Nutex Health (NUTX) - 2023 Q1 - Quarterly Report

Introductory Note Provides preliminary information and context for the financial report Note About Forward-Looking Statements Highlights the inherent uncertainties and risks associated with forward-looking statements in the report Part I — Financial Information Presents the company's unaudited condensed consolidated financial statements and management's analysis for the reporting period Item 1. Financial Statements Presents Nutex Health Inc.'s unaudited condensed consolidated financial statements and comprehensive notes for Q1 2023 Condensed Consolidated Balance Sheets Details the company's financial position, including assets, liabilities, and equity, as of March 31, 2023, and December 31, 2022 Balance Sheet Summary | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Total Assets | $430,096,330 | $431,751,985 | | Total Liabilities | $320,558,176 | $311,424,585 | | Total Equity | $109,538,154 | $120,327,400 | | Cash and Cash Equivalents | $32,836,535 | $34,255,264 | | Accounts Receivable | $50,977,291 | $57,777,386 | | Total Current Assets | $88,667,107 | $97,973,924 | | Total Current Liabilities | $47,878,789 | $54,862,969 | - Total assets decreased by $1.66 million, while total liabilities increased by $9.13 million, leading to a $10.79 million decrease in total equity from December 31, 2022, to March 31, 2023[14] - Current assets saw a decrease of $9.31 million, primarily driven by reductions in cash and cash equivalents ($1.42 million) and accounts receivable ($6.80 million)[14] Condensed Consolidated Statements of Operations Presents the company's revenues, expenses, and net income or loss for the three months ended March 31, 2023 and 2022 Operations Summary | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----------- | | Total Revenue | $56,329,417 | $79,127,242 | -28.8% | | Hospital division revenue | $49,288,164 | $79,127,242 | -37.7% | | Population health management division revenue | $7,041,253 | $- | N/A | | Total Operating Costs and Expenses | $51,481,694 | $43,311,746 | +18.8% | | Gross Profit | $4,847,723 | $35,815,496 | -86.5% | | Operating Income (Loss) | $(4,445,087) | $29,238,973 | N/A (Loss vs Income) | | Net Income (Loss) | $(6,921,972) | $24,826,131 | N/A (Loss vs Income) | | Net Income (Loss) Attributable to Nutex Health Inc. | $(5,147,279) | $21,442,843 | N/A (Loss vs Income) | | Basic EPS | $(0.01) | $0.04 | N/A (Loss vs Income) | | Diluted EPS | $(0.01) | $0.04 | N/A (Loss vs Income) | - Total revenue decreased by 28.8% year-over-year, primarily due to a 37.7% decline in the Hospital division's revenue, while the Population Health Management division generated $7.0 million in revenue in Q1 2023, having no revenue in the prior year[17] - The company shifted from a net income of $24.8 million in Q1 2022 to a net loss of $6.9 million in Q1 2023, resulting in a basic and diluted loss per share of $(0.01) compared to $0.04 earnings per share in the prior year[17] Condensed Consolidated Statements of Changes in Equity Outlines changes in the company's equity components, including common stock, additional paid-in capital, and accumulated deficit, for Q1 2023 Equity Changes Summary | Metric | Balance at Jan 1, 2023 | Balance at Mar 31, 2023 | Change | | :------------------------------------ | :--------------------- | :---------------------- | :----- | | Common Stock (Amount) | $650,224 | $651,926 | +$1,702 | | Additional Paid-in Capital | $458,498,402 | $460,396,700 | +$1,898,298 | | Accumulated Deficit | $(363,285,925) | $(368,433,204) | -$5,147,279 | | Nutex Health Inc. Equity | $95,862,701 | $92,615,422 | -$3,247,279 | | Noncontrolling Interests | $24,464,699 | $16,922,732 | -$7,541,967 | | Total Equity | $120,327,400 | $109,538,154 | -$10,789,246 | - Total equity decreased by $10.79 million from January 1, 2023, to March 31, 2023, primarily due to a net loss of $5.15 million attributable to Nutex Health Inc. and a $7.54 million decrease in noncontrolling interests[19] - Additional paid-in capital increased by $1.90 million, reflecting the issuance of 1,000,000 common shares to Apollo Medical Holdings, Inc[19] Condensed Consolidated Statements of Cash Flows Reports the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2023 and 2022 Cash Flow Summary | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net Cash from Operating Activities | $1,052,013 | $35,741,422 | | Net Cash from Investing Activities | $(5,416,140) | $(8,591,823) | | Net Cash from Financing Activities | $2,945,398 | $(27,709,393) | | Net Change in Cash and Cash Equivalents | $(1,418,729) | $(559,794) | | Cash and Cash Equivalents - End of Period | $32,836,535 | $35,558,490 | - Net cash from operating activities significantly decreased from $35.7 million in Q1 2022 to $1.1 million in Q1 2023, primarily driven by the shift from net income to net loss[21] - Net cash from financing activities shifted from an outflow of $27.7 million in Q1 2022 to an inflow of $2.9 million in Q1 2023, largely due to proceeds from notes payable and lines of credit[21] Notes to Condensed Consolidated Financial Statements Provides detailed explanations and additional information supporting the condensed consolidated financial statements Note 1 – Organization and Operations Describes the company's business, operational structure, and