Earnings Call Transcript - NUTX Q3 2024

Operator, Operator

Greetings, and welcome to the Nutex Health Inc. Third Quarter 2024 Financial Results Conference Call. It is now my pleasure to introduce your host, Vivian Sanders. Thank you. You may begin.

Vivian Sanders, Moderator

Good morning, and welcome to Nutex Health Inc.'s third quarter earnings call for the period ended September 30, 2024. My name is Vivian Sanders, and I will be your moderator for today's call. We appreciate your participation and interest in our company. 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 can contain forward-looking statements that are based on management's current expectations, and there are 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 the 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-Q 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. Vo, our Founder and Chief Executive Officer.

Dr. Tom Vo, Chairman and CEO

Thank you, Vivian, and thank you all for joining us today. We are pleased to report another excellent quarter for Nutex Health. In the third quarter of 2024, we achieved substantial revenue growth as well as volume growth and continue to show our commitment to enhancing profitability and operational efficiency. I would like to start with some highlights from this quarter. For the three months ended September 30, 2024, we reported total revenue of $78.8 million, which is a significant increase compared to $62.7 million for the same period last year. This equates to a growth of 26%. Some of this growth was due to the four new hospitals that we opened in 2023. The rest were from mature hospitals, which are all those opened prior to December 31, 2021, and which had revenue increase of 20.7% during the same period. On the net income side, we incurred a net loss attributable to Nutex Health of $8.8 million as compared to a net loss of $5.5 million in the third quarter of 2023. This $8.8 million amount does include a $6.7 million noncash loss on warrant liability as well as a $2 million noncash stock-based compensation expense. Our adjusted EBITDA, on the other hand, was $13.5 million positive for the quarter compared to just $1.3 million one year ago, an increase of 938%. In terms of cash flow, as of September 30, 2024, we reported net cash from operating activities of $23.1 million as compared to cash from the same time last year of $3 million, an increase of 670%. From a debt perspective, our total long-term debt remains low at $26.8 million compared to $26.3 million for the same period last year. Our finance lease liabilities, which we are required to report due to GAAP accounting policies, did increase slightly from $213 million to $241 million. This is mainly due to new leases that were signed for facilities opening within the past nine months. From a patient perspective, our Hospital division reported 41,668 visits in the third quarter, reflecting an 11.3% increase over the same quarter last year. Of this visit growth, mature hospitals increased by 3.8% in 2024 compared to the same period in 2023. I would like to take a moment to share some insights regarding our operational performance that is responsible for these positive results. First, I want to emphasize that the achievements we reported today are not just numbers; they reflect the dedication and hard work of our team across all levels of the organization. The growth we have experienced in both revenue and patient volume is a testament to our commitment to delivering exceptional healthcare throughout our micro hospitals as well as our population health divisions. Second, our recent opening of four de novo hospitals in 2023 have all ramped up nicely and contributed to this positive trend. Our mature hospitals are also showing robust growth in both outpatient and inpatient services. Our ability to adapt to the needs of our patients is key to our ongoing success. Third, our internal coding, billing and collections department are improving their experience in working No Surprises Act (NSA) claims, adapting to specific nuances and solving complex problems in dealing with insurers post-NSA. As a result, we are seeing better reimbursement per patient. Looking forward, we are focused on a few strategic initiatives that we believe will drive continued growth. First, continued de novo expansions of new hospitals. We are still on track to open between two to four hospitals per year. For 2024, we have already opened hospitals in Green Bay, Wisconsin, as well as Post Falls, Idaho. We are on track to open two more facilities later this year. As it takes about 18 to 24 months to open a hospital, we are already working on the 2025, 2026 and 2027 hospital pipeline. We still get requests from all over the country to open these hospitals on a regular basis. Our challenge is to keep up with the demands in areas of the country that have the most immediate need for our brand of medicine and focus on those opportunities for our future pipelines. Second, continued expansion of services for our mature hospitals. We will continue to explore opportunities to expand both our inpatient side as well as outpatient services to meet the evolving needs of our patient population. This may include adding new specialties or enhancing our current offerings, all aimed at providing concierge-level care closer to home. By having a licensed hospital consisting of a 24/7 emergency room as well as inpatient services, we have all the tools necessary to pivot to service lines that are lacking or underserved in the communities that we serve and actively try to fill that void to provide the maximum value to the community. Third, continue to work with insurers for better reimbursement. As we continue to learn more and more about the No Surprises Act, we are slowly getting better reimbursements as evident in our improved financials. We continually strive to obtain fair in-network contracts with insurers. If this is not possible, we make serious attempts to get a fair Qualified Payment Amount or QPA from the insurers. If we do not get a fair QPA as described in the NSA bylaws, the first time, we proceed with the independent dispute resolution or IDR which includes both the open negotiation as well as arbitration process options. The IDR is a formal process that is available to all providers under the guidelines of the NSA. As we proceed with putting more charges through the IDR process, we will continue to report our findings in future reports. Fourth, operational efficiency. Improving operational efficiency remains a priority as it allows us to manage cost effectively while enhancing patient experience. We are implementing best practices across our facilities to streamline processes, reduce waste and improve turnaround times for our patients. Josh DeTillio, our COO, will address this in further detail later. Fifth, innovation and technology. We remain committed to embracing advanced technologies that can improve patient care and operational efficiencies, whether it's through electronic medical records, telemedicine capabilities, artificial intelligence to automate our coding, billing, collection services or other digital tools, we aim to leverage innovation and provide enhanced services to our patients. As more technology becomes available, we are able to treat more and more patients at our micro hospitals, providing patients an attractive alternative to the often overcrowded hospital systems. And lastly, driving awareness and community engagement. We will continue to engage with our local communities to raise awareness of the services that we provide. By focusing on targeted business development, marketing, brand awareness and community events we hope to build trust and maintain a strong presence within our regions. Overall, we're optimistic about our trajectory and believe that our focused approach will lead to sustainable growth and value creation. The healthcare landscape is constantly changing, and we are committed to staying ahead of these changes. In closing, I would like to acknowledge and thank all our Nutex physicians, nurses, technologists, technicians, front desk personnel, administrators and the entire Nutex corporate team from over 13 states for working as one unit to achieve these great results. We all share and believe in the same vision and mission of Nutex Health and are all aligned to continue to strive to create a long-term and profitable company. Anyone that has been involved in healthcare for a long time will recognize that what Nutex Health is doing is unique and fills a definite void in many aspects of medicine. We believe our momentum will continue, and we are excited about what the future holds for Nutex Health. Now I would like to turn it over to Jon Bates, our Chief Financial Officer, to discuss our financial results in greater detail.

