NUTEX HEALTH, INC. – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is intended to assist you in understanding our results
of operations and our present financial condition and contains forward-looking
statements that reflect our future plans, estimates, beliefs and expected
performance. The forward-looking statements are dependent upon events, risks and
uncertainties that may be outside our control. We caution you that our actual
results could differ materially from those discussed in these forward-looking
statements. Factors that could cause or contribute to such differences are
discussed elsewhere in this Annual Report, particularly in the "Cautionary Note
Regarding Forward-Looking Statements" and "Risk Factors," all of which are
difficult to predict. In light of these risks, uncertainties and assumptions,
the forward-looking events discussed may not occur. We do not undertake any
obligation to publicly update any forward-looking statements except as otherwise
required by applicable law.
Explanatory Note
On
Holdings, Inc.
by the Agreement and Plan of Merger (the "Merger Agreement") dated as of
liability company and wholly-owned subsidiary of Clinigence, Nutex,
Hospital Holding LLC
Agreement),
as the representative of the equity holders of Nutex. Immediately following the
completion of the Merger, Clinigence amended its certificate of incorporation
and bylaws to change its name to "
Merger, each outstanding equity interest of
exchanged for 3.571428575 shares of Clinigence common stock. The Merger was
accounted for as a reverse business combination under
Our financial statements presented for periods prior to the Merger Date are
those of
Beginning with the second quarter of 2022, our financial statements are
presented on a consolidated basis and include Clinigence.
Except where the context indicates otherwise, (i) references to "we," "us,"
"our," or the "Company" refer, for periods prior to the completion of the
Merger, to
"
to
Merger.
Overview
with 19 hospital facilities in eight states (hospital division), and a primary
care-centric, risk-bearing population health management division. Our hospital
division implements and operates innovative health care models, including
micro-hospitals, specialty hospitals and hospital outpatient departments
("HOPDs"). The population health management division owns and operates provider
networks such as independent physician associations ("IPAs") and offers a
cloud-based proprietary technology platform to IPAs which aggregates clinical
and claims data across multiple settings, information systems and sources to
create a holistic view of patients and providers.
We employ 1,150 full- and part-time employees and partner with over 800
physicians. Our corporate headquarters is based in
incorporated on
Our financial statements present the Company's consolidated financial condition
and results of operations including those of majority-owned subsidiaries and
variable interest entities ("VIEs") for which we are the primary beneficiary.
The hospital division includes our healthcare billing and collections
organization and hospital entities. In addition, we have financial and operating
relationships with multiple professional entities (the "Physician LLCs") and
real estate entities (the "Real Estate Entities"). The Physician LLCs employ the
doctors who work in our hospitals. These entities are consolidated by the
Company as VIEs because they do not have significant equity at risk, and we have
historically provided support to the Physician LLCs in the event of cash
shortages and received the benefit of their cash surpluses.
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The Real Estate Entities own the land and hospital buildings which are leased to
our hospital entities. The Real Estate Entities have mortgage loans payable to
third parties which are collateralized by the land and buildings. We consolidate
the Real Estate Entities as VIEs in instances where our hospital entities are
guarantors or co-borrowers under their outstanding mortgage loans. During the
second quarter of 2022, we deconsolidated 17 Real Estate Entities after the
third-party lenders released our guarantees of associated mortgage loans,
leaving three Real Estate Entities as current VIEs consolidated in our financial
statements.
The Company has no direct or indirect ownership interest in the Physician LLCs
or Real Estate Entities, so 100% of the equity for these entities is shown as
noncontrolling interest in the consolidated balance sheets and statements of
operations.
The population health management division includes our management services
organizations and a healthcare information technology company providing a
cloud-based platform for healthcare organizations. In addition, AHISP, IPA, a
physician-affiliated entity that is not owned by us-is consolidated as a VIE of
our wholly-owned subsidiary AHP since we are the primary beneficiary of their
operations under AHP's management services contracts with them.
Sources of revenue. Our hospital division recognizes net patient service revenue
for contracts with patients and in most cases a third-party payor (commercial
insurance, workers compensation insurance or, in limited cases,
Medicare/Medicaid).
We receive payment for facility services rendered by us from federal agencies,
private insurance carriers, and patients. The Physician LLCs receive payment for
doctor services from these same sources. On average, greater than 90% of our net
patient service revenue are paid by insurers, federal agencies, and other
non-patient third parties. The remaining revenues are paid by our patients in
the form of copays, deductibles, and self-payment. We generally operate as an
out-of-?network provider and, as such, do not have negotiated reimbursement
rates with insurance ?companies. In the fourth quarter of 2022, we signed
in-network provider contracts with the Provider Network of America (PNA). These
contracts provide for payment to us of claims at 300% of the Medicare allowable
rates for our services provided to PNA members.
