Greetings, and welcome to Nutex Health Second Quarter 2024 Financial Results Conference Call. At this time, all participants are on a listen-only mode. Operator instructions were given. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jennifer Rodriguez. Thank you. You may begin.

Welcome to the Nutex Health Second Quarter 2024 Earnings Conference Call. Today's call is being recorded. With me this morning is our Chairman and CEO, Dr. Tom Vo, CFO Jon Bates, President Dr. Warren Hosseinion, and COO Josh DeTillio. Our team will provide some prepared remarks, and then we'll take questions. Before I turn the call over to Dr. Vo, let me remind everyone that today's call may contain forward-looking statements that are based on management's current expectations, numerous risks, uncertainties, and other factors that may cause actual results to differ materially from those that might be expressed today. More information on forward-looking statements and these factors are listed in Thursday's press release and in our various SEC filings. On this morning's call, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure, a table providing supplemental information on adjusted EBITDA, and reconciling net loss attributable to Nutex Health, Inc., is included in the press release and form 10-K filed earlier this week. This morning's call is being recorded, and a replay of the call will be available later today. With that, I'll now turn the call over to Dr. Tom Vo, our Founder and Chief Executive Officer.

Jennifer, thank you. Good morning to everyone, and thank you for joining the call. We are very excited to present our second quarter financials to our esteemed investors. At Nutex, everyone in the organization believes in the business model and is fully engaged and aligned to make the company even more successful. Before we dive into the financials, I'd like to take a step back to describe what Nutex Health is, our value proposition, where we came from, as well as how we see the future of healthcare. Nutex Health was founded in 2011 in Houston, Texas. It was founded based on the premise that Americans around the country need better accessibility to healthcare on a concierge level. We were one of the very first micro hospital companies in the country to provide this service. We started out serving emergency needs in Houston and eventually expanded our footprint throughout Texas in response to popular demand from consumers across the state. Around 2015, we started expansion into other states with our first hospital outside of Texas in Oklahoma City. We have continued the growth. Today, we have 21 micro-hospitals located in nine states. We continue to be among the leaders in the micro hospital segments in the United States. Let me take a moment to describe to our investors what a micro hospital is. A micro hospital is essentially a small, licensed hospital with many of the ancillary capabilities of a large hospital. Our micro hospitals generally have an emergency room, between four to 20 inpatient beds, an in-house pharmacy, an in-house laboratory, and an in-house radiology suite consisting of MRI, CT, ultrasound, and x-ray, all which is enclosed in a roughly 20 to 30,000 square foot facility. This is compared to a traditional large hospital which typically has anywhere between 100 to 500 plus inpatient beds. Our much smaller footprint allows us to build new facilities quicker and more efficiently in strategic locations around the country compared to constructing larger, traditional hospitals. There are services that we put in providing these micro hospitals include emergency services, medical surgical inpatient stays, outpatient imaging, outpatient labs, and outpatient procedures. The vast majority of our patients come through the emergency room, which has historically been our main line of service. Out of every 100 patients that come through our ER, we can treat and discharge roughly 95% of those patients. Of that 95%, an average of 90% will be discharged from the ER, and 5% will be admitted into our own hospital. The remaining 5% will be transferred to a larger hospital system. Another way to think about our model is the spectrum of care that we provide. As we all know, there are a lot of primary care physicians, urgent care centers, and retail clinics around the country. Walgreen, CVS, Walmart are a few national low-acuity retail clinics that come to mind. On the other other end of the spectrum, there are a lot of large major hospital systems around the country that provide high-acuity, intensive trauma-level care. We are neither a clinic nor are we a large hospital. We position ourselves right in the middle of the acuity care spectrum between the low-acuity clinics and the high-acuity major hospital systems. This is a very unique niche in the healthcare ecosystem that we operate in. There are very few companies around the country that