Nutex Health Q2 2024 Earnings Call Transcript

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August 9, 2024

There are 6 speakers on the call.

Operator

Greetings, and welcome to Newtek's Health Second Quarter 20 24 Financial Results Conference Call. At this time, all participants are in a listen only mode. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jennifer Rodriguez. Thank you.

Operator

You may begin.

Speaker 1

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, Doctor. Tom Vo CFO, John Bates President, Doctor. Warren Hosnian and COO, Josh D'Telia.

Speaker 1

Our team will provide some prepared remarks and then we'll take questions. Before I turn the call over to Doctor. 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.

Speaker 1

A table providing supplemental information on adjusted EBITDA and reconciling net loss attributable to Newtek Health Inc. Is included in the press release and Form 10 ks 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 Doctor. Tom Vo, our Founder and Chief Executive Officer.

Speaker 2

Jennifer, thank you. Good morning to everyone and thank you for joining the call. We are very excited to present our Q2 financials to our esteemed investors. At Newtek's, 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 Newtek's Health is, our value proposition, where we came from, as well as how we see the future of healthcare.

Speaker 2

Newtek's 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.

Speaker 2

We have continued the growth. Today, we have 21 micro hospitals located in 9 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.

Speaker 2

Our micro hospitals generally have an emergency room between 4 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 of which is enclosed in a roughly 20000 to 30000 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. The services that we provide in 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.

Speaker 2

Out of every 100 patients that come through our ER, we can treat and discharge roughly 95% of those patients. Of that 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.

Speaker 2

Walgreens, CVS, Walmart are a few national low acuity retail clinics that come to mind. On the other hand 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.

Speaker 2

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.

Speaker 2

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.

Speaker 2

Our physicians and staff engagement are extremely high and our team often comments that working at Newtek's 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 incentivize 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.

Speaker 2

With the graying of the population and the so called silver tsunami that is expected to hit healthcare, we feel that this we feel that we are in a very good position to help meet this demand for more cancer's level of accessibility for a long time. Now to the Q2. 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 0.3% in total billable visits over the prior year. Observation visit volumes were up 34% versus the Q2 of the prior year.

Speaker 2

Inpatient volumes were up 52% versus the prior year. On the de novo hospital growth side, we have 4 new hospitals that are under construction that we anticipate opening in the next 6 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 projection slightly to project 1 to 3 new hospitals per year. We remain disciplined and only consider locations where the demand for small hospitals vastly outweighs the supply side.

Speaker 2

On the billing 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 have 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.

Speaker 2

Arbitration is a tool provided by the No Surprises Act to ensure providers receive fair treatments. 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 Q4 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 Clinogens, our healthcare analytics and data company.

Speaker 2

John and Warren will go over these details later in the presentation. We believe that these portfolio changes, we can focus on more profitable assets and continue to perform financially and reinvest these sellers into new markets. As we move through the remainder of the year, we will maintain our disciplined approach of managing our cost 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 sustainable and profitable company. With that, I will turn the call over to John Bates, Newtek's Chief Financial Officer for more financial information for the Q2. John?

Speaker 3

Thanks, Tom, and good morning, everyone. Our Q2 2024 results continued to trend we saw in the Q1 with increased success in top line growth and with our disciplined cost control effort company wide. But let's talk about the Q2 ended June 30, 2024, 1st and compare those results to the same quarter of 2023. So for the Q2 of 2024, our total revenue grew 29 percent or $17,200,000 to $76,100,000 versus $58,900,000 for the Q2 of 2023. Of the total revenue increase, our mature hospitals, which are hospitals that were opened prior to December 31, 2021 and therefore provided 2 full years of comparative results, increased their revenue by 13.2% for the Q2 2024 versus the Q2 of 2023.

Speaker 3

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 Q2 of 2024 versus 32,183 visits in the same period of 'twenty 3, with the mature hospitals growing at 10% in that Q2 'twenty four versus 'twenty 3. Additionally, the population health division had revenue growth of 15.9 percent to $8,500,000 in the Q2 of 20 24 from $7,300,000 in the similar period in 2023 despite the divestiture of those 2 small entities within the division as mentioned by Doctor. Vo previously. In addition to the revenue and visit improvement we have seen in the Q2 of 'twenty four, 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 percent or $53,500,000 of total revenue for the Q2 of 2024 versus 83.6 percent or $49,300,000 for the same period in 2023.