the impact of the Clinigence merger - Nutex Health Inc. is a physician-led healthcare services and operations company with 19 hospital facilities in eight states and a primary care-centric population health management division[23] - The company employs approximately 1,200 full-time employees and partners with over 900 physicians[24] - The merger of Nutex Health Holdco LLC and Clinigence Holdings, Inc. was completed on April 1, 2022, with Clinigence subsequently renamed Nutex Health Inc. and Nutex Health Holdco LLC treated as the accounting acquirer[25][28] Note 2 - Summary of Significant Accounting Policies Outlines the key accounting principles and methods used in preparing the financial statements - The financial statements consolidate majority-owned subsidiaries and Variable Interest Entities (VIEs), including Physician LLCs and certain Real Estate Entities, for which the company is the primary beneficiary[29][30][31] - Since the second quarter of 2022, 18 Real Estate Entities have been deconsolidated after third-party lenders released the company's guarantees of associated mortgage loans[32] - The company operates three reportable segments: the hospital division, the population health management division, and the real estate division[44] Note 3 - Merger of Nutex Health Holdco LLC and Clinigence Holdings, Inc. Details the accounting treatment and financial impact of the reverse business combination completed on April 1, 2022 Merger Consideration Summary | Metric | Amount | | :------------------------------------------ | :------------- | | Fair value of Clinigence common shares | $326,151,098 | | Fair value of Clinigence outstanding common stock options and warrants | $110,543,915 | | Total consideration | $436,695,013 | - The merger of Nutex Health Holdco LLC and Clinigence, completed on April 1, 2022, was accounted for as a reverse business combination with Nutex Health Holdco LLC as the accounting acquirer[46] - A non-cash impairment charge of $398.1 million was recognized in 2022 to reduce the carrying amount of goodwill arising from the reverse business combination[50] Note 4 – Revenue Provides a disaggregation of revenue by division and payor type for the reporting periods Revenue Disaggregation | Revenue Source | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Hospital Division | $49,288,164 | $79,127,242 | | Population Health Management Division | $7,041,253 | $- | | Total Revenue | $56,329,417 | $79,127,242 | - Hospital Division revenue decreased by 37.7% year-over-year, while the Population Health Management Division generated $7.0 million in revenue in Q1 2023, having no revenue in the prior year due to the merger timing[56] - Over 90% of net patient service revenue is paid by insurers, federal agencies, and other non-patient third parties, with 93% from insurance in Q1 2023 (down from 96% in Q1 2022)[56][57] Note 5 - Property and Equipment Details the carrying amounts and changes in property and equipment, net, including depreciation and deconsolidations Property and Equipment, Net | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Total Property and Equipment, Net | $77,116,496 | $82,094,352 | | Construction in progress | $13,560,583 | $19,389,329 | - Total property and equipment, net, decreased by $4.98 million, partly due to the deconsolidation of one Real Estate Entity in Q1 2023, following 17 deconsolidations in Q2 2022[58] - Depreciation and amortization of property and equipment for the three months ended March 31, 2023, totaled $1,123,053, a decrease from $1,469,198 in the same period of 2022[59] Note 6 – Intangible Assets Presents the net carrying amounts and amortization of various intangible assets, including member relationships and contracts Intangible Assets Carrying Amounts | Intangible Asset | Net Carrying Amount (Mar 31, 2023) | Net Carrying Amount (Dec 31, 2022) | Weighted Average Useful Life (Years) | | :----------------------- | :--------------------------------- | :--------------------------------- | :--------------------------------- | | Member relationships | $15,772,401 | $16,054,050 | 15 | | Management contracts | $1,894,687 | $1,926,266 | 16 | | Customer contracts | $853,067 | $868,300 | 15 | | Trademarks | $1,274,967 | $1,312,475 | 7-12 | | PHP technology | $327,200 | $347,650 | 5 | | Indefinite life intangible - license | $682,649 | $682,649 | - | | Total | $20,804,971 | $21,191,390 | | - Total net carrying amount of intangible assets decreased slightly from $21.19 million to $20.80 million[60] - Amortization of intangible assets for the three months ended March 31, 2023, totaled $386,419, compared to $0 in the prior year, reflecting the impact of the Clinigence merger[61] Note 7 – Accrued Expenses and Other Current Liabilities Breaks down the components of accrued expenses and other current liabilities, highlighting changes between periods Accrued Expenses Summary | Accrued Item | March 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------- | :---------------- | | Accrued wages and benefits | $5,901,561 | $4,235,167 | | Accrued taxes | $3,461,054 | $1,029,790 | | Accrued other | $799,551 | $975,856 | | Total Accrued Expenses and Other Current Liabilities | $10,162,166 | $6,240,813 | - Total accrued expenses and other current liabilities increased by $3.92 million, primarily driven by