The following tables present the allocation of the estimated transaction price
with the patient between the primary patient classification of insurance
coverage:
Year ended December 31,
2022 2021 2020
Insurance 89% 96% 96%
Self pay 9% 3% 3%
Workers compensation 1% 1% 1%
Medicare/Medicaid 1% 0% 0%
Total 100% 100% 100%
The population health management division recognizes revenue for capitation and
management fees for services to IPAs and physician groups and for the licensing,
training, and consulting related to our cloud-based proprietary technology.
Capitation revenue consists primarily of capitated fees for medical services
provided by physician-owned entities we consolidate as VIEs. Capitated
arrangements are made directly with various managed care providers including
HMOs. Capitation revenues are typically prepaid monthly to us based on the
number of enrollees selecting us as their healthcare provider. Capitation is a
fixed payment amount per patient per unit of time paid in advance for the
delivery of health care services, whereby the service providers are generally
liable for excess medical costs. We receive management fees that are based on
gross capitation revenues of the IPAs or physician groups we manage.
Our growth strategy. We plan to expand our operations by entering new market
areas either through development of new hospitals, formation of new IPAs or by
making acquisitions. We expect to open 15 to 20 new hospital facilities by the
middle of the year 2025. These facilities are either under construction or in
advanced planning stages and will result in our expansion into four new
states:
additional IPAs per year principally in geographic areas around our existing
micro-hospitals.
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COVID-19 Pandemic
A novel strain of coronavirus causing the disease known as COVID-19 was first
identified in
booster shots for the COVID-19 virus became widely available in
States
hospitalizations.
As a provider of healthcare services, we were significantly affected by the
public health and economic effects of the COVID-19 pandemic. Our hospitals,
medical personnel, and employees have been actively caring for COVID-19
patients. We implemented considerable safety measures for treatment of COVID-19
patients and have incurred, and may continue to incur, certain increased
expenses arising from the COVID-19 pandemic, including additional labor, supply
chain, capital and other expenditures. Moreover, in recent months, the COVID-19
pandemic resulted in general inflationary pressures and significant disruptions
to global supply networks. In this regard, we have experienced disruptions in
connection with the provision of equipment, construction services, as well as
inflationary pressures in connection with labor, supply chain, capital and other
expenditures. We also experienced a delay in billing and collection of patient
claims during this period.
The COVID-19 pandemic affected, and may continue to affect, our service mix,
revenue mix, payor mix and/or patient volumes, as well as our ability to collect
outstanding receivables. Pandemic-related factors may continue to adversely
affect demand for our services, as well as the ability of patients and other
payors to pay for services rendered.
While we are not able to fully quantify the impact that the COVID-19 pandemic
will have on our future financial results, we expect developments related to
COVID-19 to continue to affect our financial performance. Moreover, the COVID-19
pandemic may otherwise have material adverse effects on our results of
operations, financial position, and/or our cash flows if economic and/or public
health conditions in
Overview of Legislative Developments
number of proposals and legislation designed to make major changes in the
healthcare system, including changes that have impacted access to health
insurance. The most prominent of these efforts, the Affordable Care Act, affects
how healthcare services are covered, delivered and reimbursed. The Affordable
Care Act increased health insurance coverage through a combination of public
program expansion and private sector health insurance reforms. There is
uncertainty regarding the ongoing net effect of the Affordable Care Act due to
the potential for continued changes to the law's implementation and its
interpretation by government agencies and courts. There is also uncertainty
regarding the potential impact of other health reform efforts at the federal and
state levels.
In response to the COVID-19 pandemic, federal and state governments passed
legislation, promulgated regulations, and have taken other administrative
actions intended to assist healthcare providers in providing care to COVID-19
and other patients during the public health emergency and to provide financial
relief. Among these, the Coronavirus Aid, Relief, and Economic Security
Act ("CARES Act") had the most impact on our business.
The CARES Act included a waiver of insurance copayments, coinsurance, and annual
deductibles for laboratory tests to diagnose COVID-19 and visits to diagnose
COVID-19 at an emergency department of a hospital. These provisions of the CARES
Act expired on
experienced higher levels of revenue due to a shift of payor mix. The larger
number and acuity of patient claims for COVID-19 also resulted in higher
revenue.
No Surprises Act
The No Surprises Act ("NSA") is a federal law that took effect
to protect consumers from most instances of "surprise" balance billing. The
legislation was included in the Consolidated Appropriations Act, 2021, which was
passed by
With respect to the Company, ?the
pay for emergency services furnished by an out-of-network ?provider. The
addresses the payment of these out-of-network providers by group health plans or
health ?insurance issuers (collectively, "insurers"). In particular, the
requires insurers to reimburse out-of-network ?providers at a statutorily
calculated "out-of-network rate." In states without an all-payor model agreement
or ?specified state law, the out-of-network rate is either the amount agreed to
by the insurer and the out-of-network ?provider or an amount determined through
an independent dispute resolution ("IDR") process.
