Good morning, everyone, and welcome to Nutex Health, Inc. first quarter 2025 earnings call. I'm Jennifer Rodriguez, and I'm pleased to moderate today's discussion. Thank you for joining us as we review our performance and outline our plans for the future. This call is being recorded for future reference. With me today are our key leaders, Dr. Tom Vo, Chairman and CEO; Jon Bates, Chief Financial Officer Mr. Warren Hosseinion, President and Josh DeTillio, Chief Operating Officer. They will provide insights into our financial results, operational progress and strategic direction, followed by a Q&A session. Before we begin, a few reminders. Today's discussion may include forward-looking statements based on management's current expectations. These are subject to risks and uncertainties that could cause actual results to differ. For details, please refer to our press release and Form 10-Q filed yesterday and our other SEC filings. We'll also discuss non-GAAP measures like adjusted EBITDA, reconciliations available in our press release and Form 10-Q. With that, I'm pleased to turn the call over to Dr. Tom Vo, our Founder and CEO, Dr. Vo, the floor is yours.

Thank you, Jennifer, and good morning, everyone. I am pleased to present Nutex Health results for the first quarter of 2025, which reflects continued progress following a strong 2024. Our mission of delivering accessibility with high-quality care and a patient-first approach has driven consistent growth and operational stability. Operationally, Q1 2025 shows steady progress, with total patient visits reaching 48,269 patients, a 20.5% increase from 40,068 in Q1 2024. Mature hospitals achieved a 5.3% increase in visits, demonstrating sustained demand for our services. Financially, Q1 2025 delivered solid results. Total revenue reached $211.8 million, a 214% increase from $67.5 million in Q1 2024. Adjusted EBITDA was $72.8 million, up from a negative $400,000 from the same quarter last year. Net income attributable to Nutex Health, Inc. was $14.6 million or $2.65 per basic share compared to a negative $400 million loss or a negative $0.08 per basic share in Q1 2024. Our balance sheet remains stable with long-term debt actually slightly reduced to $20.7 million from $22.5 million at year-end 2024, and cash in the bank at $87.7 million, up from $43.5 million from year-end 2024. Our net cash flow from operating activities in the first quarter of 2025 was $51 million compared to just $3.1 million in the same period in 2024 and surpassing the cash flow for the entire year of 2024. These impressive growth metrics reflect our company's efforts to enhance patient volume, increase inpatient admissions, cost streamlining and optimization, and improved revenue per patient through effective revenue cycle management, particularly via the arbitration process. Every month, we are gathering more data collections and arbitration wins which help us refine our accruals, and we believe we are getting closer to a steady state. While there's a lot of work that needs to be done, we are very encouraged by the positive progress. Let me take a few moments to discuss the arbitration process that we first implemented in July of 2024. Overall, it is a small but very important part of our operation. In the first quarter of 2025, we submitted between 60% to 70% of billable visits through the arbitration portal. We achieved over an 80% win rate of these emissions, resulting in facility collections increasing by between 200% to 300% compared to the initial insurance payments. This means that an independent arbitrator has legally determined that the insurance companies are paying us initial payments that are much lower than fair and reasonable rates over 50% of the time. So far, even with these winning percentages, we have not seen any significant behavioral changes. We are constantly monitoring legislative and legal developments at both CMS and in Congress, to make sure we are on top of any potential changes. However, our research and discussions with subject matter experts suggest that the No Surprises Act and the associated arbitration process is here to stay. One main reason for this is the fact that very few of the charts that are eligible for arbitration are actually arbitrated. In fact, public data shows that only about 5% of eligible charts are actually arbitrated. Reasons for this low level of arbitration participation include the high monetary cost and the extended time to get paid once EHR goes through the arbitration process. In terms of the arbitration process itself, it is constantly getting more refined day by day. We are seeing improvements to the arbitration process, including more IDREs or arbitrators being added to the list of available arbitrators and new guidelines to provide safeguards to the integrity of the system. One legislative development that may be relevant to our industry will be Bill-HR-9572, being introduced by representative Greg Murphy of North Carolina that proposes a penalty of three times the difference between the insurers' initial payments and the IDR award amount, less interest if the insurers do not pay within 30 days as required by the rules in the No Surprises Act. This bill will help us get paid faster in a more reasonable manner. Looking ahead, we are well positioned for 2025. We continue to expand our micro hospital model in high demand markets. There is no lack of demand for our innovative micro hospital model as we still receive requests to build these hospitals monthly from all over the country. For 2025, we have plans to open three additional hospitals. Our pipeline currently extends from 2025 to 2028, with 10 projects in various stages of development, targeting markets where our high-quality care is needed. Each facility is designed to reduce wait times, increase accessibility, and provide tailored medical services. Our growth strategy emphasizes four priorities: increasing patient volume, expanding services to provide care to more observation and inpatient emissions, optimizing revenue through efficient revenue cycle management and arbitration, and maintaining disciplined cost and aggressive debt management. We believe that as long as we receive fair and reasonable payments, from either the arbitration process or from changes in payer behavior, our lower cost model will be sustainable. Because of our experience of having been through multiple cycles, and our ability to pivot and adapt to any market conditions, and with a solid balance sheet and clear pipeline, Nutex is well positioned for continued growth.