Speaker 3

As a result of the revenue and facility cost improvement, our 2024 second quarter gross profit was $22,600,000 or 29.7 percent of revenue as compared to only $9,600,000 or 16.4 percent of total revenue in 20 24, a 134% increase in the Q2 of 2024 over 2023. From a corporate and other cost perspective, the G and A expenses as a percentage of total revenue for the Q2 of 2024 decreased to 14% or $10,700,000 from 16.6 percent or $9,800,000 for the Q2 of 'twenty three. Now additionally, as mentioned previously, we did divest 2 smaller population health entities in the Q2 of 'twenty four 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 $3,500,000 3,200,000 dollars respectively during the Q2 of 2024. Operating income for the Q2 of 2024 was a positive $5,300,000 compared to an operating loss of a negative $400,000 in the Q2 of 2023.

Speaker 3

Net loss attributable to new tax income improved by $3,100,000 in the Q2 of 2024 from a loss of a negative $3,500,000 in the Q2 of 'twenty three to a very small loss of negative $364,000 in the Q2 of 'twenty four. And adjusted EBITDA attributable to Nutex, which removed the effect of the 2 non cash impairment items noted above, increased $8,000,000 or 200 percent from $400,000 excuse me, from $4,000,000 in the Q2 of 2023 to $12,000,000 in the Q2 of 2024. Now onto the 6 months ended June '24 compared to 6 months ended June of 'twenty three. Total revenue for the 1st 6 months of 2024 grew by 25 percent or $28,200,000 to $143,500,000 versus $115,300,000

Speaker 4

for the previous period.

Speaker 3

Of the total revenue increase, mature hospitals increased our revenue by 10% for the 1st 6 months of 2024 versus the same period in 2023. Hospital division visits saw similar growth as they increased by 24.6 percent or 16,032 visits to 81,276 visits in the 1st 6 months of 'twenty 4 versus 65,244 visits in the same period of 'twenty 3, with mature hospital visits growing at 6 excuse me, at 9.7 percent in the 6 months ended June 24 versus the same period in 2023. Now additionally, the population health division had revenue growth of 10.8% to $15,900,000 in the 1st 6 months of 2024 from $14,400,000 in the same period in 'twenty three, despite the divestiture of those 2 smaller entities within the division during the Q2, 24 as mentioned previously. Facility and corporate level costs continued to show improvement for the 1st 6 months of 2024 relative to the same period in 2023. And this total facility level operating costs and expenses represented 77.5 percent or 110,000,000 dollars of total revenue for the 6 months ended June versus 87.4 percent or 100,800,000 for the same period in 2023, a decrease of 9.9%.

Speaker 3

The gross profit for the 6 months ended June 2024 was $32,700,000 or 22.8 percent of total revenue as compared to only $14,500,000 or 12 12.6 percent of total revenue in the same period in 2023, a 126% increase for the 6 months ended June versus the 6 months ended June 24 versus the 6 months ended June 23. And so from a corporate and other cost perspective, the G and A expenses as a percentage of total revenue for the 6 months ended June decreased by decreased to 13.5% or $19,300,000 from 14.7% or $16,900,000 for the same period in 2023. Operating income for the 6 months ended June 2024 was a positive $6,700,000 compared to an operating loss of a negative $4,800,000 for the 6 months ended June of 2023. The net loss attributable to Newtek's improved by $7,900,000 from a loss of $8,600,000 for the 1st 6 months of 2023 to a very small loss of just a negative $728,000 in the 1st 6 months of 'twenty four. Adjusted EBITDA attributable to Newtek's, which removed the effect of those 2 non cash impairment items noted above, increased $10,200,000 or 159 percent from $6,400,000 in the 1st 6 months of 'twenty 3 to $16,600,000 in the 1st 6 months of 2024.