increases in accrued wages and benefits ($1.67 million) and accrued taxes ($2.43 million)[62] Note 8 – Debt Provides details on the company's outstanding debt, including term loans and lines of credit, and compliance status Outstanding Debt Summary | Debt Type | March 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------- | :---------------- | | Term loans secured by all assets | $10,965,545 | $11,341,934 | | Term loans secured by property and equipment | $10,815,089 | $9,299,197 | | Line of credit secured by all assets | $2,672,894 | $2,623,479 | | Term loans of consolidated Real Estate Entities | $13,886,997 | $15,068,920 | | Total Outstanding Debt | $38,340,525 | $38,333,530 | | Total Long-Term Debt | $25,108,364 | $23,051,152 | - Total outstanding debt remained relatively stable at $38.34 million, while long-term debt increased by $2.06 million[63] - As of March 31, 2023, the company was not in compliance with the debt service coverage ratio for one term loan with an outstanding balance of $1.0 million, which has been included in current liabilities[64] Note 9 – Leases Reports lease costs for operating and finance leases, reflecting the impact of new lease arrangements Lease Costs Summary | Lease Cost Type | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Operating lease cost | $948,515 | $692,669 | | Total Finance lease cost | $5,172,795 | $1,908,283 | - Total finance lease costs significantly increased from $1.91 million in Q1 2022 to $5.17 million in Q1 2023, reflecting higher amortization of right-of-use assets and interest on lease liabilities[67] Note 10 – Commitments and Contingencies Addresses the company's involvement in legal actions and other commitments, assessing their potential financial impact - The company is involved in various claims and legal actions in the normal course of business, but the outcome is not expected to have a material adverse effect on the consolidated financial statements[68] Note 11 – Stock-based Compensation Details the company's equity incentive plan, stock option activity, and eligibility for additional common stock issuances - The 2022 Equity Incentive Plan authorizes up to 5,000,000 shares, with 2,416,221 shares available for issuance as of March 31, 2023[69] - Contributing owners of under-construction and ramping hospitals are eligible for additional common stock issuances based on future EBITDA performance, with the number of shares determined by the greater of the stock price at determination or $2.80[70][71] Stock Options Outstanding | Metric | Options Outstanding (Dec 31, 2022) | Options Outstanding (Mar 31, 2023) | Weighted Average Exercise Price (Mar 31, 2023) | Weighted Average Remaining Contractual Life (Years) | | :------------------------------------ | :--------------------------------- | :--------------------------------- | :--------------------------------------------- | :-------------------------------------------------- | | Total Options Outstanding | 5,147,770 | 5,147,770 | $2.32 | 7.35 | Note 12 – Equity Outlines authorized common stock, recent issuances, and warrant activity, impacting the company's equity structure - The company is authorized to issue up to 900,000,000 shares of common stock with a par value of $0.001 per share[73] - In March 2023, 1,000,000 common shares were issued to Apollo Medical Holdings, Inc. for IPA managerial services, resulting in $1.9 million of stock-based compensation expense recognized as an out-of-period adjustment[74][76] Warrants Outstanding | Metric | Warrants Outstanding (Dec 31, 2022) | Warrants Outstanding (Mar 31, 2023) | Weighted Average Exercise Price (Mar 31, 2023) | Weighted Average Remaining Contractual Life (Years) | | :------------------------------------ | :---------------------------------- | :---------------------------------- | :--------------------------------------------- | :-------------------------------------------------- | | Total Warrants Outstanding | 11,033,015 | 10,225,062 | $1.99 | 3.53 | Note 13 – Income Taxes Explains the effective tax rate and factors contributing to its difference from the federal statutory rate - The effective tax rate for the three months ended March 31, 2023, was 11.63%, primarily differing from the federal statutory rate due to state taxes, noncontrolling interests in flow-through entities, and permanent differences for non-deductible expenses[79][149] - Prior to the Clinigence merger, Nutex Health Holdco LLC and its subsidiaries were pass-through entities, with federal taxes being obligations of their members[78] Note 14 – Earnings per Share Presents basic and diluted earnings per share calculations, including the impact of anti-dilutive securities Earnings Per Share Calculation | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net income (loss) attributable to common stockholders | $(5,147,279) | $21,442,843 | | Weighted average shares used to compute basic and diluted EPS | 650,915,693 | 592,791,712 | | Basic EPS | $(0.01) | $0.04 | | Diluted EPS | $(0.01) | $0.04 | - The company reported a basic and diluted loss per share of $(0.01) in Q1 2023, a significant decline from $0.04 earnings per share in Q1 2022[81] - The computation of diluted EPS for Q1 2023 excludes 5,147,770 common stock options and 10,225,062 warrants due to their anti-dilutive effect given the net loss[81] Note 15 - Supplemental Cash Flows Information Provides additional details on non-cash investing and financing activities and cash paid for interest Non-Cash Activities (Q1 2023) | Non-Cash Investing and Financing Activities (Q1 2023) | Amount | | :---------------------------------------------------- | :------------- | | Financed capital expenditures | $2,709,019 | | Acquisition of finance leases | $18,798,667 | | Termination of operating and finance leases | $2,818,498 | | Exercise of warrants on cashless basis | $702 | | Issuance of common stock to Apollo Medical Holdings, Inc. | $1,900,000 | | Deconsolidation of Real Estate Entity | $4,258,133 | - Cash paid for interest decreased from $875,355 in Q1 2022 to $430,643 in Q1 2023[82] Note 16 – Segment Information Reports financial performance by the company's three operating segments: hospital, population health, and real estate - The company operates three reportable segments: hospital division, population health management division, and real estate division, with performance evaluated based on operating income[83] Segment Performance Summary | Segment | Revenue (Q1 2023) | Revenue (Q1 2022) | Operating Income (Q1 2023) | Operating Income (Q1 2022) | | :------------------------------------ | :---------------- | :---------------- | :------------------------- | :------------------------- | | Hospital division | $49,288,164 | $79,127,242 | $4,778,637 | $35,815,496 | | Population health management division | $7,041,253 | $- | $69,086 | $- | | Total | $56,329,417 | $79,127,242 | $4,847,723 | $35,815,496 | - Hospital division revenue and operating income significantly declined by 37.7% and 86.6% respectively, while the population health management division generated new revenue and a small operating income in Q1 2023[85] Note 17 – Related Party Transactions Details transactions and relationships with related parties, including consolidated VIEs and managerial fees - The company consolidates Physician LLCs and certain Real Estate Entities as VIEs, despite no direct ownership, due to financial support and control, with many owned/controlled by related parties including the CEO[86][88] - Cash payments for related party lease obligations totaled $3,519,345 in Q1 2023, up from $2,883,681 in Q1 2022[87] - Managerial fees from related party emergency centers decreased from $412,554 in Q1 2022 to $158,851 in Q1 2023[89] Note 18 – Variable Interest Entities Explains the consolidation of Real Estate Entities and Physician LLCs as VIEs, including deconsolidation events - The company consolidates Real Estate Entities as VIEs when hospital entities guarantee their mortgage loans; 17 were deconsolidated in Q2 2022 and one in Q1 2023 as guarantees were released[91][92] - As of March 31, 2023, two Real Estate Entities continue to be consolidated in the financial statements[92] VIE Financial Summary | VIE Type | Total Assets (Mar 31, 2023) | Total Liabilities (Mar 31, 2023) | Equity (Mar 31, 2023) | | :---------------- | :-------------------------- | :--------------------------- | :-------------------- | | Real Estate Entities | $35,281,481 | $14,876,950 | $20,404,531 | | Physician LLCs | $6,291,763 | $5,400,568 | $891,195 | | AHISP IPA | $24,270,925 | $24,270,925 | $- | Note 19 - Subsequent Events Discloses significant events occurring after the balance sheet date, including a Pre-Paid Advance Agreement and RSU issuances - On April 11, 2023, the company entered into a Pre-Paid Advance Agreement (PPA) with Yorkville for up to $100 million over 18 months, receiving an initial $15 million ($12.8 million net of expenses)[95][96] - Subsequent to March 31, 2023, Yorkville converted $2,000,000 of principal balance into 3,856,267 shares of common stock under the PPA[97] - On April 1, 2023, 604,158 Restricted Stock Units (RSUs) valued at $610,210 were issued to employees, with a portion vesting immediately and the remainder vesting in March 2024 and March 2025[98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on the company's financial performance, condition, and future outlook for Q1 2023 Explanatory Note Clarifies the accounting treatment of the Clinigence merger and its impact on historical financial reporting - The merger of Nutex Health Holdco LLC and Clinigence Holdings, Inc. was completed on April 1, 2022, with Nutex Health Holdco LLC treated as the accounting acquirer[102] - Financial statements for periods prior to the merger date are those of Nutex Health Holdco, LLC, while subsequent periods are presented on a consolidated basis including Clinigence[102] Overview Summarizes the company's business model, operational scope, and consolidation practices for Variable Interest Entities - Nutex Health Inc. operates 19 hospital facilities in eight states (hospital division) and a primary care-centric population health management division[104] - The company consolidates Variable Interest Entities (VIEs), including Physician LLCs and certain Real Estate Entities, for which it is the primary beneficiary, despite having no direct ownership interest[105][106][107][109] - Since Q2 2022, 18 Real Estate Entities have been deconsolidated due to the release of the company's guarantees on their mortgage loans[107] Sources of Revenue Identifies the primary revenue streams from the hospital and population health management divisions, including