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Under the
payment to a provider within ?thirty days after the provider submits a bill for
an out-of-network service. If the provider disagrees with the ?insurer's
determination, the provider may initiate a thirty-day period of open negotiation
with the insurer over the ?claim. If the parties cannot resolve the dispute
through negotiation, the parties may then proceed to IDR ?arbitration. ?
Independent Dispute Resolution. The provider and insurer each submits a proposed
payment amount and ?explanation to the arbitrator. The arbitrator must select
one of the two proposed payment amounts taking into ?account the "qualifying
payment amount" and additional circumstances including among other things the
level of training, outcomes ?measurements of the facility, the acuity of the
individual treated, and the case mix and scope of services of the ?facility
providing the service. The
provider's usual and ?customary charges for an item or service, or the amount
the provider would have billed for the item or service in ?the absence of the
Qualifying Payment Amount. The "qualifying payment amount" (QPA) is generally
the median of the contracted ?rates recognized by the plan or issuer under such
plans or coverage, respectively, on
item or service that is provided by a provider in the same or similar specialty
and provided in the ?geographic region in which the items or service is
furnished, with annual increases based on the consumer price ?index. In other
words, the qualifying payment amount is typically the median rate the insurer
would have paid for ?the service if provided by an in-network provider or
facility.?
HHS Final Rule. As required by the
and Human
certified IDR ?entity determines the ultimate amount of payment. The HHS' final
rule became effective
presumption that the qualified payment amount is the correct price and also
abandoned the requirement that the certified IDR entity must select the offer
closest to the qualifying payment amount. These key provisions were initially
part of the interim rule issued in 2021 and were challenged by several court
cases. Under the final rule, the certified IDR entity must instead select the
offer that best reflects the value of the item or service provided, by first
considering the QPA and then considering "additional information" that is
relevant to the dispute.
Since the
of patient claims for emergency services has declined by approximately 30%
including as much as a 37% reduction for physician services. In our experience,
insurers often initially pay amounts lower than the QPA without regard for other
information relevant to the claim. This requires us to make appeals using the
IDR process. We submitted almost 28 thousand cases for IDR in 2022, most in the
fourth quarter. The IDR process and subsequent appeals, should we pursue them,
require extensive administrative time and delays in collections.
Our experience is similar to that of other healthcare providers. In
2023
results of its membership. The survey found that in more than 90% of claims
surveyed, insurance companies followed the final rules implemented under the
for QPA disclosure and that the average claim payment declined 32% per ER Visit
post-
While we are working within the established processes for IDR, we have had
varying successes at achieving collections at or higher than the established
QPA. We have undertaken several strategic actions designed to improve our
collections results. These include:
• maximizing our claims coding efficiency,?
• ??increasing efforts to collect co-pays and co-insurance,?
• ??adding additional administrative staff to handle the increased administrative
IDR burden,
• ??having a dedicated IDR team to accelerate resubmission of claims under the
IDR process,?
• ??making appeals for additional payment of claims for periods before and after
the
• ??making efforts to sign favorable contracts with new insurers,
• working to sign more favorable contracted rates with existing contracted
providers,
• ?working with both local and national legislatures to enforce the
guidelines for Insurers, and
• focusing on the value-base IPA side of our business, which is less affected by
the
The final rule is already the subject of legal challenges. The
Association
related provisions of the final rule, arguing that the QPA does not represent
the fair value of the services rendered by the physicians and providers and that
the final rule illegally favors the QPA over the fair value of the provider
services in contravention of the statutory language of the
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On
medical associations, the
College of Emergency Physicians
professional associations representing an aggregate of approximately 136,000
physicians, filed an Amicus brief supporting the TMA Motion.
On
granting its motion for summary judgment against the HHS and stating that the
revised IDR process in the final rule "continues to place a thumb on the scale"
in favor of insurers and conflicts with the statutory provisions of the
unlawful and must be set aside. The Courts decision vacated all of the revised
regulations challenged by the TMA, including HHS' rule that arbiters must
primarily consider the QPA in the IDR process. The court stated that the final
rules wrongly require arbitrators to presume the correctness of the QPA and then
impose a heightened burden on the remaining statutory factors to overcome that
presumption. In addition, the TMA on
District
invalidate a recent 600% percent increase in the administrative fees payable in
the IDR process.
We are supportive of industry efforts challenging
of many other healthcare providers, is that the final rule continues to unfairly
favor insurers in the determination of the QPA we receive for our healthcare
services. It is difficult to predict the ultimate outcome of efforts to
challenge or amend the final rule. As well, there can be no assurance that
third-party payors will not attempt to further reduce the rates they pay for our
services or that additional rules issued under the
consequences to our business.
Results of Operations
We report the results of our operations as three segments in our consolidated
financial statements: (i) the hospital division, (ii) the population health
management division and (ii) the real estate division. Activity within our
business segments is significantly impacted by demand for healthcare services we
provide, competition for these services in each of the market areas we serve,
and the legislative changes discussed above.
