Nutex Health Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; filed August 9, 2023. Nutex operates 20 hospital facilities in eight states and a population health management business. Comparisons are with 2022; the merger that added Clinigence closed April 1, 2022, so the population health segment is not fully comparable for the six-month period.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $58.9 million | $58.0 million | $115.3 million | $137.2 million |
| Gross profit | $9.6 million | $6.6 million | $14.5 million | $42.5 million |
| Operating income (loss) | $(0.4) million | $(1.4) million | $(4.8) million | $27.9 million |
| Net income (loss) attributable to Nutex | $(3.5) million | $(19.3) million | $(8.6) million | $2.2 million |
| Adjusted EBITDA (non-GAAP) | $4.0 million | $10.1 million | $6.4 million | $34.2 million |
Q2 revenue was nearly flat year over year, while gross profit improved and operating loss narrowed. Adjusted EBITDA nevertheless fell 61%. For the first half, revenue fell 16% and Adjusted EBITDA fell 81%. Hospital revenue was $100.9 million, down 23%; population health revenue was $14.4 million, up from $6.4 million, with the prior-year period including only post-merger results. Q2 diluted loss per share was $0.01 versus $0.03.
- Cash flow: First-half operating cash flow was $1.1 million, down from $53.4 million. Investing cash outflow was $8.5 million, including $7.4 million of capital expenditures. Financing cash inflow was $5.9 million. Cash declined $1.5 million to $32.8 million.
- Liquidity: June 30 current assets were $92.1 million and current liabilities $57.4 million; cash was $32.8 million. Available capacity under existing lines of credit was $3.1 million.
- Debt and leases: Debt table reported $45.6 million of total debt before unamortized issuance costs and current/noncurrent presentation adjustments. Finance lease liabilities totaled approximately $224.6 million; operating lease liabilities totaled approximately $17.8 million. Interest expense was $8.0 million for the first half, versus $6.2 million.
- Margins: Gross margin was approximately 16.4% in Q2 versus 11.4% a year earlier; for the first half it was approximately 12.6% versus 30.9%. The filing does not present these margins as reported metrics; percentages are calculated from reported revenue and gross profit.
Changes, outlook and material matters
- Hospital visits declined 3% in Q2 and 30% in the first half year over year. Management attributed the first-half decline largely to elevated COVID-related visits in January 2022; Q2 decline also reflected seasonality and three facility closures. Management said Q2 hospital operating income benefited from lower costs after renegotiating contract personnel agreements and that revenue per patient was trending favorably.
- Management reported $1.7 million of first-half start-up costs for new and in-development facilities, and $1.2 million in Q2. Four facilities had opened or were in development during 2023 to date. The company plans growth through new hospitals, IPAs and acquisitions, but provided no numerical revenue or earnings guidance.
- Management believes cash, available borrowing capacity and remaining Yorkville financing proceeds will be sufficient for operations and growth for at least 12 months. It may seek additional debt or equity financing if business assumptions change or needs arise; larger financing commitments are not assured.
- The April 2023 Yorkville pre-paid advance provided $15 million face value at a 10% discount. By June 30, 8.0 million shares had been issued to reduce principal by $3.8 million, and the company made a $3.7 million optional cash prepayment, including a premium. The advance carried a $7.7 million principal balance at quarter-end and permits further advances subject to conditions, share limits and potential dilution. The company did not receive the additional $10 million contemplated in the initial advance.
- Nutex said insurer payments for emergency claims had declined approximately 30% since the No Surprises Act took effect. It has pursued federal and Texas dispute-resolution processes; federal IDR was temporarily suspended again on August 4, 2023. Management said it did not expect the suspension to materially affect reimbursement, citing the low share of claims taken to arbitration, but reimbursement rules and insurer actions remain risks.
- Nasdaq notified the company that its bid price had been below $1 for 30 consecutive business days. The initial compliance deadline was November 20, 2023; failure to regain compliance could lead to delisting, subject to potential additional time and appeal.
- Disclosure controls were deemed ineffective at June 30 due to previously identified material weaknesses involving system access, financial reporting controls and spreadsheet accuracy. Remediation was ongoing and had not been validated. The filing also identifies a $1.9 million stock-based compensation charge recorded in 2023 for shares issued to Apollo Medical for services that management said should have been recognized in December 2022; it was treated as an immaterial out-of-period adjustment.
- One term loan with a $1.0 million outstanding balance was not in compliance with its debt-service coverage covenant at June 30; the balance was classified as current. The filing says litigation in the ordinary course is not expected to have a material adverse effect.
Investor verification priorities
- Track hospital visit volumes, collections per patient and the extent to which new facilities contribute revenue relative to start-up costs.
- Review operating cash generation, near-term debt maturities, covenant compliance, credit availability and the company’s ability to fund expansion.
- Assess the Yorkville advance’s remaining funding availability, repayment triggers, share issuance limits and potential dilution.
- Monitor No Surprises Act reimbursement and IDR developments, including the effect of the federal process suspension on collections.
- Confirm progress toward Nasdaq bid-price compliance and remediation and independent validation of the reported control weaknesses.