payor mix - Hospital division revenue primarily comes from net patient services, with over 90% paid by insurers, federal agencies, and other third parties[111][112] Patient Classification by Payor | Patient Classification | Q1 2023 | Q1 2022 | | :--------------------- | :------ | :------ | | Insurance | 93% | 96% | | Self pay | 4% | 3% | | Workers compensation | 1% | 1% | | Medicare/Medicaid | 2% | 0% | - Population health management division revenue is derived from capitation and management fees for IPAs and physician groups, and SaaS revenue from its cloud-based proprietary technology[112] Our Growth Plans Outlines strategies for business expansion through new hospital development, IPA formation, and acquisitions - The company plans to expand operations by entering new market areas either through development of new hospitals, formation of new IPAs, or by making acquisitions[113] - New hospital development involves a turn-key process for location selection, real estate acquisition, design, and development of the facility, including staffing, training, and operations, supported by existing centralized services[114] Overview of Legislative Developments Discusses the impact of the Affordable Care Act and the expiration of CARES Act provisions on healthcare operations - The Affordable Care Act has impacted healthcare services coverage, delivery, and reimbursement, with ongoing uncertainty regarding its implementation and interpretation[115][116] - The CARES Act, which waived insurance copayments and deductibles for COVID-19 tests and visits, expired on June 30, 2021, leading to higher revenue during its effectiveness due to a shift in payor mix and increased patient acuity[117][118] No Surprises Act Explains the implications of the No Surprises Act on out-of-network billing and the Independent Dispute Resolution process - The No Surprises Act (NSA), effective January 1, 2022, protects consumers from surprise balance billing for out-of-network emergency services and mandates insurers to reimburse providers at a statutorily calculated 'out-of-network rate'[119] - Since the NSA's implementation, the company's average payment by insurers for emergency services has declined by approximately 30%, requiring more appeals through the Independent Dispute Resolution (IDR) process[125] - New CMS guidance (effective Feb 6, 2023) for the IDR process requires arbiters to consider all submitted evidence, not just the Qualified Payment Amount (QPA), aiming to balance the arbitration process[126][127] Results of Operations Analyzes the company's financial performance for Q1 2023 compared to Q1 2022, highlighting key drivers of change Operations Summary | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----------- | | Total Revenue | $56,329,417 | $79,127,242 | -28.8% | | Total Segment Operating Income | $4,847,723 | $35,815,496 | -86.5% | | Net Income (Loss) Attributable to Nutex Health Inc. | $(5,147,279) | $21,442,843 | N/A (Loss vs Income) | | Adjusted EBITDA | $2,437,854 | $24,175,775 | -89.9% | - The company reported a net loss of $5.1 million in Q1 2023, a significant decline from net income of $21.4 million in Q1 2022, primarily due to lower patient visits, $1.9 million stock-based compensation expense, and higher employee/contractor costs[133][135] - Adjusted EBITDA decreased by 89.9% to $2.4 million in Q1 2023 from $24.2 million in Q1 2022, largely due to reduced revenue and increased start-up costs[133] Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022 Compares the company's overall financial results, including net income and Adjusted EBITDA, between Q1 2023 and Q1 2022 - The company reported a net loss attributable to Nutex Health Inc. of $5.1 million ($0.01 loss per share) for Q1 2023, compared to net income of $21.4 million ($0.04 per diluted share) for Q1 2022[133] - The decline was principally affected by a 36% decrease in patient visits (due to increased COVID-19 visits in January 2022), a $1.9 million stock-based compensation expense, and higher overall costs for employees and independent contractors[133][135] - Adjusted EBITDA for Q1 2023 was $2.4 million, a significant decrease from $24.2 million in Q1 2022, primarily due to lower revenue and increased start-up costs[133] Hospital Division Examines the revenue, patient visits, and operating income performance of the hospital division for the reporting periods Hospital Division Performance | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | | :---------------- | :-------------------------------- | :-------------------------------- | :----------- | | Revenue | $49,288,164 | $79,127,242 | -37.7% | | Patient visits | 33,085 | 51,743 | -36% | | Operating income | $4,778,637 | $35,815,496 | -86.6% | - The hospital division's revenue decreased by 37.7% and operating income by 86.6% year-over-year, primarily due to a 36% reduction in patient visits, with Q1 2022 benefiting from significant COVID-19 related cases[136][137][138] Population Health Management Division Reports the inaugural revenue and operating income for the population health management division in Q1 2023 Population Health Revenue (Q1 2023) | Revenue Type (Q1 2023) | Amount | | :----------------------- | :------------- | | Capitation revenue | $6.0 million | | Management fees | $0.7 million | | SaaS revenue | $0.3 million | | Total