provide care in the mid-acuity spectrum like we do. While our hospital may be small, our patient satisfaction is extremely high in every community that we are located in, as evidenced by our online review and ratings. For example, if you research every one of our hospitals online, you will see that our Google reviews are consistently 4.8 or above. This is very unusual in healthcare. In essence, our patients are very happy with our service. A primary reason for our great patient satisfaction is the culture of our physicians and staff. We partner with local physicians at every one of our hospitals and work in conjunction with them to operate the hospital. This alignment with the local community physicians and staff ensures our patients receive concierge care from a doctor with little or no wait time. Our philosophy is that if your physicians and staff are happy, then your patients are happy. Across the entire company, we consistently have very low employee turnover and rarely have staffing issues. Our physicians and staff engagement are extremely high, and our team often comments that working at Nutex Health is the best job they have ever had. Once again, this is very rare among the large hospital systems where staffing is a major issue among hospitals around the country today. So basically, we have a very simple formula. Create a recipe of engaged, aligned, and incentivized physicians and staff to provide concierge-level patient care and experience. This leads to repeat visits and word-of-mouth advertising, which further increases patient volumes, which increases revenue, which ultimately leads to what we have now, a profitable and growing company. We believe that there are multiple indicators that the increased demand for hospitals and emergency services is not slowing down anytime soon. With the graying of the population and the so-called silver tsunami that is expected to hit healthcare, we feel that we are in a very good position to help meet this demand for more concierge-level accessibility for a long time. Now to the second quarter. Overall, company-wide hospital visits were up 28% versus prior year for all of our hospitals. Our same-store mature hospital volumes were up an average of 10.3% in total billable visits over the prior year. Observation visit volumes were up 34% versus the second quarter of the prior year. Inpatient volumes were up 52% versus the prior year. On the de novo hospital growth side, we have four new hospitals that are under construction that we anticipate opening in the next six to 12 months, barring any unforeseen setbacks. New hospital openings include Post Falls, Idaho, Tampa, Florida, Milwaukee, Wisconsin, and San Antonio, Texas. Beyond 2025, we have modified our annual growth projections slightly to project one to three new hospitals per year. We remain disciplined and only consider locations where the demand for small hospitals vastly outweighs the supply side. On the building and collection side, we continue to see growth monthly on the revenue per patient metric. From the end of 2022 to the end of 2023, based on an adjudicated date of service data, we achieved a 7% increase in revenue per patient. 2024 numbers are still being adjudicated, and we will report the results when ready. We have also already begun to engage in the arbitration process of the independent dispute resolution, whereas previously we had stopped at the open negotiation process. We believe that there is a lot of potential incremental value and revenue to be gained from arbitration as we believe that the insurers typically pay us very low the first time. Arbitration is a tool provided by the No Surprises Act to ensure providers receive fair treatment. In recent articles and public data, we are seeing that providers are prevailing 70% to 80% of the time in arbitration. We started this process in July 2024, and we will have more data in the fourth quarter on the success rate of these arbitration claims with the insurance carriers. On the population health side, we are also making some adjustments. We have divested our MSO in California ProCare and are in the process of selling Clinigence, our healthcare analytics and data company. Jon and Warren will go over these details later in the presentation. We believe that these portfolio changes will allow us to focus on more profitable assets and continue to perform financially and reinvest these dollars into new markets. As we move through the remainder of the year, we will maintain our disciplined approach of managing our costs while continuing to invest appropriately in our strategic growth areas, which we believe should position the company favorably to meet our long-term objectives of being a sustainable and profitable company. With that, I will turn the call over to Jon Bates, Nutex's Chief Financial Officer, for more financial information for the second quarter. Jon?