Jon Bates, Chief Financial Officer

Thank you, Tom, and good morning, everyone. It's great to see how our financial results reflect the effectiveness of our strategic initiatives and operational improvements. Our third quarter 2024 results showed yet another strong operational quarter, continuing the improvement in each of the last three quarters this year. We have seen continued growth with increased success in both top-line growth as well as in our cost controls company-wide. So let's start with the third quarter ended September 30, 2024, and compare those results to the third quarter ended September 30, 2023. For the third quarter of 2024, total revenue grew 26% or $16.1 million to $78.8 million versus $62.7 million for the same period in 2023. Of the total revenue increase, mature hospitals, which are hospitals that were opened prior to December 31, 2021, and therefore provided two full years of comparative results, increased our revenue by 20.7% for the third quarter '24 versus third quarter '23. For hospital division visits, we saw growth as well during the quarter as they increased by 11.3% or 4,225 visits to 41,668 visits in the third quarter 2024 versus 37,443 visits in the same period of 2023, with mature hospitals growing at 3.8% in the third quarter of '24 over the third quarter '23. Additionally, the Population Health division had a revenue reduction of $1 million to $7.1 million in the third quarter of '24 from $8.1 million in the similar period of '23 due to the divestiture of two small entities within the division in the second and third quarters of this year. Now we discussed the growth in hospital revenue and the visits we have seen in the third quarter of '24; now let's discuss the overall facility and corporate cost structure and the improvements in that area. Total facility level operating costs and expenses represented only 72.2% or $56.9 million of total revenue for the third quarter of '24 versus 88.7% or $55.7 million for the same period in '23. As a result of the revenue and facility cost improvement, our 2024 third quarter gross profit was $21.9 million or 27.8% of total revenue as compared to $7.1 million or 11.3% of total revenue in 2023, a 210% improvement in the third quarter of '24 over '23. From a corporate and other cost perspective, the general and administrative expenses as a percentage of total revenue for the third quarter of 2024 remain consistent at 12.5% compared to 12.4% for the same period in '23. Additionally, on our third quarter income statement, you'll see a line item for stock-based compensation with the amount for the third quarter of 2024 being $2 million. Most of that expense is explained in our third quarter 10-Q filing, which is within Note 11 for your reference. Under the terms of four separate contribution agreements for hospitals that were deemed to be under development when Nutex went public in April of 2022, each of those hospitals, when open for two full years, are then eligible to receive a one-time additional issuance of common stock based upon the earnings of the hospital in the second year of their operations, which we noted as the earn-out period. With four of these hospitals now entering that earn-out period, we began to accrue for the potential earn-out for each. In the third quarter of 2024, that amounted to $2.2 million that will be trued up each quarter. Until we reach the end of year two for each hospital, at which time a final calculation will be done and payment will be made 100% in company stock, it will be reported as a noncash stock compensation expense. With regard to the Population Health division, as I mentioned previously, we did divest two smaller entities in the second and third quarters of 2024 that had very little impact on the operational side of the Population Health business as we move forward, but did impact Population Health revenue by around $1 million in the third quarter, as we discussed. When it comes to operating income, which did include the negative impact of that $2 million of noncash stock-based compensation expenses noted above, for the third quarter of 2024 operating income was $9.7 million compared to an operating loss of $821,000 in Q3 of '23, representing a $10.5 million improvement quarter-over-quarter. Now net loss attributable to Nutex Inc. was $8.8 million for the third quarter of '24, as Tom mentioned, but was negatively impacted by $8.7 million for the two noncash items noted above: the $6.7 million noncash loss on warrant liability and the $2 million noncash stock-based compensation expense. The comparative net loss attributable to Nutex was $5.5 million for the third quarter of 2023. Removing the effect of the $8.7 million of noncash items in the third quarter of '24 would show a $5.6 million improvement quarter-over-quarter from '23 to '24. Adjusted EBITDA attributable to Nutex, which removed