Following is our results of operations for the periods shown:
Year ended December 31,
2022 2021 2020
Revenue:
Hospital division $ 198,508,245 $ 331,531,311 $ 274,029,061
Population health management
division 20,786,061 - -
Total revenue 219,294,306 331,531,311 274,029,061
Segment operating income:
Hospital division 13,064,913 179,280,958 157,606,159
Population health management
division 387,469 - -
Total segment operating income 13,452,382 179,280,958 157,606,159
Corporate and other costs:
Acquisition costs 3,885,666 3,553,716 -
Impairment of goodwill 398,135,038 - -
General and administrative expenses 18,030,832 5,462,344 4,432,272
Total corporate and other costs 420,051,536 9,016,060 4,432,272
Interest expense 12,490,260 6,196,026 6,432,941
Other expense (income) 559,299 (5,422,144) 1,001,711
Income before taxes (419,648,713) 169,491,016 145,739,235
Income tax expense 13,090,905 965,731 181,341
Net income (loss) (432,739,618) 168,525,285 145,557,894
Less: net income (loss) attributable
to noncontrolling interests (7,959,172) 35,931,957 39,588,009
Net income (loss) attributable to
Nutex Health Inc. $ (424,780,446) $ 132,593,328 $ 105,969,885
Adjusted EBITDA $ 12,547,923 $ 145,220,199 $ 114,866,741
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Year Ended
We reported a net loss attributable to
loss of
2022 results were principally affected by:
A non-cash impairment charge of
• goodwill for the population health management division reporting unit acquired
in the reverse business combination;
• Decrease in revenue caused by legislative changes reducing the amounts we are
able to collect for patient services to median in-network rates;
Start-up costs associated with five new facilities opened since
• which are experiencing favorable market acceptance but not yet fully achieving
break-even profitability;
• Higher overall costs of employees and independent contractors.
Adjusted EBITDA for 2022 was
Refer to Non-GAAP Financial Measures discussed below for a definition and
reconciliation of Adjusted EBITDA. The items affecting revenue and start-up
costs contributed significantly to the decline in Adjusted EBITDA in the 2022
period.
A discussion of our segment results is included below.
Hospital Division. Our revenue for 2022 totaled
collection amounts and the number of patient visits. The following table shows
the number of patient visits during the periods:
Year ended December 31,
2022 2021
Patient visits:
Hospital 161,014 189,016
Total patient visits decreased 15% during 2022 as compared with 2021. Patient
visits in 2021 included significant volumes of COVID-19 related cases. The
average acuity or severity of patient cases in the 2022 period was slightly
higher than in 2021 but only minimally offset the impact of the lower number of
total patient visits.
Collections during the years 2020 and 2021 benefited from provisions of the
CARES Act which waived insurance copayments, coinsurance, and annual deductibles
for laboratory tests and visits at an emergency department of a hospital to
diagnose COVID-19. These provisions of the CARES Act expired on
While these provisions were effective, we experienced higher levels of revenue
due to a shift of payor mix.
In 2022, the average payment by insurers for patient claims for emergency
services declined by approximately 30% principally because of the
to prior periods. We also experienced a decrease in collection for the remaining
amounts of account receivable for periods before 2022. We believe this decline
was caused, in part, by insurers underpaying these claims in the same way we are
experiencing lower claim payments since the
The hospital division's operating income was
as compared
2022 was adversely affected by the reduction in net revenue discussed above.
Further, start-up costs for newer facilities contributed to reduced segment
operating results. We have opened five new facilities since
costs include complete staffing for 24/7 operations, lease costs, in-market
advertising and other operating expenses. These costs often exceed our revenue
at these facilities until they achieve sustaining volumes of patient visits. In
general, we expect new facilities to reach profitability within 12 months. In
this time, we also added additional staff to manage higher volumes of medical
claims billing and collection administration.
combination with Clinigence in
as the population health management division. Our total revenue for 2022 for
this division was
We do not have an equity interest in this VIE but consolidate it
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since we are the primary beneficiary of its operations under our management
services contract with them. We also earn management fees under our management
services contracts with other IPAs and MSOs which are reported as revenue.
The population health management division had
for 2022 since completion of the reverse business combination. Strategically, we
are focused on the growth of this division principally through the addition of
new independent physician associations and have staffed our organization to
manage larger numbers of such organizations.
Real Estate Division. This division reports the operations of consolidated Real
Estate Entities where we provide guarantees of their indebtedness or are
co-borrowers. During the second quarter of 2022, we deconsolidated 17 Real
Estate Entities after the third-party lenders released our guarantees of
associated mortgage loans.
Revenue and operating expenses of consolidated Real Estate Entities are not
significant since the extent of these entities' operations is to own facilities
leased to our hospital division entities which are financed by a combination of
contributed equity by related parties and third-party mortgage indebtedness.
Such leases are typically on a triple net basis where our hospital division is
responsible for all operating costs, repairs and taxes on the facilities.
Finance lease income is recognized outside of segment operating income as other
income by the Real Estate Entities. However, these amounts are largely
eliminated in the consolidation of these entities into our financial statements.
