Nutex Health Inc. quarterly report, Q3 FY2023

Nutex Health Inc. — Q3 2023 Form 10-Q

Reporting period: Three and nine months ended September 30, 2023; balance-sheet comparisons are to December 31, 2022. Nutex operates 22 hospital facilities in eight states and a population health management business. Its reported results consolidate certain physician, IPA and real-estate entities as variable interest entities.

Financial performance and liquidity

Metric	Q3 2023	Q3 2022	Nine months 2023	Nine months 2022
Revenue	$62.7 million	$28.4 million	$178.0 million	$165.6 million
Segment operating income	$7.1 million	$(23.7) million	$21.6 million	$18.7 million
Operating loss	$(0.8) million	$(428.7) million	$(5.6) million	$(400.8) million
Net loss attributable to Nutex	$(5.5) million	$(412.2) million	$(14.2) million	$(410.0) million
Adjusted EBITDA	$1.3 million	$(15.7) million	$7.7 million	$18.5 million
Operating cash flow	Not separately provided for the quarter	$3.0 million	$46.1 million

Q3 revenue increased 121% year over year, with hospital revenue of $54.6 million versus $21.2 million and population health management revenue of $8.1 million versus $7.2 million. The comparison is affected by approximately $29.0 million of revenue reduction attributed to legislative changes in Q3 2022 and by facility openings and closures.
For the first nine months, revenue rose 7.5%. Hospital revenue increased to $155.5 million from $152.0 million; population health management revenue rose to $22.5 million from $13.6 million. Hospital visits fell 15.3% to 102,798, primarily reflecting fewer COVID-19 cases, while improved collections and a change in visit acuity supported hospital revenue.
The 2022 net losses include a non-cash $398.1 million goodwill impairment. Excluding that item, the headline loss comparison is substantially different. Q3 2023 remained loss-making, and nine-month Adjusted EBITDA declined despite higher revenue.
Cash and equivalents were $26.8 million, down from $34.3 million at year-end 2022. Operating cash flow was $3.0 million; investing cash outflow was $12.1 million and financing cash inflow was $1.6 million. Capital expenditures were $10.3 million.
Current assets were $89.9 million and current liabilities $67.3 million, implying working capital of approximately $22.6 million. Reported debt was $43.2 million before unamortized discounts and issuance costs. In addition, finance lease liabilities totaled approximately $268.0 million and operating lease liabilities approximately $17.4 million.
Interest expense was $4.1 million in Q3 and $12.1 million for nine months, up from $3.4 million and $9.6 million, respectively. The filing attributes the increase principally to discount amortization on the Yorkville advance and new facilities.

Material changes and financing

The Q3 2022 comparison includes the $398.1 million goodwill impairment; no goodwill impairment was recorded in 2023. Q3 2023 segment operating income was $7.1 million, but corporate costs of $7.9 million resulted in a consolidated operating loss.
Q3 hospital visits increased 2.6% to 37,443, which management attributed mostly to three facilities opened during the quarter. Management also cited renegotiated contract personnel agreements and improved revenue-cycle work.
Nutex acquired two Florida IPAs on August 1, 2023, for $0.8 million cash and $0.8 million in shares, with additional contingent and earn-out consideration possible. It also opened facilities in 2023 and incurred $1.4 million of costs for four new locations during the nine-month period.
At September 30, 2023, one term loan with a $1.0 million balance was out of compliance with its debt-service-coverage covenant; the balance was classified as current. Remaining availability under lines of credit was $1.4 million.
The Yorkville pre-paid advance had a $5.6 million principal balance and $5.1 million net carrying amount at quarter-end. Shares issued to Yorkville reduced principal, and the company also made a $3.7 million optional prepayment. The agreement permits advances up to $100 million over 18 months, subject to conditions, and includes share-price, share-issuance and cash-repayment triggers.
A September 2023 private offering of convertible notes and warrants generated $0.9 million net cash in the quarter; the company reported a further $3.1 million of net proceeds after quarter-end. The offering may total $15 million. Conversion and warrant exercise could dilute existing holders; the filing estimates up to 67.5 million shares under a fully subscribed offering, including the applicable instruments described in the risk section.
Common shares outstanding were 670.7 million at September 30 and 670.8 million as of November 6, 2023. Share issuance included Yorkville conversions, shares for the Florida IPA acquisition and shares issued to Apollo Medical Holdings for IPA management services.

Outlook, risks and other notable items

Management stated that existing cash, cash equivalents, marketable securities and available borrowing capacity should cover anticipated operating and growth needs for at least the next 12 months. It is seeking larger financing commitments, but says availability and terms depend on market conditions; additional equity or debt financing may be pursued.
The filing gives no specific revenue or earnings guidance. Management’s stated growth approach includes opening hospitals, forming or acquiring IPAs, and improving collections. New facilities may incur start-up costs before reaching sustainable patient volumes.
The No Surprises Act and related reimbursement process remain significant uncertainties. Nutex said average insurer payments for emergency-service claims had declined approximately 26% since the law took effect. IDR proceedings and court rulings have changed the process; the company reported varying collection outcomes and warned that reimbursement rates or future rules could adversely affect results.
Nasdaq had notified the company that its share price was below the $1.00 minimum bid requirement, with an initial compliance deadline of November 20, 2023. The filing states that a further compliance period or a reverse stock split might be options, but neither continued listing nor an extension was assured.
Disclosure controls were assessed as ineffective at September 30, 2023 because previously identified material weaknesses remained. These involved system access, financial-reporting control design and review, segregation of duties, and spreadsheet accuracy and completeness. Remediation efforts were ongoing and had not yet been validated.
The filing describes related-party relationships involving physician and real-estate entities, including leases and obligations. Management said ordinary-course litigation was not expected to have a material adverse effect. No material off-balance-sheet arrangements were reported.
The company disclosed a $1.9 million stock-based compensation expense recorded in 2023 for shares issued to Apollo Medical Holdings; management said it should have been recorded in 2022 but considered the prior-period error immaterial. The filing also describes an immaterial revision to prior-period financial statements related to merger accounting.

Key facts investors should verify

Whether operating cash generation improves and whether management secures additional financing on acceptable terms, given cash usage, limited line availability and substantial lease obligations.
The timing and cash-versus-share repayment implications of Yorkville advances, the private convertible offering, and potential dilution from conversions and warrants.
Progress on NSA/IDR claims, insurer payment rates and collection performance, including the impact of subsequent regulatory or court developments.
Whether new facilities reach sustainable volumes and whether hospital visit trends and population health management growth support improved profitability.
Resolution of the debt covenant noncompliance, Nasdaq minimum-bid compliance, and remediation and testing of the disclosed internal-control weaknesses.