the effect of those two noncash impairments noted above, increased $12.2 million or 938% from $1.3 million in the third quarter of '23 to $13.5 million in the third quarter of 2024. Now on to the nine months ended September 30, '24 compared to the nine months ended '23. Total revenue for the first nine months of '24 grew by 25% or $44.3 million to $222.3 million versus $178 million for the first nine months of '23. Of the total revenue increase, mature hospitals increased their revenue by 13.5% for the first nine months of 2024 versus the same period in '23. The Hospital division visits saw similar growth, increasing by 19.6% or 20,146 visits to 122,944 visits in the first nine months of '24 versus 102,798 visits in the same period in '23 with mature hospital visits growing at 7.7% in the nine months ended September '24 versus that same period in '23. Additionally, Population Health division had revenue growth of 2.1% to $23 million in the first nine months of '24 from $22.5 million in the same period in '23 despite the divestiture of the two small entities within the division during the second and third quarters as mentioned previously. In addition to the revenue and visit growth noted above, facility and corporate level costs also showed improvement for the first nine months of '24 compared to the first nine months of '23. Total facility level operating costs and expenses represented 75.4% or $167.7 million of total revenue for the nine months ended September 2024 versus 87.9% or $156.4 million for the same period in '23, representing a decrease of 12.5% in relation to revenue. The gross profit for the nine months ended September 2024 was $54.6 million or 24.6% of total revenue, as compared to $21.6 million or only 12% of total revenue in the same period in '23, which represented a 153% increase for the nine months ended September '24 compared to the same period in '23. From a corporate and other cost perspective, G&A expenses as a percentage of total revenue for the nine months ended September of 2024 decreased to 13.1% or just $29.2 million from 13.9% or $24.7 million for the same period in 2023. Operating income for the nine months ended September 30, 2024 was a positive $16.4 million compared to an operating loss of $5.6 million for the nine months ended September of 2023. Net loss attributable to Nutex Inc. was a loss of $9.5 million for the first nine months of 2024 versus a loss of $4.2 million in the first nine months of 2023, even with four noncash expense items related to stock compensation expense, impairment of assets, impairment of goodwill and the loss on warrant liabilities negatively impacting this loss by $10.2 million. Removing these four noncash items, the company would show net income attributable to Nutex Health Inc. for the nine-month period of a slight positive number of just over $600,000. Adjusted EBITDA attributable to Nutex, which removed the effect of the four noncash impairment items noted above, increased $22.4 million or 290% from $7.7 million in the first nine months of 2023 to $30.1 million in the first nine months of '24. On our balance sheet, cash and cash equivalents at the end of September 30, 2024 were $46.9 million, up $24.9 million or 113.2% from $22 million as of December 31, 2023. With regard to cash flow, net cash from operating activities increased by $20.1 million for the nine months ended September 30, '24 to $23.1 million as compared to only $3 million for the same period in 2023. On the liability side, our total bank equipment debt decreased by $570,000 to $41.9 million at September 30, 2024 down from $42.4 million at December 31, 2023, with the majority of this debt related to equipment loans at our hospitals for such items as MRIs, X-rays, ultrasound and CT machines. Outside of this equipment debt, the only other items of materiality on the balance sheet are the liabilities related to financing and operating lease liabilities, which are the future lease payments to our landlords on our hospitals. These are reflected on the balance sheet because accounting rules require us to aggregate all lease payments over the term of each lease and present value those payments, recording both the right-of-use asset and corresponding right-of-use liability. As a result, on our balance sheet at September 30, 2024, the net asset balance for the operating and financing right-of-use assets amounted to $209.9 million, which is roughly 48% of total assets, and the net liability balance for the operating and financing right-of-use liabilities amounted to $262.5 million, which is 73.2% of total liabilities. Most investors and analysts do not view these right-of-use assets and liabilities as real operating debt, so I wanted to clarify that since we get that question a lot. With that, now I'll turn it over to Warren to discuss more about the Population Health business.