Thanks, Tom, and good morning, everyone. Our second quarter 2024 results continue to trend, as we saw in the first quarter, with increased success in top-line growth and with our disciplined cost control effort company-wide. But let's talk about the second quarter into June 30th, 2024 first and compare those results to the same quarter of 2023. So for the second quarter of 2024, our total revenue grew 29% or $17.2 million to $76.1 million versus $58.9 million for the second quarter of 2023. Of the total revenue increase, mature hospitals, which are hospitals that were open prior to December 31 of 2021 and therefore provided two full years of comparative results, increased their revenue by 13.2% for the second quarter 2024 versus the second quarter 2023. For hospital division visits, we saw a similar growth during the quarter as they increased by 28% or 9,205 visits to 41,208 visits in the second quarter of 2024 versus 32,183 visits in the same period of 2023, with the mature hospitals growing at 10% in that second quarter 2024 versus 2023. Additionally, the population health division had revenue growth of 15.9% to $8.5 million in the second quarter of 2024 from $7.3 million in the similar period in 2023, despite the divestiture of those two small entities within the division as mentioned by Dr. Vo previously. In addition to the revenue and visit improvement we have seen in the second quarter of 2024, we have continued to see an improvement in the overall facility and corporate cost structure. Total facility level operating costs and expenses represented only 70.3% or $53.5 million of total revenue for the second quarter of 2024 versus 83.6% or $49.3 million of total revenue for the same period in 2023. As a result of the revenue and facility cost improvement, our 2024 second quarter gross profit was $22.6 million or 29.7% of revenue as compared to only $9.6 million or 16.4% of total revenue in 2023, a 134% increase in the second quarter of 2024 over 2023. From a corporate and other cost perspective, the G&A expenses as a percentage of total revenue for the second quarter of 2024 decreased to 14% or $10.7 million from 16.6% or $9.8 million for the second quarter of 2023. Now additionally, as mentioned previously, we did divest two smaller population health entities in the second quarter of 2024 that had very little impact on the operational side of the population health business as we move forward. But the effect of these two transactions led to a non-cash impairment of assets and non-cash impairment of goodwill of $3.5 million and $3.2 million respectively during the second quarter of 2024. Operating income for the second quarter of 2024 was a positive $5.3 million compared to an operating loss of a negative $400,000 in the second quarter of 2023. Net loss attributable to Nutex income improved by $3.1 million in the second quarter of 2024 from a loss of a negative $3.5 million in the second quarter of 2023 to a very small loss of negative $364,000 in the second quarter of 2024. And adjusted EBITDA attributable to Nutex, which removed the effect of the two non-cash impairment items noted above, increased $8 million or 200% from $4 million in the second quarter of 2023 to $12 million in the second quarter of 2024. Now into the six months ended June of 2024 compared to six months ended June of 2023. Total revenue for the first six months of 2024 grew by 25% or $28.2 million to $143.5 million versus $115.3 million for the previous period. Of the total revenue increase, mature hospitals increased their revenue by 10% for the first six months of 2024 versus the same period in 2023. Hospital division visits saw similar growth as they increased by 24.6% or 16,032 visits to 81,276 visits in the first six months of 2024 versus 65,244 visits in the same period of 2023, with mature hospital visits growing at 9.7% in the six months ended June '24 versus the same period in 2023. Now additionally, the population health division had revenue growth of 10.8% to $15.9 million in the first six months of 2024 from $14.4 million in the same period in 2023 despite the divestiture of those two smaller entities within the division during the second quarter of 2024 as mentioned previously. So facility and corporate level costs continued to show improvement for the first six months of 2024 relative to the same period in '23. And this total facility level operating costs and expenses represented 77.5% or $110 million of total revenue for the six months ended June versus 87.4% or $100.8 million for the same period in '23, a decrease of 9.9%. The gross profit for the six months ended June 2024 was $32.7 million or 22.8% of total revenue as compared to only $14.5 million or 12.6% of total revenue in the same period in '23, a 126% increase for the six months ended June 24 versus the six months ended June '23. So from a corporate and other cost perspective, the G&A expenses as a percentage of total revenue for the six months ended June decreased to 13.5% or $19.3 million from 14.7% or $16.9 million for the same period in '23. Operating income for the six months ended June '24 was a positive $6.7 million compared to an operating loss of a negative $4.8 million for the six months ended June of '23. And the net loss attributable to Nutex improved by $7.9 million from a loss of $8.6 million for the first six months of 2023 to a very small loss of just a negative $728,000 in the first six months of '24. Adjusted EBITDA attributable to Nutex, which removed the effect of those two non-cash impairment items noted above, increased $10.2 million or 159% from $6.4 million in the first six months of '23 to $16.6 million in the first six months of 2024. Finally, we want to talk about our balance sheet, which remains very strong with cash and cash equivalents at the end of June of '24 of $40.8 million, up $18.8 million or 85.5% from the $22 million as of the end of year 2023. With regard to cash flow, net cash from operating activities increased by $15.2 million for the six months ended June of '24 to $16.3 million as compared to $1.1 million for the same period in 2023. And on a liability side, our total debt, true debt, decreased by $1.5 million to $40.9 million in June of '24 down from $42.4 million in December of '23. With the majority of this debt related to equipment loans at our hospitals for such normal items as MRIs, x-rays, ultrasounds, and CT machines. So with that, I'll turn the call over to Josh DeTillio, our Chief Operating Officer, to discuss more about our operations.

