Nutex Health (NUTX) - 2024 Q1 - Quarterly Report

Part I — Financial Information Financial Statements For the three months ended March 31, 2024, Nutex Health Inc. reported total revenues of $67.5 million, a 19.8% increase year-over-year, driven primarily by its Hospital division. The company shifted from an operating loss of $4.4 million in Q1 2023 to an operating income of $1.4 million in Q1 2024. Net loss attributable to the company significantly decreased to $0.4 million from $5.1 million in the prior-year period. Total assets grew to $404.3 million, and cash and cash equivalents increased to $30.0 million, supported by $9.2 million in net proceeds from a common stock issuance Condensed Consolidated Balance Sheets The balance sheet reflects an increase in total assets to $404.3 million, driven by higher cash, and the recognition of a $5.1 million warrant liability Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2024 ($) | December 31, 2023 ($) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 30,006,419 | 22,002,056 | | Total current assets | 100,358,343 | 90,848,403 | | Total assets | 404,283,854 | 398,245,497 | | Liabilities & Equity | | | | Total current liabilities | 59,888,184 | 58,313,052 | | Total liabilities | 324,271,704 | 319,139,391 | | Total equity | 80,012,150 | 79,106,106 | | Total liabilities and equity | 404,283,854 | 398,245,497 | - Total assets increased to $404.3 million as of March 31, 2024, from $398.2 million at year-end 2023, primarily due to an increase in cash and cash equivalents[12] - A new warrant liability of $5.1 million was recorded on the balance sheet as of March 31, 2024, which was not present at the end of 2023[12] Condensed Consolidated Statements of Operations Operations show 19.8% revenue growth to $67.5 million, a shift to $1.4 million operating income, and a reduced net loss of $0.4 million, aided by a warrant liability gain Condensed Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended Mar 31, 2024 ($) | Three Months Ended Mar 31, 2023 ($) | | :--- | :--- | :--- | | Total revenue | 67,453,787 | 56,329,417 | | Gross profit | 10,157,178 | 4,847,723 | | Operating income (loss) | 1,449,601 | (4,445,087) | | Net loss | (542,487) | (6,921,972) | | Net loss attributable to Nutex Health Inc. | (364,075) | (5,147,279) | | Basic and Diluted Loss per share | (0.01) | (0.12) | - Total revenue increased by 19.8% year-over-year, from $56.3 million in Q1 2023 to $67.5 million in Q1 2024, primarily driven by a 21.8% increase in the Hospital division's revenue[15] - The company reported a significant improvement in profitability, with operating income of $1.4 million in Q1 2024 compared to an operating loss of $4.4 million in Q1 2023. Net loss attributable to the company narrowed to $0.4 million from $5.1 million[15] - A gain on warrant liability of $2.6 million was recognized in Q1 2024, contributing to the reduced net loss[15] Condensed Consolidated Statements of Cash Flows Cash flow from operations improved to $3.1 million, with financing activities providing $5.7 million primarily from stock issuance, while investing activities significantly decreased cash usage Condensed Consolidated Statements of Cash Flows (Unaudited) | Cash Flow Activity | Three Months Ended Mar 31, 2024 ($) | Three Months Ended Mar 31, 2023 ($) | | :--- | :--- | :--- | | Net cash from operating activities | 3,050,859 | 1,052,013 | | Net cash from investing activities | (733,323) | (5,416,140) | | Net cash from financing activities | 5,686,827 | 2,945,398 | | Net change in cash and cash equivalents | 8,004,363 | (1,418,729) | | Cash and cash equivalents - end of period | 30,006,419 | 32,836,535 | - Cash from operating activities improved to $3.1 million in Q1 2024 from $1.1 million in Q1 2023[21] - Financing activities provided $5.7 million in cash, primarily from $9.2 million in proceeds from a common stock issuance, offset by repayments of debt and finance leases[21] - Investing activities used significantly less cash ($0.7 million) compared to the prior year ($5.4 million), mainly due to lower acquisitions of property and equipment[21] Notes to Condensed Consolidated Financial Statements The notes detail the company's divisional structure, the 1-for-15 reverse stock split, and the $9.2 million capital raise in January 2024, which led to a $7.7 million warrant liability - The company operates through two main divisions: a hospital division with 21 facilities and a population health management division. It consolidates several