Thank you, everyone, for the financial performance for the first quarter of 2025, which reflects another solid quarter with consistent growth. I'll compare some key financial metrics for Q1 of 2025 versus the same period in '24, highlighting percentage changes across areas such as revenue, adjusted EBITDA, net income, EPS, and other indicators as detailed in our Form 10-Q filed yesterday. Starting off with total revenue, total revenue for Q1 of 2025, as Tom indicated, did reach $211.8 million, a 214% increase from $67.5 million in quarter one of 2024. The hospital division drove most of this growth, generating $203.9 million, which is up 240% from $60 million in the first quarter of '24, with $105 million tied to arbitration efforts through the independent dispute resolution process. Of that $105 million in arbitration revenue, $60 million related to dates of service for the first quarter of '25, $26 million related to dates of service for the fourth quarter, and $12 million related to dates of service for the third quarter of '24, with the remaining $7 million relating to periods prior to the third quarter. Of the total hospital division revenue, mature hospitals, which are hospitals operational before December 31, 2022, saw a 186.5% revenue increase for the first quarter of '25 versus the same period in '24. Additionally, the Population Health division revenue increased by roughly $400,000 or 5.4%, up to $7.8 million in the first quarter of '25 from $7.4 million in the same period in 2024. Now let's discuss the overall facility and corporate costs and the continued improvement in that area. Total facility-level operating costs and expenses increased by $36.2 million during the period, but only represented 44.1% or $93.5 million of total revenue for the first quarter of '25 versus 84.9% or $57.3 million of total revenue for the same period in '24. Of the $36.2 million increase in these facility operating costs and expenses, $26.3 million related to arbitration costs for the additional arbitration revenue recorded during this period, which approximated 25% of that incremental addition of revenue I mentioned previously. As a result of the revenue and facility cost improvements, our Q1 2025 gross profit was $118.3 million or 55.9% of total revenue compared to $10.2 million or only 15.1% of total revenue in the same period of 2024, which represented 1,065% improvement. From a corporate and other cost perspective, the general and administrative expenses as a percentage of total revenue for the first quarter of '25 decreased to 4.7% compared to 12.8% for the first quarter of '24, showing our continued focus on controlling costs while improving revenue. Additionally, on our first quarter 2025 income statement, you will see a line item for stock-based compensation, which has been present for this year and last year; however, the amount for Q1 2025 was $36.1 million. Most of that expense is explained in our first quarter 2025 10-Q within Note 10 where we explained that under the terms of four separate contribution agreements for hospitals that were deemed to be under development when Nutex went public back in April of 2024, each of the hospitals become eligible for a one-time additional issuance of company common stock based upon the earnings of the hospital in the second year of their operations, and that second year is known to be the earn-out period. So with four of these hospitals in the earn-out period currently, we are accruing for the potential earn-out for each. In the first quarter of 2025, that accrual amounted to $36 million that will be trued up each quarter until we get to the end of year two of each hospital after opening. And that final calculation will be done and payment will be made 100% in common stock and recorded as non-cash stock compensation expense in our financials as it is currently presented. The good news is that after these limited number of legacy hospitals have matured, there will not be a significant non-cash earnouts in the future. Now let's talk about operating income. Operating income, including the negative impact of the same $36.1 million in non-cash stock-based compensation expense for the first quarter of '25, was $72.2 million compared to $1.5 million in Q1 of 2024, representing a $70.7 million improvement quarter-over-quarter. Net income attributable to Nutex Health was $14.6 million for the first quarter of '25, also including the negative impact of that $36.1 million non-cash stock-based compensation expense. The comparative net loss attributable to Nutex was $40 million for the first quarter of '24, showing a $15 million improvement period-over-period. From an earnings per share perspective, our diluted EPS for the first quarter of 2025 was $2.56 per share compared to a loss of $0.08 per share in the first quarter of 2024, indicating a $2.64 increase per share period-over-period. Now adjusted EBITDA attributable to Nutex increased by $73.2 million from a loss of $400,000 in the first quarter of 2024 to $72.8 million in the first quarter of 2025. One small change in our calculation of adjusted EBITDA this quarter, which we will continue using as we go forward, was that we now include in our calculation the impact of cash rents paid that fall under our right-of-use asset financing treatment for our building leases for all periods presented. Our prior method of calculating did not reflect the reduction in this calculation for rent paid. Finally, our balance sheet remains very strong with cash and cash equivalents at March 31, 2025, at a record high of $87.7 million, up $44.1 million or 101.1% from $43.6 million as of December 2024. Our continued success with the collection efforts related to the arbitration process is allowing us to receive fair payment for the services we provide and significantly constitutes our success. As for accounts receivable, our balance at March 31, 2025, was $295 million, an increase of just under $63 million from $232 million at the end of 2024. To give you some perspective, of that $295 million AR, $199.3 million or roughly 68% relates to visits in the arbitration process, which was similar to our position at the end of 2024. During the first quarter of 2025, the company collected around $140.4 million in cash, of which $103.7 million or approximately 45% of that was related to AR as of December 31, 2024. Regarding cash flow, as Tom mentioned, net cash from operating activities was very strong this quarter at $51 million, which was an increase of $47.3 million from the same period in 2024. On the liability side, our total bank and equipment type debt increased by nearly $1.8 million to $43.2 million at March 31, 2025, from $41.4 million at December 31, 2024. The majority of this debt relates to equipment loans at our hospitals for such items as MRIs, X-rays, ultrasounds, and CT machines. Outside of this normal $40 million plus of equipment-type debt, the only other items of materiality on the balance sheet relate to financing and operating lease liabilities, which are future lease payments due to our landlords on our hospitals. We have discussed this in previous periods, but I wanted to reiterate how this impacts the balance sheet, as accounting rules require us to aggregate all lease payments required for the entirety of each lease term, which might be 15 to 20 years of payments. This total lease payment is discounted back to present value for each lease and recorded on the balance sheet. As a result, our net asset balance for the operating and financial right-of-use assets amounted to $243.7 million, which is about 32% of our total assets. The net liability balance for the operating and financing lease liabilities amounted to $288.7 million, which is 61.2% of total liabilities. Thus, I wanted to clarify these on the balance sheet as most investors and analysts do not view these right-of-use asset liabilities as real operating debt. With all this said, our balance sheet remains solid, and we continue to strengthen it with our positive operating performance. Our current financial position has put us in an excellent position to execute on all initiatives in our 2025 operating plan, including the opening of three new hospitals later this year.