Revenue | $7.0 million | - This division, established after the April 2022 Clinigence merger, generated $7.0 million in total revenue and $0.1 million in operating income for Q1 2023[139][140] - The strategic focus for this division is growth through the addition of new independent physician associations, with staffing aligned to manage larger numbers of such organizations[140] Real Estate Division Discusses the deconsolidation of Real Estate Entities and their financial impact on the company's operations - One Real Estate Entity was deconsolidated in Q1 2023 after third-party lenders released the company's guarantees of associated mortgage loans, following 17 deconsolidations in Q2 2022[141] - Revenue and operating expenses of consolidated Real Estate Entities are not significant, as their primary operation is owning facilities leased to the hospital division, financed by equity and mortgage debt[142] - As of March 31, 2023, two Real Estate Entities continue to be consolidated, and future hospital openings may lead to consolidation of new Real Estate Entities if guarantees are required[143] Corporate and other costs Analyzes changes in general and administrative expenses, facilities closing costs, and stock-based compensation Corporate and Other Costs Summary | Cost Type | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | General and administrative expenses | $7.2 million | $6.6 million | | Facilities closing costs | $0.2 million | $- | | Stock-based compensation expense | $1.9 million | $- | | Total Corporate and Other Costs | $9.3 million | $6.6 million | - Corporate and other costs increased to $9.3 million in Q1 2023 from $6.6 million in Q1 2022, driven by higher professional fees as a public company, staffing additions, and $0.2 million in facilities closing costs[144][146] - A $1.9 million stock-based compensation expense was recognized in March 2023 for issuing 1,000,000 common shares to Apollo Medical Holdings, Inc. for IPA managerial services, noted as an out-of-period adjustment[146] Nonoperating items Reviews financial items outside of core operations, including interest expense and income tax expense or benefit Interest expense Details the increase in interest expense, covering various debt and lease obligations for the reporting period Interest Expense Summary | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------- | :-------------------------------- | :-------------------------------- | | Interest expense | $3.1 million | $1.9 million | - Interest expense increased to $3.1 million in Q1 2023 from $1.9 million in Q1 2022, covering mortgage indebtedness of consolidated Real Estate Entities, term notes, lines of credit, and finance leases[147] Income tax expense (benefit) Explains the effective income tax rate and its reconciliation to the federal statutory rate for Q1 2023 - The effective income tax rate for Q1 2023 was 11.63%, primarily due to state taxes, income of noncontrolling interests in flow-through entities, and permanent differences for non-deductible expenses, differing from the 21% federal statutory rate[149] Liquidity and Capital Resources Assesses the company's ability to meet short-term and long-term financial obligations and fund growth initiatives Cash and Equivalents Summary | Metric | March 31, 2023 | December 31, 2022 | | :----------------------- | :------------- | :---------------- | | Cash and Equivalents | $32.8 million | $34.3 million | - Cash from operating activities was $1.1 million in Q1 2023, including $2.9 million from the primary components of working capital[154] - The company received net proceeds of $5.4 million from borrowings under notes payable and lines of credit, while capital expenditures were $4.4 million[154] Significant Sources and Uses of Cash Highlights major cash inflows and outflows from operating, investing, and financing activities in Q1 2023 - Cash from operating activities was $1.1 million, which included $2.9 million from the primary components of working capital (receivables, inventories, accounts payable, and expenses)[154] - The company received net proceeds of $5.4 million from borrowings under notes payable and lines of credit[154] - Capital expenditures were $4.4 million, and distributions, net of contributions, to noncontrolling interests totaled $1.5 million[154] Future Sources and Uses of Cash Discusses anticipated cash needs for operations and growth, including reliance on existing funds and potential external financing - The company expects existing cash, cash equivalents, marketable securities, available borrowing capacity, and $12.8 million of net proceeds from the Yorkville PPA (executed April 11, 2023) to be sufficient to meet anticipated cash needs for operations and growth objectives for at least the next twelve months[153] - Growth plans include developing new hospital locations, often leased from newly established entities partially owned by related parties, which may require guarantees or co-borrowing under mortgage indebtedness[152] - The company may seek to raise additional cash by selling equity or debt securities if business plan assumptions change or unexpected opportunities arise, noting that larger financing commitments are subject to market conditions[153] Indebtedness Refers to detailed information on the company's debt and lease obligations