At
our financial statements. We expect that hospitals we open in the future may be
leased from new Real Estate Entities which may be owned in whole or part by
related parties. Third-party lenders to these entities may require that we
provide a guarantee or become co-borrowers under mortgage indebtedness
financings for such facilities. In such instances, we may be required to
consolidate these new Real Estate Entities in our financial statements as VIEs.
Corporate and other costs. Corporate and other costs in 2022 included general
and administrative expenses totaling
reverse business combination with Clinigence totaling
non-cash impairment charge reducing goodwill totaling
corporate costs for 2021 included general and administrative costs of
million
include our executive management, accounting, human resources, corporate
technology, insurance and professional fees. We have incurred higher levels of
professional fees as a public company. In 2022, we have made staffing additions
commensurate with our operational growth and made key additions to our executive
management team.
As a public company, we must comply with new laws, regulations and requirements,
certain corporate governance provisions of the Sarbanes-Oxley Act of 2002,
related regulations of the
NASDAQ, with which we were not required to comply with as a private company. We
incur additional annual expenses related to these matters and, among other
things, additional directors' and officers' liability insurance, director fees,
reporting requirements of the
accounting, legal and administrative personnel, increased auditing and legal
fees and similar expenses.
In 2022, we recognized a non-cash impairment charge of
revised, to reduce the carrying amount of goodwill for the population health
management division reporting unit acquired in the reverse business combination.
This impairment was determined as part of our annual test for impairment of
goodwill. This test is made by comparing the estimated fair values of our
reporting units to their respective carrying values. We use an income method to
estimate the fair value of these assets, which is based on forecasts of the
expected future cash flows attributable to the respective assets and is subject
to significant estimates and assumptions. In performing this test, we determined
that the estimated fair value of our population health management
division reporting unit was less than its carrying value recorded in the reverse
business combination. Therefore, we conducted a second step of the goodwill
impairment test to determine the implied fair value of the reporting unit's
goodwill. The non-cash impairment charge reduced the excess carrying amount of
goodwill for the population health management division that were greater than
its residual fair value. As discussed in Item 8, "Financial Statements - Note 20
- Quarterly Financial Data, we made a retrospective adjustment to reduce the
amount of goodwill impairment expense from the
recognized in our quarterly report on Form 10-Q for the period ended
30, 2022
Nonoperating items
Interest expense. Interest expense totaled
with
mortgage indebtedness of consolidated Real Estate Entities, interest expense on
outstanding term notes and lines of credit for financing operating equipment and
working capital needs, interest expense for financing leases and the accretion
costs related to the conversion of notes assumed in the Clinigence transaction.
Interest expense is expected to decline in future periods as a
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result of the deconsolidation of 17 Real Estate Entities and their associated
mortgage indebtedness during the second quarter of 2022 as well as due to the
elimination of accretion costs related to the conversion of notes payable
assumed in the Clinigence transaction.
Income tax expense. In periods before our merger with Clinigence,
Holdco LLC
partnerships for
income taxes was provided for these periods as federal taxes were obligations of
these companies' members. After the merger,
wholly-owned subsidiary of Clinigence and is included in its consolidated
corporate tax filings. We recognized a non-cash charge of
income tax expense during 2022 for the change in tax status of
Holdco LLC
liabilities representing the differences between the book and tax bases of
Health Holdco LLC's
status.
At the time of our merger with Clinigence, Clinigence had a full valuation
allowance against its deferred tax assets. We recorded a non-cash benefit of
after we concluded that the associated deferred tax assets would be realizable.
Each of the discrete items above, as well as the non-deductible goodwill
impairment expense also recognized 2022, are one-time, non-cash items.
Year Ended
We reported net income attributable to
from higher patient volumes including COVID-19 related cases.
Adjusted EBITDA for 2021 was a
for 2020. Refer to Non-GAAP Financial Measures discussed below for a definition
and reconciliation of Adjusted EBITDA.
A discussion of our segment results follows.
Hospital Division. Our revenue for 2021 totaled
volumes including COVID-19 related cases. The following table shows the number
of patient visits during the periods:
Year ended December 31,
2021 2020
Patient visits:
Hospital 189,016 168,443
Total patient visits increased 12% in 2021 as compared with 2020. Patient visits
each year included significant volumes of COVID-19 related cases each year. The
number and acuity of patient visits in the fall of 2021 increased significantly
due to the emergence of the Omicron variant of the COVID-19 virus. These higher
volumes began to subside in early-2022.
Collections during the years 2020 and 2021 benefited from provisions of the
CARES Act which waived insurance copayments, coinsurance, and annual deductibles
for laboratory tests and visits at an emergency department of a hospital to
diagnose COVID-19. These provisions of the CARES Act expired on
While these provisions were effective, we experienced higher levels of revenue
due to a shift of payor mix.
The hospital division's operating income was
income for 2021 benefited from the higher revenues discussed above.