Thank you, Jon, and good morning, everyone. Thank you all for joining us today. I'm pleased to provide an update on Nutex Health's Population Health division, which supports our commitment to value-based care. As a reminder, our overarching strategy at Nutex Health is to build an integrated health care delivery system combining hospitals and medical groups also referred to as IPAs. Our IPAs are comprised of networks of primary care physicians and specialists located around our facilities. The IPAs enroll patients from different health plans and are responsible for the total care of these patients. By combining hospitals and IPAs, we believe we will be able to deliver care that is more coordinated, cost-effective, and provides better outcomes for our patients. Our IPAs send patients to our hospitals, which deliver more efficient and cost-effective care, reducing the medical loss ratios in our IPAs. This is a long-term strategy that will take several years to bear fruit, but we are committed to it at Nutex Health. We are pleased to report a strong start to the year with first quarter results that reflect the continued momentum behind our strategy. We currently have over 40,000 patients enrolled in our IPA in various risk-based arrangements. Of note, I am happy to report that we now have almost 1,400 Medicare Advantage members in our Houston physician IPA. In Q1, our IPAs generated $7.8 million in revenue, a 5.4% increase from $7.4 million in Q1 2024. This is despite the fact that we divested two non-core assets in mid-2024 that were generating revenues but had operating losses. Operating income improved to $0.1 million from a $0.3 million loss in Q1 2024. Margins continue to be moderated by ongoing investments in new markets such as Houston, Phoenix, and Dallas.

