Nutex Health Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Filed November 18, 2022. Amounts are in U.S. dollars. Comparisons require caution: the April 1, 2022 reverse merger added Clinigence’s population health management business, while prior-period results primarily reflect Nutex Health Holdco. The company operates 21 hospital facilities in eight states and a population health management division.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $28.4 million | $118.0 million | $165.6 million | $268.1 million |
| Operating income (loss) | $(439.0) million | $74.5 million | $(411.2) million | $154.7 million |
| Net income (loss) attributable to Nutex | $(422.5) million | $53.8 million | $(420.4) million | $118.6 million |
| EPS, basic and diluted | $(0.65) | $0.09 | $(0.67) | $0.20 |
| Adjusted EBITDA | $(15.7) million | $55.7 million | $18.5 million | $125.5 million |
- Q3 gross loss was $26.5 million, compared with gross profit of $76.0 million a year earlier. The filing reports no conventional gross-margin percentage.
- The reported operating and net losses were dominated by a $408.5 million non-cash goodwill impairment of the population health management reporting unit. The impairment followed the merger; goodwill from that transaction had initially been recorded at $424.3 million.
- Hospital division revenue was $21.2 million in Q3, down 82% year over year; hospital visits fell 39%, to 36,500. For the first nine months, hospital revenue decreased 43% and visits decreased 11%. The acquired population health division contributed $7.2 million of Q3 revenue and $13.6 million for the nine-month period.
- Cash and cash equivalents were $36.6 million at September 30, 2022, versus $36.1 million at year-end 2021. Current assets were $107.5 million and current liabilities $43.8 million.
- Operating cash flow was $46.1 million for the first nine months, versus $127.0 million in 2021. Investing cash flow was $(12.2) million and financing cash flow $(33.4) million. Capital expenditures were $22.5 million; owner and noncontrolling-interest distributions totaled approximately $50.0 million.
- Debt table total was $31.4 million, including $2.6 million of lines of credit; long-term debt, net, was $24.7 million. In addition, balance-sheet financing lease liabilities totaled $208.7 million and operating lease liabilities totaled $21.5 million. Debt declined substantially from year-end, in part because 17 real estate entities were deconsolidated.
Material changes and drivers
- The No Surprises Act took effect January 1, 2022. Nutex reported average insurer payments for emergency claims down approximately 30% and said it had increased use of the independent dispute resolution process, with varying collection results.
- Revised estimates of collectible receivables reduced revenue by approximately $29.0 million in Q3 and $38.6 million for the first nine months. The company also reported weaker collections on pre-2022 receivables.
- Q3 hospital results were further pressured by fewer patient visits, five newer facilities below break-even, and higher employee and contractor costs. Management said new facilities generally take 12 to 15 months to reach profitability.
- Interest expense was $3.4 million in Q3 and $9.6 million for the first nine months. Management expected interest expense to decline following real estate entity deconsolidations and conversion of the Clinigence notes.
- At September 30, the company was not in compliance with the debt-service coverage covenant on one revolving credit line with a $1.0 million balance; that balance was classified as current. Remaining availability under lines of credit was $1.658 million.
Outlook, risks and unusual items
- No specific revenue or earnings guidance was provided. Management described growth plans through new hospitals, IPAs and acquisitions, while noting that larger financing commitments were being pursued and might not be available on favorable terms or at all.
- On November 14, 2022, Nutex entered an agreement giving it the option, not the obligation, to sell up to $100 million of common stock to Lincoln Park Capital over 36 months, subject to conditions and registration. Proceeds, if raised, are intended for working capital and general corporate purposes; sales could dilute existing shareholders.
- The merger changed Nutex Health Holdco from a pass-through tax entity to a taxable subsidiary. The company recorded a non-cash $20.8 million tax charge for the change in tax status and a $2.4 million non-cash benefit from reversing Clinigence’s acquired valuation allowance. The goodwill impairment was nondeductible.
- The company disclosed ineffective disclosure controls and procedures as of September 30, including material weaknesses involving revenue estimates, lease accounting and accounting-close processes. Remediation efforts were ongoing and had not yet been validated as effective.
- Management cited continuing COVID-19-related uncertainty, labor and supply-chain inflation, billing and collection delays, healthcare regulation, NSA rulemaking and litigation challenging the NSA’s dispute-resolution provisions. Management said ordinary-course legal matters were not expected to have a material adverse effect and reported no material change to previously disclosed risk factors.
- The filing disclosed immaterial revisions to certain prior-period financial statements, including classifications of noncontrolling interests, lease balances and cash-flow presentation. Management said the revisions did not materially affect the periods concerned.
Important facts for investors to verify
- Whether the company’s NSA appeals and collection efforts improve payment rates, and whether further receivable estimate reductions are needed.
- Hospital visit trends, new-facility ramp-up and operating performance excluding the non-cash goodwill impairment.
- Liquidity and covenant compliance, debt maturities, lease commitments and availability of additional financing.
- Potential share dilution from the Lincoln Park agreement, merger-related share issuances, options, warrants and contingent stock issuances tied to certain hospitals.
- Progress in remediating material weaknesses and the assumptions underlying the goodwill impairment and future cash-flow estimates.
- The comparability of reported periods given the reverse merger, changes in consolidation after deconsolidating 17 real estate entities, and the addition of the population health division.