Variable Interest Entities (VIEs), including Physician LLCs and Real Estate Entities[24][37] - On April 9, 2024, the company effected a 1-for-15 reverse stock split to regain compliance with Nasdaq's minimum bid price requirement. All share and per-share amounts in the financial statements have been retroactively adjusted[31][32][33] - In January 2024, the company raised $9.2 million in gross proceeds through a securities purchase agreement, issuing 4.4 million shares of common stock and warrants to purchase an equal number of shares. This resulted in the recognition of a $7.7 million warrant liability[93][95][96] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the improved performance in Q1 2024 to a 21.1% increase in patient visits, driven by the opening of four new facilities in 2023, and higher revenue per visit. The Hospital division's revenue grew 21.7% to $60.0 million, with operating income more than doubling to $10.5 million. The company is actively managing the financial impact of the No Surprises Act through various strategies, including maximizing coding efficiency and pursuing the Independent Dispute Resolution (IDR) process. Cash and equivalents increased to $30.0 million, bolstered by a $9.2 million stock issuance, which management believes is sufficient to fund operations and growth for the next twelve months. Adjusted EBITDA for the quarter rose to $4.6 million from $2.4 million in the prior-year period Overview of Legislative Developments Legislative developments, particularly the No Surprises Act, have reduced reimbursement rates by 30%, prompting the company to implement mitigation strategies, with recent court rulings offering potential improvements - The No Surprises Act (NSA), effective January 1, 2022, aims to protect patients from surprise medical bills for out-of-network emergency services. This has significantly impacted the company's reimbursement rates[140] - Following the NSA's implementation, the company's average payment from insurers for emergency services declined by approximately 30% by the end of 2022. While there was a slight improvement in 2023, the process requires extensive administrative effort through the Independent Dispute Resolution (IDR) process[148] - The company has implemented several strategies to mitigate the NSA's impact, including maximizing claims coding, increasing collection efforts, dedicating a team to the IDR process, and focusing on the less-affected value-based IPA business[151] - Recent court rulings, such as TMA III, have been favorable to providers by vacating regulations that unfairly favored the insurer's Qualifying Payment Amount (QPA), potentially improving future reimbursement rates[147][154] Results of Operations Operating results show a 19.8% revenue increase to $67.5 million, a 92.9% reduction in net loss to $0.4 million, and an 87.1% rise in Adjusted EBITDA to $4.6 million Financial Performance Summary | Metric | Q1 2024 ($) | Q1 2023 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | 67,453,787 | 56,329,417 | +19.8% | | Hospital Division Revenue | 60,029,369 | 49,288,164 | +21.7% | | Population Health Mgt. Revenue | 7,424,418 | 7,041,253 | +5.4% | | Total Segment Operating Income | 10,157,178 | 4,847,723 | +109.5% | | Net Loss Attributable to Nutex | (364,075) | (5,147,279) | -92.9% | | Adjusted EBITDA | 4,560,401 | 2,437,854 | +87.1% | - The decrease in net loss was primarily driven by higher revenue from a 21.1% increase in patient visits, largely due to four new facilities opened in 2023, and an increase in revenue per visit[164][167] - The Hospital division's operating income increased by 119% to $10.5 million in Q1 2024 from $4.8 million in Q1 2023[169] - The company recorded $0.7 million of net revenue from cash collections for previously provided services that had been reserved as uncollectible[168] Liquidity and Capital Resources The company's cash and equivalents increased to $30.0 million, supported by $3.0 million from operations and $9.2 million from stock issuance, which management deems sufficient for future needs - As of March 31, 2024, the company had $30.0 million in cash and cash equivalents, an increase from $22.0 million at December 31, 2023[181] - Key sources of cash during Q1 2024 were $3.0 million from operating activities and $9.2 million net proceeds from a common stock issuance[184] - Key uses of cash included $2.1 million in net debt repayments, $0.7 million for capital expenditures, and $1.0 million for finance lease repayments[184] - Management