Real Estate Division. This division reports the operations of consolidated Real
Estate Entities where we provide guarantees of their indebtedness or are
co-borrowers.
Revenue and operating expenses of consolidated Real Estate Entities are not
significant since the extent of these entities' operations is to own facilities
leased to our hospital division entities which are financed by a combination of
contributed equity by related parties
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and third-party mortgage indebtedness. Such leases are typically on a triple net
basis where our hospital division is responsible for all operating costs,
repairs and taxes on the facilities. Finance lease income is recognized outside
of segment operating income as other income by the Real Estate Entities.
However, these amounts are largely eliminated in the consolidation of these
entities into our financial statements.
Corporate and other costs. Corporate and other costs in 2021 included general
and administrative expenses totaling
for 2020. Acquisition costs totaled
costs and higher levels of general and administrative expenses in 2021 were
incurred as we prepared for our reverse business combination with Clinigence and
added corporate staffing in preparation for our public listing.
Nonoperating items
Interest expense. Interest expense totaled
mortgage indebtedness of consolidated Real Estate Entities and interest expense
on outstanding term notes and lines of credit for financing operating equipment
and working capital needs.
Income tax expense. As discussed above, in periods before our merger with
Clinigence,
entities treated as partnerships for
provision for federal income taxes was provided for these periods as federal
taxes were obligations of these companies' members. Reported amounts for income
tax expense in these periods were for
Liquidity and Capital Resources
As of
to
Significant sources and uses of cash during 2022.
Sources of cash:
Cash from operating activities was
• from the primary components of our working capital (receivables, inventories,
accounts payable and expenses).
• Clinigence's balance sheet at the merger date included
• We received net proceeds of
and lines of credit.
• We received net proceeds of
warrants and options.
• Non-controlling members made cash capital contributions of
Uses of cash:
• Capital expenditures were
• We made distributions to our owners related to operations prior to the merger
with Clinigence and to noncontrolling interest owners totaling
• Cash associated with the 17 deconsolidated Real Estate Entities totaled
million.
Future sources and uses of cash. Our operating activities are financed with cash
on hand which is generated from revenues. Most of our hospital facilities are
leased from various lessors including related parties. These leases are
presented in our consolidated balance sheets unless the lease is from a
consolidated Real Estate Entity. Our growth plans include the development of new
hospital locations. We expect that in many of these locations we will lease
facilities from newly established entities partially owned by related parties.
We routinely enter into equipment lease agreements to procure new or replacement
equipment and may also finance these purchases with term debt?. We have smaller
lines of credits available for working capital purposes and are presently
working to supplement or replace these with larger financing commitments. These
larger financing commitments are subject to market conditions and we may not be
able to obtain such larger financing commitments at favorable economic terms or
at all.
Indebtedness. The Company's indebtedness at
Item 8, "Financial Statements - Note 8 - Debt" and our lease obligations are
presented in Item 8, "Financial Statements-Note 9 - Leases."
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We have entered into private debt arrangements with banking institutions for the
purchase of equipment and to provide working capital and liquidity through cash
and lines of credit. Unless otherwise delineated above, these debt arrangements
are obligations of Nutex and/or its wholly-owned subsidiaries. Consolidated Real
Estate Entities have entered into private debt arrangements with banking
institutions for purposes of purchasing land, constructing new emergency room
facilities and building out leasehold improvements which are leased to our
hospital entities. Nutex is a guarantor or, in limited cases, a co-borrower on
the debt arrangements of the Real Estate Entities for the periods shown. During
the second quarter of 2022, we deconsolidated 17 Real Estate Entities after the
third-party lenders released our guarantees of associated mortgage loans.
Certain outstanding debt arrangements require minimum debt service coverage
ratios and other financial covenants. At
compliance with the debt service coverage ratio for term loan with an
outstanding balance of
liabilities. At
under outstanding lines of credit.
Committed Investment Agreement with
(the "Investor"), entered into a purchase agreement pursuant to which Nutex has
the right, in its sole ?discretion, but not the obligation, to sell to the
Investor up to
term of the purchase agreement, subject to the terms and conditions provided
therein. Nutex will control the timing and amount of any future sales of its
Common Stock and the Investor is obligated to make purchases in accordance with
the purchase agreement, subject to ?various limitations including those under
the Nasdaq listing rules.
Nutex intends to use the ?net proceeds from the future sale of its Common Stock
for working capital and general corporate ?purposes to support its growth.?
Regular Purchases: At any time after the satisfaction of certain conditions
including the effectiveness of a registration statement, the Company ?has the
right, but not the obligation, to require the Investor to purchase on any
particular trading day ("Purchase Date") up to:
? 300,000 shares of Common ?Stock provided that the closing price is not below
??
? ??600,000 shares if the closing price is not below
? 900,000 shares if the closing price is not ?below
The Investor's committed obligation under each Regular Purchase shall not exceed
the lesser of:
? the ?lowest sale price of the Common Stock during the applicable Purchase Date;
or
? the average of the three lowest ?closing sale prices of the Common Stock during
the ten business days prior to the applicable Purchase Date.