Thank you, Warren, and good morning, everyone. I'm pleased to share Nutex Health's operational results for Q1 2025, demonstrating our ability to deliver high-quality care while achieving steady growth and cost discipline. Our micro hospital model centered on patient needs continues to perform well, and I'll discuss some volume trends, cost management, patient acuity, and advantages of our approach. Total patient visits, as Tom mentioned, reached 48,269, a 20.5% increase from 40,068 in Q1 2024, reflecting growth in both new and mature hospitals. Mature hospitals grew by 5.6% in the first quarter. This growth reflects our leadership team's efforts in community engagement, business development, and adding specialists to manage more complex cases by increasing observation and inpatient space to meet community needs. Our capacity to provide observation and inpatient care is a key strength. Observation days help avoid unnecessary admissions while inpatient services ensure comprehensive care for appropriate cases. This approach improves outcomes and patient satisfaction by offering efficient, high-quality care. Our model reduces emergency room wait times and provides personalized services, positioning Nutex as a trusted provider in the communities we serve. Cost discipline remains a priority for us. Excluding arbitration costs, operating costs remained stable despite higher volumes and new hospitals this year. Labor costs increased by 29% from $27 million to $34.9 million, comprised of increased payroll and benefits for opening four new hospitals due to higher ER volumes and increased complexity of patient care. Overall, labor costs continue to represent a much smaller percentage of net revenue than most hospital companies at 16.4% for the first quarter, exemplifying our lean, high-quality model. Supply costs decreased by 28% from $5.3 million to $3.8 million in the quarter due to our 2024 GPO and vendor realignment even while we opened four new hospitals this year. We anticipate continued supply cost savings throughout 2025. We're also exploring technology investments, including AI, for patient check-ins, staffing optimization, provider note writing, and coding accuracy to improve productivity and efficiency. These tools will help further streamline operations and improve care delivery. We believe our micro hospital model is the future of healthcare, providing efficient access, high-quality concierge care, and a lower cost structure in a more intimate and personalized setting versus large general hospitals. We expect the micro hospital model to grow rapidly over the next few years. When patients have a choice, they prefer fast, high-quality personalized care. With our model, we are well positioned to continue growth in the coming years.

Thank you, Josh, and thank you to Tom, Jon, and Warren for those updates. We'll now move to the Q&A. Operator, please provide instructions.

Thank you. Our first question comes from Bill Sutherland with Benchmark Company. Please go ahead with your question.

Thanks, everyone. Congratulations on all the progress. Jon, I wanted to discuss your increased understanding of the arbitration process regarding cash flow. It appears your metrics are consistent concerning submissions and success rates. Should we consider Q1 as a model that can be maintained in the upcoming quarters this year? What is your perspective as we reach the midpoint of Q2? Thank you.

Thank you for the question. We're currently in the second quarter, so I'm hesitant to make any firm statements. However, I previously mentioned at year-end that we were still in the early stages of understanding the arbitration situation. We had a clearer picture of the early payments coming in as we approached year-end and into early March, which was when we established the receivable amount. After one quarter, we are starting to see what we expected. I indicated that it would likely take two quarters to reach a steady state. Looking at the figures from the end of last year compared to now, the reimbursement rates show that the full year end for 2024 was around $2,700, based on only six months of arbitration. As we move forward, it's useful to note that for the quarter of 2025, the per-visit amount was slightly above $4,000 and over $4,200. This serves as guidance, but I recommend looking back at the last nine months, from July to the first quarter, where that figure is closer to $3,800. The trend appears solid, and unless there are significant changes, we will continue to keep a close watch over the next quarter.

Great. And you did just reaffirm something I want to make sure I understood. The three remaining underdeveloped hospitals receiving income on their model will run through third quarter and then they'll be done?

Correct. Yeah. That three will be finished by the early part of the third quarter.

Okay. And then with the cash growing the way it is, I'm just curious as you guys think about your capital deployment plans and how you may be prioritizing going forward?

That's a great question. I know Tom can provide more insight on that as well. Our cash position has been strong. We have an investment strategy in place as we evaluate various opportunities. We are constantly seeking growth through the establishment of new facilities, which Tom mentioned he has several projects in the pipeline. That's a significant factor. Additionally, we are looking into opportunities to invest in population health and possibly acquire smaller hospitals that align with our strategy, which would help us accelerate our progress.

Thank you, Bill, for following us. We're very fortunate to be in a position to have a lot of cash on the books. We are going to be very conservative with that cash and use it to maximize shareholder value. We have a lot of options. The good news is that opening these hospitals is not very capital intensive. Even if we open these three hospitals this year, we should still have a lot of cash left over. We are discussing internally how to best deploy that cash to maximize shareholder value.

Hey, congratulations on a great quarter and impressive performance, particularly highlighted by the collections in arbitration. I have a question regarding the fact that a little over 40% of the arbitration-related revenue during the quarter was for dates of service prior to the first quarter. Looking back, you recognized about $95 million in Q4. How are you approaching the revenue from prior quarter dates of service? Have you managed to work through most of what you recognized in the fourth quarter? Can we anticipate that the first quarter will mirror the fourth quarter by the end of the second quarter? Would it be fair to expect you to recognize about another $35 million in the second quarter, similar to what you achieved in Q4?