believes existing cash and available borrowing capacity will be sufficient to meet anticipated cash needs for operations and growth for at least the next twelve months[185] Quantitative and Qualitative Disclosures About Market Risk The company reported no material changes in its primary market risk exposures or the management of those exposures during the three months ended March 31, 2024, compared to the disclosures in its 2023 Form 10-K - There have been no material changes in the company's primary market risk exposures or how those exposures are managed since the 2023 Form 10-K[192] Controls and Procedures As of March 31, 2024, management concluded that the company's disclosure controls and procedures were not effective. This conclusion is based on previously identified material weaknesses in internal control over financial reporting, including ineffective IT access and change management controls, inadequate business process controls, and lack of controls over key spreadsheets. The company is actively undertaking remediation efforts, such as implementing a new enterprise-wide system and engaging an external accounting firm, but these efforts are ongoing and have not yet been fully validated - Management concluded that disclosure controls and procedures were not effective as of March 31, 2024, due to previously identified material weaknesses[193] - Material weaknesses identified include ineffective controls over IT logical access and program changes, inadequate segregation of duties in business processes, and poor controls over the accuracy of key spreadsheets[196] - Remediation plans are in progress, including implementing a new enterprise-wide system, engaging an accounting firm for assistance, and hiring key senior management positions. These efforts are ongoing and require further validation[195][197][198] Part II — Other Information Legal Proceedings The company is not currently involved in any legal proceedings that it believes would have a material effect on its business or financial condition - The company reports that it is not involved in any legal proceedings expected to have a material effect on its business or financial condition[201] Risk Factors The primary risk highlighted is the company's potential inability to maintain compliance with the Nasdaq Capital Market's continued listing requirements, specifically the $1.00 minimum bid price rule. Despite effecting a 1-for-15 reverse stock split in April 2024, the company had not regained compliance as of the report date. Failure to regain compliance by the May 20, 2024 deadline could result in a delisting notice, which would have significant adverse consequences, including reduced liquidity and limited market quotations for its securities - A significant risk is the potential failure to maintain compliance with Nasdaq's minimum bid price requirement of $1.00 per share[203] - The company received a notice from Nasdaq in May 2023 and was granted an extension until May 20, 2024, to regain compliance[203][204] - Despite a 1-for-15 reverse stock split on April 10, 2024, the company had not regained compliance as of the filing date. Failure to do so by the deadline will result in a delisting notice, which the company intends to appeal[204][205] Unregistered Sales of Equity Securities and Use of Proceeds On March 26, 2024, the company amended the terms of its previously issued Unsecured Convertible Term Notes and related warrants. The conversion and exercise prices were reduced to $3.00 per share. This modification resulted in the notes being convertible into a total of 1,795,000 shares and the related warrants becoming exercisable for a total of 1,436,000 shares. These securities were issued in a private placement - On March 26, 2024, the company amended the conversion price of its Unsecured Convertible Term Notes and the exercise price of related warrants to $3.00 per share[206] - This amendment increased the number of shares issuable upon conversion of the notes to 1.8 million and upon exercise of the warrants to 1.4 million (0.9 million for investors and 0.5 million for the placement agent)[206] Exhibits This section lists the exhibits filed with the Form 10-Q, which include certifications from the CEO and CFO as required by the Sarbanes-Oxley Act (Sections 302 and 906), and XBRL interactive data files - The exhibits filed with this report include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[210] - Interactive Data Files (XBRL documents) are also included as exhibits[210]