Dr. Warren Hosseinion, President

Thank you, Jon, and good morning, everyone. I'd like to take this opportunity to discuss our Population Health Management Division and the results we've seen in the third quarter of 2024, as outlined in our quarterly report. Our Population Health Management Division is important in our overall strategy at Nutex Health. This division focuses on providing integrated care solutions aimed at improving the health outcomes of our patients. We operate primarily through our networks of independent physician associations or IPAs, which are central to our model. For the three months ended September 30, 2024, the Population Health Management Division reported total revenue of approximately $7.1 million. While this marks a slight decrease compared to the $8.1 million reported in the same period of 2023, it is essential to understand the context behind these numbers. As Jon mentioned earlier, the decline in revenue is primarily attributed to the sale of two smaller subsidiaries earlier this year. Both of these subsidiaries were unprofitable. Although these divestitures temporarily impacted our top line results, they have enhanced our bottom line and will allow us to concentrate more closely on our core competencies and strategic objectives within the population health space. Adjusting for these divestitures, our core population health management efforts have continued to demonstrate growth. We now manage just over 40,000 patients under value-based care arrangements with multiple payers. The division is focused on enhancing the quality of care provided to our patients while managing risks and costs. This is particularly critical as we navigate an environment that increasingly emphasizes value-based care and population health strategies. One of the key drivers behind our positive trajectory is our emphasis on building relationships with local physicians and healthcare providers. By fostering these collaborations, we aim to create a robust network that can share resources, expertise and best practices in managing chronic diseases, coordinating care and improving treatment outcomes. This collaborative approach not only adds value to our services, but it enhances patient engagement and continuity of care. Furthermore, we are enhancing the capabilities of our Management Services Organization, which enables us to better support our IPAs and physician groups. In line with our focused growth strategy, we are actively working to launch new IPAs and expand our existing ones thereby increasing the number of patients we serve under our population health framework. This expansion is integral to achieving economies of scale that can translate into improved financial performance over time. As we move forward, we hope that our Population Health Management initiative will become an even more significant contributor to Nutex Health's revenue mix. The growing focus on preventive care and holistic patient management aligns well with today's healthcare landscape, which increasingly seeks to address not just individual health events, but the overall well-being of populations. In conclusion, while the revenue results for the Population Health Management Division reflect a temporary decline due to strategic divestitures, the underlying initiatives demonstrate a solid foundation for growth and improvement in our overall business model. I remain optimistic about our ability to drive both patient engagement and financial performance in this key segment. With that, I will turn it over to Josh now.