provided in the financial statement notes - The company's indebtedness and lease obligations are presented in Note 8 (Debt) and Note 9 (Leases) of the financial statements[155] Off-Balance Sheet Arrangements Confirms the absence of material off-balance sheet arrangements as of the reporting date - As of March 31, 2023, the company had no material off-balance sheet arrangements[155] Non-GAAP Financial Measures Defines and reconciles Adjusted EBITDA, a key non-GAAP metric used by management to assess operating performance - Adjusted EBITDA is used as a supplemental non-GAAP financial measure by management and external users to evaluate operating performance, defined as net income (loss) attributable to Nutex Health Inc. plus net interest expense, income taxes, depreciation and amortization, further adjusted for stock-based compensation, facilities closing costs, acquisition related costs, and impairments[156][157] Adjusted EBITDA Reconciliation | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net income (loss) attributable to Nutex Health Inc. | $(5,147,279) | $21,442,843 | | EBITDA | $320,588 | $24,175,775 | | Adjusted EBITDA | $2,437,854 | $24,175,775 | - Adjusted EBITDA significantly decreased from $24.2 million in Q1 2022 to $2.4 million in Q1 2023, reflecting the decline in net income and other adjustments[158] Significant Accounting Policies Reiterates the use of management judgments and estimates in financial statement preparation, with no material changes since year-end - The preparation of financial statements and related disclosures in accordance with GAAP requires management to make judgments, assumptions, and estimates, as described in Note 1 to the Consolidated Financial Statements in the 2022 Form 10-K[159] - There have been no material changes in the company's critical accounting policies that are impacted by judgments, assumptions, and estimates since December 31, 2022[159] Item 3. Quantitative and Qualitative Disclosures About Market Risk States that there have been no material changes in the company's market risk exposures or their management since the prior fiscal year - No material changes in primary market risk exposures or their management have occurred since the 2022 Form 10-K filing[161] Item 4. Controls and Procedures Evaluates the effectiveness of disclosure controls and internal control over financial reporting, noting material weaknesses and remediation efforts Evaluation of Disclosure Controls and Procedures Concludes that disclosure controls and procedures were not effective as of March 31, 2023, due to identified material weaknesses - As of March 31, 2023, the company concluded that its disclosure controls and procedures were not effective due to previously identified material weaknesses[162] Previously Reported Material Weaknesses Details specific material weaknesses in logical access, business process controls, and completeness/accuracy of key spreadsheets - Material weaknesses identified include ineffective logical access controls for certain financially relevant systems, poorly designed/implemented business process controls (lacking segregation of duties and key management review), and ineffective controls over the completeness and accuracy of key spreadsheets[163] - These weaknesses led management to conclude that internal control over financial reporting was not effective as of December 31, 2022[163] Remediation Plans Outlines ongoing efforts to address material weaknesses through system implementation, control design, and staffing additions - Remediation efforts are ongoing and include implementing a new enterprise-wide system in Q1 2023 to reduce reliance on manual processes, engaging a firm for control design/testing, and adding key senior management and accounting/financial reporting staff[164] - The identified material weaknesses did not result in material misstatement of the consolidated financial statements for the periods presented[164] - The effectiveness of remediation efforts will require validation and testing, and additional measures may be needed to fully remediate the material weakness[165][166] Changes in Internal Control Over Financial Reporting Reports changes to internal control over financial reporting related to the implementation of a new enterprise-wide system - Changes are being made to internal control over financial reporting in connection with the implementation of a new enterprise-wide system in Q1 2023[167] - Except for these remediation actions, no other changes in internal control over financial reporting materially affected or are reasonably likely to materially affect internal control during the period[167] Inherent Limitations on Effectiveness of Disclosure Controls and Procedures Acknowledges that control systems provide reasonable, not absolute, assurance and are subject to inherent limitations - Management acknowledges that control systems provide only reasonable, not absolute, assurance against errors and fraud due to inherent limitations[168] - Projections of effectiveness to future periods are subject to risks that controls may become inadequate or compliance may deteriorate[168] Part II — Other Information Presents additional non-financial information, including legal proceedings, risk factors, and equity security sales Item 1. Legal Proceedings States that the company is