Speaker 3

Finally, I want to talk about our balance sheet, it remains very strong with cash and cash equivalents at the end of June of 2024 of $40,800,000 up $18,800,000 or 85.5 percent from the $22,000,000 as of the end of the year 2023. With regard to cash flow, net cash from operating activities increased by $15,200,000 for the 6 months ended June of 'twenty four to $16,300,000 as compared to $1,100,000 for the same period in 2023. And on the liability side, our total debt, true debt decreased by $1,500,000 to $40,900,000 in June of 'twenty four, down from $42,400,000 at December of 'twenty three, 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 Citellio, our Chief Operating Officer, to discuss more about our operations.

Speaker 5

Thanks, John. 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 cost 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.

Speaker 5

Our business development efforts at New Text 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.

Speaker 5

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 Newtek's 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.

Speaker 5

We have a new HR software Workday, which has helped us streamline approvals and physician 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 $1,000,000 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 3rd Q4.

Speaker 5

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 2020 is to continue to grow our mature hospitals in 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 Newtex and we're working with our stakeholders to strategically plan out the next 5 years. The Q2 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, go back to Jennifer.

Speaker 1

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

Speaker 4

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.

Speaker 4

Thanks.

Speaker 2

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 twenty twenty four. Our Independent Physician Association or IPA in Los Angeles, California continues to perform well and is generating significant free cash flow.

Speaker 2

Our IPA in Houston had a strong start to the year enrolling over 1900 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 1 and another batch on August 1. We hope to recuperate the remaining patients over the next 2 months.

Speaker 2

Our new IPA in Florida is growing steadily. Looking forward, we intend to start 1 to 2 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 1 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.

Speaker 2

We expect that these two transactions will enhance our net income and EBITDA beginning in September. Thank you, Bill.

Speaker 4

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

Speaker 3

Sure. Great question, Bill. As

Speaker 5

you can

Speaker 3

see on our balance sheet and mentioned previously in my financial update, overall bank equity type debt, both short and long term, went from $42,400,000 at December of 'twenty three down to $40,900,000 at June of 'twenty four. So 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 $340,000,000 as that seems like a large number. The reality is the $241,000,000 of that $340,000,000 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 $241,000,000 at June 30, 'twenty four you see in our balance sheet.

Speaker 3

That is 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 real operating debt. So I wanted to clarify that to you and others who have that question.

Speaker 4

Great question.

Speaker 3

Thank you.

Speaker 4

Yes. I appreciate that color. And then last for me, I was thinking about the back half of the year. Maybe you can remind us as we try to think about it relative to the Q2, any cadence or seasonality we should keep in mind? Thanks.

Speaker 2

Yes, I could take that. Good question, Bill. So yes, our business does have a seasonality to it. Typically, as summer approach, volume goes down because people go on vacation as 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.

Speaker 2

So second quarter, half second quarter volume does drop, but then it picks up again around this time of year.

Speaker 4

And then looking into the Q4, you would get also strength as you get into flu season, etcetera, right?

Speaker 2

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

Speaker 4

Okay. Thanks everybody. Appreciate taking the questions.

Speaker 1

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 e mail to investornuTexhealth.com, and we will do our best to answer in a timely manner.

Speaker 1

On behalf of the NuTex management team, we appreciate everyone for dialing in and listening to our Q2 earnings report. A recording of this call will be available on our website for a limited time. Take care, everyone.

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Key Takeaways

  • Newtek Health’s “micro hospitals” sit in the mid-acuity care spectrum with 4–20 inpatient beds, in-house pharmacy, lab and imaging, offering concierge-level service that earns Google reviews of 4.8+.
  • In Q2 2024, total revenue rose 29% year-over-year to $76.1 million, gross margin improved to 29.7% from 16.4%, and adjusted EBITDA tripled to $12 million, narrowing the net loss to just $0.36 million.
  • Patient visits climbed 28% overall—observation +34% and inpatient +52%—while facility operating costs fell to 70.3% of revenue, reflecting strong cost controls on labor, supplies and contracts.
  • Four new hospitals are under construction for delivery in the next 6–12 months and management expects a disciplined pace of 1–3 new openings per year beyond 2025 in high-demand markets.
  • The balance sheet is solid with $40.8 million in cash, $16.3 million of operating cash flow in H1 2024 (versus $1.1 million prior year) and net debt of ~$40.9 million (excluding $241 million of lease liabilities).
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Earnings Conference Call
Nutex Health Q2 2024
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