Josh DeTillio, Chief Operating Officer

Thank you, Warren. I appreciate the opportunity to speak with you today about Nutex Health's operational efficiency, cost strategies and growth endeavors during the third quarter of 2024. Operational efficiency is critical in our industry as costs have increased significantly for hospitals, especially in labor and supplies. I'm pleased to report that our efforts to control costs while driving volume have yielded significant results so far this year. We have implemented several cost-saving measures that have greatly contributed to our operational efficiency. Over the past few quarters, we focused on three primary areas: labor costs, supply chain management, and contract services costs. By closely monitoring labor hours and scheduling efficiently, we have successfully optimized staffing without compromising patient care. We are incorporating more software programs to help us become more efficient with labor including an HR and procurement software that went live in the first quarter of this year, a scheduling software, which is projected to go live in the first quarter of 2025, and a software solution for labor analytics in the second quarter of 2025. As our volumes grow, we need more tools to optimize our hospitals, and these programs will give us more transparency and metrics to achieve this. Active management of our supply chain has resulted in notable savings and has helped us mitigate inflationary pressures. We have aligned our suppliers and supply contracts with our primary group purchasing organization or GPO, and we expect this alignment to deliver at least a 15% reduction in supply cost for 2025 from a prior year run rate. This savings applies to all of our existing hospitals; there will be incremental supply cost for our new hospitals, but new hospitals will also be on the reduced GPO rates and pricing going forward. In contract services, we continue to standardize where appropriate to obtain discounted and bulk pricing. We are looking at areas like facility maintenance, shredding services, office supplies, durable medical equipment, waste management and pharmaceuticals. We have executed on a number of initiatives, but have more to go. The local hospital teams have continued to renegotiate local contracts as the whole company has been very focused on cost in 2024. In addition to these cost controls, we're seeing increased volume due in part to strategic growth initiatives. As previously mentioned, for the first nine months of 2024 Hospital division total visits increased to 122,944, which was up 19.6% from 2023, while mature hospitals were up 7.7% in visits. This growth is a direct reflection of both our business development and marketing strategy and the local engagement of our leadership teams across our facilities. Our business development team has been actively pursuing relationships with various local healthcare providers and groups and working to enhance and grow our mix of services offered. One of the strategies we've developed is utilizing a new customer relationship management software. This program enables us to manage relationships more effectively, track engagement with both prospective and existing patients, and analyze data to refine our outreach strategies. We've also placed a strong emphasis on community engagement. By participating in local health fairs and offering educational seminars on various health topics, we have been able to build strong relationships within the communities we serve. This initiative not only helps in raising awareness about our services, but also positions Nutex Health as a trusted health provider. Engaging directly with our community fosters goodwill and helps drive patient volume through referrals and repeat visits for the whole family. Our leadership teams across the facilities have been pivotal in our success; empowering our local leaders to make decisions tailored to their community's needs has been an important aspect of our strategy. Their on-the-ground insights allow us to adapt quickly to demand fluctuations and service needs. This decentralized approach enhances our responsiveness and supports our commitment to delivering quality care. Looking forward, we are committed to maintaining this trajectory of growth and operational efficiency. As we expand our footprint by opening new facilities and transitioning existing operations, we will continue to prioritize cost management while ensuring that we meet the health needs of our communities. In summary, our focused strategies in managing costs and driving volume growth, combined with strong leadership and community engagement, are shaping a promising future for Nutex Health. Our commitment to operational excellence remains a top priority as we strive to enhance shareholder value while keeping patient care at the forefront of our efforts. I will now turn it back over to our moderator, Vivian, to open the line for questions. Thank you.

Vivian Sanders, Moderator

Thank you, Josh. On the call, we have Bill Sutherland from The Benchmark Company as well as Thomas McGovern from Maxim, who will now ask our team their questions.

Bill Sutherland, Analyst

I guess I'll start off. It's Bill. How is everybody doing?

Dr. Tom Vo, Chairman and CEO

Very good. Thank you, Bill.