Accelerated Purchases: In addition to Regular Purchases and provided that the
Company has directed a ?Regular Purchase in full (as set forth above), the
Company in its sole discretion may require the Investor on each Purchase Date to
?purchase on the following business day (the "Accelerated Purchase Date") up to
the lesser of:
? three times ?the number of shares purchased pursuant to such Regular Purchase;
or
? 30% of the trading volume on the Accelerated Purchase Date;
In each case, the purchase price shall be equal to 97% of the lesser of:
? the closing sale price on the ?Accelerated Purchase Date; or
? the Accelerated Purchase Date's volume weighted average price.
There is no upper limit to the price per share that the Investor may pay for
future issuances of Common Stock under the Agreement, and the Investor has
agreed not to cause or engage in any direct or indirect short ?selling or
hedging of our Common Stock. No warrants are being issued the Investor and the
?Agreement does not contain any rights of first refusal, participation rights,
penalties, or liquidated damages provisions ?in favor of any party.
In connection with the execution of the Agreement, the Company issued
?1,356,318? shares of Common Stock to the Investor as a commitment fee, in a
private transaction exempt from registration under Section 4(a)(2) of the
Securities Act of 1933, as amended.
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Table of Contents
Under the Agreement, issuances of Common Stock may be suspended upon the
occurrence of customary events, including the unavailability of the resale
registration statement. The Company has the right at any time for any reason to
terminate the Agreement.??
Off-Balance Sheet Arrangements
As of
Non-GAAP Financial Measures
Adjusted EBITDA. Adjusted EBITDA is used as a supplemental non-GAAP financial
measure by management and external users of our financial statements, such as
industry analysts, investors, lenders and rating agencies. We believe Adjusted
EBITDA is useful because it allows us to more effectively evaluate our operating
performance.
We define Adjusted EBITDA as net income (loss) attributable to
plus net interest expense, income taxes, depreciation and amortization, further
adjusted for stock-based compensation, certain defined items of expense, any
acquisition-related costs and impairments. A reconciliation of net income to
Adjusted EBITDA is included below. Adjusted EBITDA is not intended to serve as
an alternative to
similarly-titled measures presented by other companies.
Year ended December 31,
2022 2021 2020
Reconciliation of net income (loss)
attributable to Nutex Health Inc. to
Adjusted EBITDA:
Net income (loss) attributable to Nutex
Health Inc. $ (424,780,446) $ 132,593,328 $ 105,969,885
Depreciation and amortization 13,131,374 7,662,464 5,898,361
Interest expense, net 12,490,260 6,196,026 6,432,941
Income tax expense 13,090,905 965,731 181,341
Allocation to noncontrolling interests (4,837,514) (5,751,066) (3,615,787)
EBITDA
(390,905,421) 141,666,483 114,866,741 Stock-based compensation expense 189,581 - - Rescission of warrant exercise 1,243,059 - - Impairment of goodwill 398,135,038 - - Acquisition costs 3,885,666 3,553,716 - Adjusted EBITDA$ 12,547,923 $ 145,220,199 $ 114,866,741
Significant Accounting Policies
Revenue recognition.
Hospital division - Our hospital division recognizes net patient service revenue
for contracts with patients and in most cases a third-party payor (commercial
insurance, workers compensation insurance or, in limited cases,
Medicare/Medicaid). The Company's performance obligations are to provide
emergency health care services primarily on an outpatient basis. Net patient
service revenues are recorded at the amount that reflects the consideration to
which the Company expects to be entitled in exchange for providing patient care.
These amounts are net of appropriate discounts giving recognition to differences
between the Company's charges and reimbursement rates from third party payors.
Patient service net revenues earned by the Company are recognized at a point in
time when the services are provided, net of adjustments and discounts. Because
all the Company's performance obligations relate to contracts with a duration of
less than one-year, certain disclosures are limited.
The transaction price is determined based on gross charges for services
provided, reduced by contractual adjustments provided to third-party payors,
discounts and implicit e concessions provided primarily to uninsured patients in
accordance with the Company's
48
Table of Contents
policy. For uninsured patients, the Company recognizes revenue based on
established rates, subject to certain discounts and implicit price concessions.
The Company is reimbursed from third party payors under various methodologies
based on the level of care provided. We are considered "out-of-network" with
commercial health plans. As there are no contractual rates established with
insurance entities, revenues are estimated based on the "usual and customary"
charges allowed by insurance payors using historical collection experience,
historical trends of refunds and payor payment adjustments (retractions).
Revenue from the Medicare program is based on reimbursement rates set by
governmental authorities.