not involved in any material litigation as of March 31, 2023 - The company is not a party to any litigation that is material to ongoing operations as of March 31, 2023[169] Item 1A. Risk Factors Outlines significant risks, including potential stock dilution from the PPA, funding uncertainties, and financial hardship from trigger events Substantial Blocks of Common Stock Sales Risk from PPA Highlights the risk of stock price decline and dilution due to potential substantial sales of common stock under the PPA - The Pre-Paid Advance Agreement (PPA) with Yorkville allows for the issuance of common stock to offset advances, potentially leading to substantial sales that could dilute existing stockholders and cause the stock price to decline[171][172][173] - The PPA has an aggregate commitment amount of $100 million, with advances purchased at 90% of face amount, and conversion prices tied to VWAP, subject to a floor price of $0.1851 per share[172] Risk of Not Receiving Full Initial Pre-Paid Advance Warns that the company may not receive the full second tranche of the PPA due to stock price conditions - The company may not receive the full $10 million second tranche of the initial Pre-Paid Advance if the VWAP for the ten trading days prior to June 10, 2023, or the balance reduction date, is below $0.60 per share[175] - As a result, the company may only receive total proceeds, before expenses, of approximately $12.8 million from the initial advance[175] Lack of Control Over Stock Issuance Timing and Amount Under PPA Emphasizes the company's lack of control over PPA stock issuance timing and volume, potentially leading to market volatility - The company lacks control over the timing and amount of common stock issuances to Yorkville under the PPA, making it impossible to predict the total number of shares or proceeds[176][177] - Issuances are limited by a Nasdaq Exchange Cap of 19.9% of outstanding shares (as of April 10, 2023) and an Ownership Limitation for Yorkville of 4.99% of voting power or outstanding shares, which could restrict funding[178] - The resale by Yorkville of a significant amount of shares could cause the market price of common stock to decline and become highly volatile[180] Risk of Financial Hardship from Trigger Event Payments Warns of potential financial hardship from substantial cash payments required upon specific trigger events under the PPA - A trigger event (stock price below $0.1851 for five of seven trading days or issuing substantially all shares under the Nasdaq Cap) requires the company to make a monthly cash payment of $7.5 million (plus interest and 6% premium) to Yorkville[182] - This financial obligation could impose an undue and unsustainable burden, materially adversely affecting the company's operations and financial condition[182] Capital Requirements and Funding Risks Addresses the company's significant capital needs and the risks associated with insufficient funding for business execution - The company's business plans require significant capital for expansion, with capital expenditures expected to remain high, leading to uncertain and potentially higher actual capital requirements[184] - Reliance on Yorkville for funding depends on market conditions and PPA limitations (Exchange Cap, Ownership Limitation), and the company may not be able to utilize the PPA or other facilities (like the Lincoln Purchase Agreement) when needed[183][185] - Failure to raise sufficient funds on favorable terms could force the company to reduce spending, delay/cancel activities, or substantially change its corporate structure, potentially leading to curtailment or discontinuation of operations[187][188] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports recent unregistered issuances of common stock from warrant exercises and for managerial services - In Q1 2023, 702,285 common shares were issued from cashless exercises of warrants (806,453 warrants), and 1,000,000 common shares were issued to Apollo Medical Holdings, Inc. for IPA managerial services[189] - All issuances were unregistered and exempt from registration requirements under Section 4(a)(2) of the Securities Act of 1933[189] Item 3. Defaults upon Senior Securities Indicates no defaults on senior securities occurred during the reporting period - This item is marked as 'Not Applicable', indicating no defaults upon senior securities[190] Item 4. Mine Safety Disclosures States that mine safety disclosures are not applicable to the company's operations - This item is marked as 'Not Applicable', indicating no mine safety disclosures are required[190] Item 5. Other Information Indicates no other material information to report beyond what is already disclosed - This item is marked as 'Not Applicable', indicating no other material information to report[191] Item 6. Exhibits Lists all documents filed as exhibits, including employment agreements and regulatory certifications - Exhibits include an employment agreement, CEO and CFO certifications (Sarbanes-Oxley Act Sections 302 and 906), and various XBRL taxonomy documents[192] - Certifications under Section 906 are not deemed 'filed' for Section 18 liability purposes and are not incorporated by reference into other filings[192] SIGNATURES Contains the required signatures of authorized officers, certifying the accuracy of the report