Bill Sutherland, Analyst

Good. Good quarter. I wanted to think about the fourth quarter a little bit, thinking about the seasonality as you're seeing it, the timing of the two new hospitals and particularly interested in how you're seeing patient visits in the fourth quarter. I think you get some positive seasonality as I recall.

Dr. Tom Vo, Chairman and CEO

This is Tom. Bill, yes, I can answer this. Our business does have seasonality. The fourth quarter, with colder weather and flu season, typically has higher volume, and that continues through the first quarter. The second and third quarters dip a little bit. So we are expecting better numbers in the fourth quarter in terms of volume. That said, this year it's been a little bit warmer, so the flu season hasn't been upon us yet. But it typically follows the same pattern each year, so we expect the seasonality to come.

Bill Sutherland, Analyst

Okay. And your hospitals are going to be, I guess, near the end of the quarter then, the two new ones?

Dr. Tom Vo, Chairman and CEO

Yes. The two new ones are projected to open in November and December.

Bill Sutherland, Analyst

Okay. On the CapEx line, Jon, I noticed it's been a lot lower this year year-to-date than last year. What's the outlook for CapEx going forward given your plans?

Jon Bates, Chief Financial Officer

Yes. I think you'll see that as we open facilities, we will definitely be adding more CapEx. We had two this year and potentially two more later this year. On average, we expect to open somewhere between two to four per year, so I would anticipate CapEx to pick up a bit as we add equipment for those facilities. Some equipment, like MRIs, needs to be ordered and in place months before opening, so we have to plan for that. We will continue to watch it, but I would expect a modest uptick over the next couple of quarters.

Bill Sutherland, Analyst

Okay. And then last for me. Tom, can you give us a little more color on your progress with the NSA arbitrations, or not just the arbitration but negotiation? And I guess the degree to which you're taking on more arbitrations, talk about the impacts that has near term on revenue and then longer term?

Dr. Tom Vo, Chairman and CEO

From an arbitration standpoint, it's going well. We started the process at the end of June. It takes about six months or so for the whole process to get completed from beginning to end; if we win the arbitration, the money then enters our bank account. We're still working on that and still sorting out some data, but so far the trend is going well. Our results are consistent with published data regarding arbitration. We hope to know more in the fourth quarter and definitely in the first and second quarters of next year regarding our success and experience with arbitration at Nutex Health. Even after a favorable arbitration result, the insurance company still has to pay; arbitration is binding, but we will see how quickly insurers comply. We'll report our findings as we proceed.

Bill Sutherland, Analyst

Could you remind us what the data has been industry-wide? I think it's been a pretty high success rate, right?

Dr. Tom Vo, Chairman and CEO

Yes. Publicly available industry data shows a win rate of roughly 70% to 80% for providers, and the return they get is, according to published data, almost double what they were originally paid. So far, our trend is similar, but we are still early in the process since June was only a few months ago and it generally takes around six months to get money in the bank after beginning the process. We will know more in the coming quarters.

Bill Sutherland, Analyst

Let me—if I could sneak one more on this. What percentage of your claims are you putting into arbitration?

Dr. Tom Vo, Chairman and CEO

From our standpoint, between 60% to 80% of relevant claims are entering the IDR process, meaning they go through open negotiation and, if unresolved, to arbitration. What we find is that insurance companies often pay relatively low initially, so we initiate the IDR process. There's a stepwise approach: open negotiation first, and if we can't negotiate, we go to arbitration. The 60% to 80% figure refers to claims that go through the entire IDR process, not only those that reach the final arbitration hearing.

Bill Sutherland, Analyst

So the 60% to 80% relates to just going through the entire process, not just arbitration.

Dr. Tom Vo, Chairman and CEO

Correct. It relates to the entire process.

Bill Sutherland, Analyst

Thanks, Tom.

Tom McGovern, Analyst

Thanks everybody. This is Tom McGovern with Maxim Group. First, congrats on the quarter, great performance. First question, piggybacking on the earlier question on the hospital openings. It sounds like you guys had pretty clear visibility on the two that will open by the end of 2024. One of the strengths of your model is you have a lot of levers to pull that can augment the timeline for these openings. I'm curious, is there anything you see now that might push that December opening into 2025? Or are you fairly confident it will occur by the end of the year?

