Management planned to open five hospitals in 2024 and stated a broader goal of 5–10 new facilities by the end of 2025, with expansion into additional states. It also anticipated launching one to three IPAs annually. These are plans, not assured outcomes; the filing gives no earnings or cash-flow guidance.
• Key risks include uncertain out-of-network reimbursement and NSA/IDR outcomes, delayed collections, medical-cost exposure under capitated contracts, and the need for capital to build and staff facilities. Growth may require additional financing, equity issuance or debt.
• Other material risks include healthcare licensing and fraud-and-abuse compliance, corporate-practice-of-medicine and fee-splitting rules, cybersecurity and privacy, physician recruitment and retention, and related-party arrangements. The CEO has interests in real estate entities leasing facilities to Nutex, creating potential conflicts. Nutex also disclosed that it does not hold a California Knox-Keene license.
• Nasdaq had granted an extension through May 20, 2024 to regain compliance with the $1.00 minimum bid-price rule; the filing states Nutex intended to use a reverse split if necessary. The filing does not establish the subsequent outcome.
• The company reported no litigation it believed would materially affect its business or financial condition and no material off-balance-sheet arrangements. It does not plan to pay cash dividends in the foreseeable future.

Key facts for investors to verify

• Whether hospital collections and NSA/IDR recoveries can improve, and whether the large volume of disputes converts into timely cash receipts.
• Cash generation, near-term debt maturities, lease obligations, covenant compliance and access to additional financing.
• Execution and funding of hospital and IPA expansion, including ramp-up economics and the impact of the January 2024 closures.
• Progress in remediating material weaknesses and whether internal controls are independently validated as effective.
• Current Nasdaq listing compliance and the dilution implications of the January offering and repriced convertible notes and warrants; shares outstanding were 676.7 million at year-end and 745.4 million at March 25, 2024.