Thanks, Jon. Good morning, everyone. On the operational side, we've been very focused on both volume growth and service line growth in our mature hospitals as well as a continued focus on costs and becoming a leaner organization. On the volume and revenue growth side, we've made some adjustments in our business development and marketing team, which I'm happy to say have resulted in the impressive second quarter performance that you heard about. An additional contributing factor has been the implementation of our new CRM software HubSpot. Our business development efforts at Nutex Health continue to focus on community events, calling on local primary care and specialist physicians, schools, urgent care centers, large local employers, while simultaneously using Google Ads, social media, and billboards as our primary marketing mediums. Ultimately, key for our hospitals is to grow and continue to provide concierge-level access and care for our patients and to be a resource in the communities and markets in which we serve. Excellent patient care is our best marketing through word-of-mouth, and our reputation in our markets continues to grow. In addition to our focus on increasing ER volumes, which began towards the end of 2023, one of our major initiatives has been to shift our service mix to increase inpatient and observation volumes in our hospitals. As part of this initiative, our hospitals did a lot of work locally partnering with local hospitals and specialists to provide additional care to our existing patients versus transferring them out to other hospital systems. We're starting to see the financial benefits of this changing service mix of becoming more inpatient-centric. This shift will continue to benefit us going forward. At Nutex Health, we are also very focused on our costs. As you heard, our largest costs are labor, supplies, and contract services in that order. We continue to manage labor very closely with all of our hospitals. We have a new HR software, Workday, which has helped us streamline approvals and position control, and we're planning to implement a new labor management software in the coming quarters to help us staff even more efficiently. In the medical supplies and pharmaceutical areas, over the last several months, we've gone through the process of aligning our pricing with supply vendors with our primary GPO HPG. Based on our previous purchasing history, we're projecting an annual cost savings of several million dollars over the next 12 months with these contracted pricing reductions. In contract services, we continue to renegotiate contracts and, whenever possible, eliminate overlapping contracts at both hospitals and at corporate and negotiate larger corporate contracts with better pricing to take advantage of our size and scope. For 2025, we've begun our business planning, which is going to occur in the third and fourth quarter. Our focus this year for our hospitals is really, as you've heard, an observation and inpatient focus, as well as creating some incremental service lines as well. Our focus for 2025 is to continue to grow our mature hospitals and ER volume observation, inpatient and outpatient, as well as expand into new service lines that we are piloting at some hospitals now and quickly ramp up our new hospitals. We're very excited about the continued growth and future of Nutex, and we're working with our stakeholders to strategically plan out the next five years. The second quarter was great for us, returning our company to profitability, and we're expecting that trend to increase in subsequent quarters as we continue to grow organically in our existing hospitals and in our markets. With that, we'll go back to Jennifer.

Thank you, Josh. On the call, we have Bill Sutherland from the Benchmark Company, who will now ask our team questions.