Patients who have health care insurance may also have discounts applied related
to their copayment or deductible. Estimates of contractual adjustments and
discounts are determined by major payor classes for outpatient revenues based on
historical experience. The Company estimates implicit price concessions based on
its historical collection experience with these classes of patients using a
portfolio approach. The portfolios consist of major payor classes for outpatient
revenue. Based on historical collection trends and other analyses, the Company
concluded that revenue for a given portfolio would not be materially different
than if accounting for revenue on a contract-by-contract basis.
Customer payments are due upon receipt of an explanation of benefits for insured
patients or it is due upon receipt of the bill from the Company for uninsured
payments. There is no financing component associated with payments due from
insurers or patients.
Population health management division - The population health management
division recognizes revenue for capitation and management fees for services to
IPAs and physician groups and for the licensing, training, and consulting
related to our cloud-based proprietary technology.
Capitation revenue consists primarily of capitated fees for medical services
provided by physician-owned entities we consolidate as VIEs. Capitated
arrangements are made directly with various managed care providers including
HMOs. Capitation revenues are typically prepaid monthly to us based on the
number of enrollees selecting us as their healthcare provider. Capitation is a
fixed payment amount per patient per unit of time paid in advance for the
delivery of health care services, whereby the service providers are generally
liable for excess medical costs.
We receive management fees that are based on gross capitation revenues of the
IPAs or physician groups we manage. Revenue is recognized and received monthly
for our services. In addition, we provide consultant services that are charged
as a flat fixed rate and recognized as revenue when the service is performed.
Consultant services revenues represent a small portion of our total revenue.
Software licenses are provided as SaaS-based subscriptions that grants access to
proprietary online databases and data management solutions. Training and
consulting are project based and billable to customers on a monthly-basis or
task-basis. Revenue from training and consulting are generally recognized upon
delivery of training or completion of the consulting project. The duration of
training and consulting projects are typically a few weeks or months and last no
longer than 12 months.
SaaS-based subscriptions are generally marketed under multi-year agreements with
annual, semi-annual, quarterly, or month-to-month renewals and revenue is
recognized ratably over the renewal period with the unearned amounts received
recorded as deferred revenue. For multiple-element arrangements accounted for in
accordance with specific software accounting guidance, multiple deliverables are
segregated into units of accounting which are delivered items that have value to
a customer on a standalone basis.
Cash payments for SaaS-based subscriptions received in advance of the
satisfaction of our performance obligations as deferred revenue and recognized
as revenue over the period in which the performance obligations are satisfied.
The Company completes its contractual performance obligations through providing
its customers access to specified data through subscriptions for a service
period, and training on consulting associated with the subscriptions. We
primarily invoice our customers on a monthly basis and do not provide any
refunds, rights of return, or warranties.
Construction in Progress. The Company regularly is in the process of
constructing new facilities. Generally, our ER Entities are responsible for the
leasehold buildout and equipment while the associated Real Estate Entity
procures the land, if any, and constructs a new or remodeled facility. Costs
incurred to construct assets which will ultimately be classified as fixed assets
are capitalized and classified in our financial statements as construction in
progress until construction is completed and the asset is available for use.
Once the asset is available for use, it is reclassified as another category of
fixed assets and depreciated across its useful life.?
Goodwill Impairment. We test goodwill for impairment at least annually by
comparing the estimated fair values of our reporting units to their respective
carrying values. We use an income method to estimate the fair value of these
assets, which is based on forecasts of the expected future cash flows
attributable to the respective assets. Significant estimates and assumptions
inherent in the valuations
49
Table of Contents
reflect a consideration of other marketplace participants, and include the
amount and timing of future cash flows (including expected growth rates and
profitability). Estimates utilized in the projected cash flows include
consideration of macroeconomic conditions, overall category growth rates,
competitive activities, Company business plans and the discount rate applied to
the cash flows. Unanticipated market or macroeconomic events and circumstances
may occur, which could affect the accuracy or validity of the estimates and
assumptions.
During the three months ended
estimated fair value of our population health management division reporting unit
which was acquired in the reverse business combination with Clinigence was less
than its carrying value. Therefore, we conducted a second step of the goodwill
impairment test to determine the implied fair value of the reporting unit's
goodwill. In this analysis, we allocated the fair value of the reporting unit to
identifiable assets and liabilities of the reporting unit. The residual fair
value after this allocation was compared to the goodwill balance with the excess
goodwill charged to expense. Based on this analysis, we recognized a non-cash
impairment charge of
of goodwill for the population health management division reporting unit. As
discussed in Item 8, "Financial Statements - Note 20 - Quarterly Financial Data,
we made a retrospective adjustment to reduce the amount of goodwill impairment
expense from the
Form 10-Q for the period ended
We believe the estimates and assumptions utilized in our impairment testing are
reasonable and are comparable to those that would be used by other marketplace
participants. However, actual events and results could differ substantially from
those used in our valuations. To the extent such factors result in a failure to
achieve the level of projected cash flows used to estimate fair value for
purposes of establishing or subsequently impairing the carrying amount of
goodwill and intangible assets, we may need to record additional non-cash
impairment charges in the future.
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