That's a great question, Thomas. The reality is, I'd say we don't know as we watch the process. I can tell you that as I mentioned before, the ironing out of the realization piece is starting to become clearer, which allows us to improve accuracy of revenue recorded. We are doing it down to the granular level. When things happen, like an additional amount in the current month that may relate to a previous month or quarter, it helps us update the model. But a lot of it depends on the timing of cash coming in and each payer having different dynamics. Long answer short is I can't predict exactly what to expect in the second and third quarters, but I can say we're getting tighter and tighter on realization.

Understood. I appreciate that color. And how should we be looking at the addition of new eligible arbitrators? Do you think this could accelerate the arbitration process or shift your strategy for submitting claims?

I believe ultimately that will only help us because of the backlog situation. They've been picking up the pace and adding more of these arbitrators will only benefit the process. We'll have to watch their impact and communication. Each one is a little distinct and different, but we’re confident this will yield positive results.

Understood. Thanks for that. Last question, regarding the acuity mix, one of the largest drivers of mature hospital growth is the increased inpatient and observation visits. Do you think you're now operating at a steady run rate in terms of acuity mix and inpatient volume? Would you expect that to continue to ramp as we move through 2025?

Thank you for your questions. We still have a very high capacity in our inpatient capacity. There is room to grow, not just on the volume side or ER side but also on the inpatient side. As we ramp up these hospitals and the addition of specialists, we feel confident there is growth potential in both areas. Josh, do you want to add anything?

Our capacity is increasing as we add more specialists. We expect to grow in terms of observation and inpatient cases, but we haven’t put out guidance on that yet. However, we expect continued growth over the next coming quarters.

Hi, thanks, good morning. Congratulations, guys, on another above-average quarter.

Thank you, Gene.

You're welcome. The arbitration payments, when you get those in a successful dispute, is there a penalty payment that you're receiving that you would not otherwise receive if the bill was paid right the first time? And as we look ahead, does this make year-over-year comps tougher as we get out to, say, 2026?

Great question. In the arbitration process, there is currently no penalty for timely payments. However, the proposed Murphy bill might introduce such a penalty, which would certainly enhance our revenue stream. At this point, I don’t think it would be a major factor affecting future periods.

Thank you for that color. My follow-on is more about the core business; you cited a 5.3% increase in mature hospital visits, which is strong. I'm just wondering if there was any element of outsized seasonality there, perhaps due to the flu season being worse this Q1 compared to last Q1?

The flu season this year was interesting as it started later and was longer, progressing through February and early March. However, we still achieved a 5% increase despite this. So, I think our community's increasing awareness of our services contributed to this growth.

We have put a significant business development effort in place. We believe we provide the best service, and as patients have positive experiences, they return and recommend us to others.

If I could squeeze in one more. Regarding the three new hospitals planned this year, can you share the timing of their openings?

All three hospitals are planned to open in the third and fourth quarters. They will be located in Texas, with one being in Houston, one in San Antonio, and the last one in Sherman, Texas, on the Texas and Oklahoma border.

Hi, good morning. Thanks for taking my questions and congrats on the strong quarter. Regarding the excess cash, could you discuss the options you are considering and if any capital return could be part of that plan?

We are always looking to add value for our shareholders. Share buybacks and dividends are options, but we also focus on growth initiatives, pipeline expansion, and exploring choices in population health. We seek to maximize shareholder value.

We have a lot of options and need to be cautious with our cash and ensure it is used to maximize shareholder value. Opening hospitals takes time and isn’t capital intensive, but we evaluate M&A opportunities and increasing our number of IPAs as well.

Regarding our accounts receivable, I believe we are confident in our collections. The average time to collect is around four months, but some cash comes in within 60 to 75 days, while arbitration processes extend to about five months. Overall, I feel confident about our performance.

The average timeline for collection is around four months, blending normal cash flows with those that go through arbitration. Close monitoring will be fundamental as we continue through the quarters.

Thank you all for the questions and answers. All those joining us today, if you have more questions, please email us at [email protected], and we'll answer them. On behalf of the Nutex management team, thank you for joining us for our first quarter 2025 earnings call. We've covered a lot regarding growth, strategy, challenges, and our vision, and we appreciate your time and interest. A recording of this call will be available on our website for a limited time, so feel free to revisit it. Take care, everyone, and we look forward to keeping you updated on our journey.

Ladies and gentlemen, thank you for your participation. This concludes today's teleconference.