Thanks, Jennifer. Hello, everybody. Let me start with the population health side. I'm wondering what other color you can provide there. I guess this will be for Warren. Thanks.

Hi, Bill. Thank you for the question. Good morning, everyone. On the population health side of the business, we continue to build on our momentum this year with 10.8% year-over-year growth in the first half of 2024. Our Independent Physician Association, or IPA, in Los Angeles, California, continues to perform well and is generating significant free cash flow. Our IPA in Houston had a strong start to the year, enrolling over 1,900 Medicare Advantage patients. However, we encountered attribution issues, which we are working our way through. Essentially, many of these patients were erroneously assigned to competing IPAs in Houston. A batch of these patients were reassigned back to us on July 1st and another batch on August 1st. We hope to recuperate the remaining patients over the next two months. Our new IPA in Florida is growing steadily. Looking forward, we intend to start one to two new IPAs around our facilities every year. For example, we did start an IPA in Phoenix and we are still signing up primary care physicians and specialists and are gearing up for the Medicare annual enrollment period, which begins in mid-October. Finally, as Tom mentioned earlier, we divested one subsidiary already, which was burning cash, and by the end of this month, we'll have divested a second unit, which continues to burn cash. We expect that these two transactions will enhance our net income and EBITDA beginning in September. Thank you, Bill.

Thanks, Warren. And then maybe moving over to the balance sheet, Jon, can you give us a little more detail on where debt sits right now?

Sure. Great question, Bill. As you can see on our balance sheet and mentioned previously in my financial update, overall bank equity type debt, both short and long term, went from $42.4 million at December of '23 down to $40.9 million at June of '24. It's a slight decrease from year end, but the overall balance is a relatively small balance of true operating debt for a company of our size. I know that we get questions on why our overall liabilities as you look on the balance sheet are $340 million, as that seems like a large number. The reality is that $241 million of that $340 million balance, roughly 71%, relates to operating and financing right of use liabilities, which are just future lease payments to a landlord on our hospital facilities. And these are reflected on the balance sheet because the accounting rules require us to aggregate all lease payments that we pay to a landlord for the entirety of each lease term, which might be 15 to 20 years of payments, and then present value back that total dollar amount of those lease payments to the inception of the lease and record a right of use asset and a corresponding right of use liability on the balance sheet for that result, which amounts to the $241 million at June 30th of '24 you see on our balance sheet. So that's why you see such a large amount in both the financing and operating right of use asset accounts in the case of the right of use assets under the total assets and of course the right of use liability accounts under total liabilities on the balance sheet. So most analysts and investors don't view these right of use liabilities as a real operating debt, so I wanted to clarify that to you and others who have that question. Great question. Thank you.

Yes, I appreciate that color. And then last for me, I was thinking about the back half of the year, and maybe you can remind us as we try to think about it relative to the second quarter, any cadence or seasonality we should keep in mind? Thanks.

Yes, I could take that. Good question, Bill. So yes, our business does have a seasonality to it. Typically as summer approaches, volume goes down because people go on vacation and kids get out of school and so on and so forth, but as kids come back, which is right around now, this time of the year, we typically see an increase in volume from August going forward. So second quarter, half second quarter volume does drop, but then it picks up again around this time of year.

And then looking into the fourth quarter, you would get also strength as you get into flu season, et cetera, right?

Yes, correct. Not just flu, but as you know, COVID is still around and we're still seeing COVID even in the summer time, unfortunately. So in addition to the flu, COVID, and whatever new strains of antipathogens that are out there this winter time, we should be in a good position to take care of our patients.

Okay. Thanks everybody. Appreciate taking the questions.

Thank you, Bill. All right, we're taking a moment to check the queue for any additional questions. Okay, if there are any additional questions, please send an email to [email protected] and we will do our best to answer in a timely manner. On behalf of the Nutex management team, we appreciate everyone for dialing in and listening to our second quarter earnings report. A recording of this call will be available on our website for a limited time. Take care, everyone.

This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.