Dr. Tom Vo, Chairman and CEO

Thomas, thank you and welcome. Our first opening in November is relatively certain: we already have state licensing, a team assembled, and all the staff trained. The second opening is slightly less certain because it is located in Florida, where we had a hurricane that pushed things back a few weeks. We are still on track to hopefully open by December, but there are a few levers we must pull to make that happen. We're optimistic. By the way, the hurricane did not do any damage to our hospitals. We've been through about ten hurricanes in our operations in Texas, Louisiana, and Florida, and our hospitals have generally fared very well. These hospitals are built to withstand severe weather and are often designed to remain operational so they can serve the community even after other structures are damaged.

Tom McGovern, Analyst

Glad to hear you got through the hurricane unscathed. Looking ahead to 2025, you guys have talked about two to four hospital openings per year; in '25 it looks like four. Considering you have influence on timing, what should we expect in terms of cadence? Should we expect maybe a hospital a quarter? Or might openings be weighted to the back half of the year?

Dr. Tom Vo, Chairman and CEO

We have four hospitals planned for 2025 as well. In terms of cadence, one will likely open in either the first or second quarter of 2025 and the remaining three toward the end of the year. All four are under construction now; timing will largely depend on construction schedules.

Tom McGovern, Analyst

You called out driving patient volume, which you've done well, particularly with mature hospitals. You mentioned introducing new services and capabilities across the portfolio, including behavioral health and substance abuse treatment. Have you identified any new services to introduce in Q4 or 2025? Any visibility would be helpful.

Dr. Tom Vo, Chairman and CEO

We're always innovating and looking for solutions based on community needs. Behavioral health and substance abuse services—including alcohol detox and opioid detox—were responses to community requests. Because we're licensed hospitals with the tools to deliver care, we work with local physicians and nurses to pivot to those service lines. Going forward, we're looking at personal injury services, wellness and preventative health programs, and expanding procedural capabilities at some hospitals. Since our model is adaptable, we can pivot to fill local gaps in services and meet specific community needs.

Tom McGovern, Analyst

On cost savings, Josh called out labor, supply chain and contract services. Which of those three do you see as the greatest opportunity to further improve cost structure? Also, can you provide more detail on the labor software implementations and what you hope to achieve?

Josh DeTillio, Chief Operating Officer

We view all three buckets as significant opportunities; none stands out as the only one. We've already executed a number of initiatives. For labor, we are creating an entire labor suite: the HR and procurement software is live, the scheduling software is projected for early 2025, and a labor analytics tool is planned for mid-2025. These tools will allow teams to schedule more efficiently, communicate better, and optimize staffing relative to volume, providing us with daily trends and metrics to staff appropriately. We already operate our hospitals lean from a labor standpoint, but there is always room to improve. On supply chain, aligning with our GPO is expected to deliver at least a 15% reduction in supply cost for 2025 across existing hospitals. Contract services are being standardized and leveraged to obtain national-level discounts in areas like facility maintenance, shredding, office supplies, DME, waste management and pharmaceuticals. We have executed many items but continue to pursue more opportunities.

Tom McGovern, Analyst

My last question is on the variable interest entities. You successfully removed 18 VIEs from the balance sheet through discussions with lenders; there were two still on the balance sheet last time we spoke. Any progress on removing them and timing?

Dr. Tom Vo, Chairman and CEO

We've made a lot of progress removing the two remaining facilities, both in Albuquerque. The bank has told us they plan to remove those by the end of the year. It's up to the bank, but they confirmed their intention to remove them by year-end, so we'll see how it goes.

Tom McGovern, Analyst

Great. That's all great to hear. I appreciate you guys taking the time to answer my questions, and again, congrats on the quarter.

Jon Bates, Chief Financial Officer

Thanks, Thomas.

Dr. Tom Vo, Chairman and CEO

Thank you, Thomas, and thank you, Bill.

Vivian Sanders, Moderator

All right. There are no additional questions for us. On behalf of the Nutex Health management team, we appreciate everyone for dialing in and listening to our third quarter earnings report. A recording of this call will be available on our website for a limited time. If there are any additional questions, please send an e-mail to investors@nutexhealth.com, and we will do our best to answer in a timely manner. Take care, everyone.

Dr. Tom Vo, Chairman and CEO

Thank you, everyone.

Operator, Operator

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.