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

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

Jennifer, thank you. Good morning to everyone, and thank you for joining the call. We are very excited to present our second quarter financials to our esteemed investors. At Nutex, everyone in the organization believes in the business model and is fully engaged and aligned to make the company even more successful. Before we dive into the financials, I'd like to take a step back to describe what Nutex Health is, our value proposition, where we came from, as well as how we see the future of healthcare. Nutex Health was founded in 2011 in Houston, Texas. It was founded based on the premise that Americans around the country need better accessibility to healthcare on a concierge level. We were one of the very first micro hospital companies in the country to provide this service. We started out serving emergency needs in Houston and eventually expanded our footprint throughout Texas in response to popular demand from consumers across the state. Around 2015, we started expansion into other states with our first hospital outside of Texas in Oklahoma City. We have continued the growth. Today, we have 21 micro-hospitals located in nine states. We continue to be among the leaders in the micro hospital segments in the United States. Let me take a moment to describe to our investors what a micro hospital is. A micro hospital is essentially a small, licensed hospital with many of the ancillary capabilities of a large hospital. Our micro hospitals generally have an emergency room, between four to 20 inpatient beds, an in-house pharmacy, an in-house laboratory, and an in-house radiology suite consisting of MRI, CT, ultrasound, and x-ray, all which is enclosed in a roughly 20 to 30,000 square foot facility. This is compared to a traditional large hospital which typically has anywhere between…

Thanks, Tom, and good morning, everyone. Our second quarter 2024 results continue to trend, we saw in the first quarter, with increased success in top-line growth and with our disciplined cost control effort company-wide. But let's talk about the second quarter into June 30th, 2024 first and compare those results to the same quarter of 2023. So for the second quarter of 2024, our total revenue grew 29% or $17.2 million to $76.1 million versus $58.9 million for the second quarter of 2023. Of the total revenue increase on mature hospitals, which are hospitals that were open prior to December 31 of 2021 and therefore provided two full years of comparative results, increased their revenue by 13.2% for the second quarter 2024 versus the second quarter 2023. For hospital division visits, we saw a similar growth during the quarter as they increased by 28% or 9,205 visits to 41,208 visits in the second quarter of 2024 versus 32,183 visits in the same period of 2023, with the mature hospitals growing at 10% in that second quarter 2024 versus 2023. Additionally, the population health division had revenue growth of 15.9% to $8.5 million in the second quarter of 2024 from $7.3 million in the similar period in 2023, despite the divestiture of those two small entities within the division as mentioned by Dr. Vo previously. In addition to the revenue and visit improvement we have seen in the second quarter of 2024, we have continued to see an improvement in the overall facility and corporate cost structure. Total facility level operating costs and expenses represented only 70.3% or 53.5 million of total revenue for the second quarter of 2024 versus 83.6% or $49.3 million of total revenue. For the same period in 2023. As a result of the revenue and facility…

Thanks, Jon. Good morning, everyone. On the operational side, we've been very focused on both volume growth and service line growth in our mature hospitals as well as a continued focus on costs and becoming a leaner organization. On the volume and revenue growth side, we've made some adjustments in our business development and marketing team, which I'm happy to say have resulted in the impressive second quarter performance that you heard about. An additional contributing factor has been the implementation of our new CRM software HubSpot. Our business development efforts at Nutex Health continue to focus on community events, calling on local primary care and specialist physicians, schools, urgent care centers, large local employers, while simultaneously using Google Ads, social media, and billboards as our primary marketing mediums. Ultimately, key for our hospitals is to grow and continue to provide concierge-level access and care for our patients and to be a resource in the communities and markets in which we serve. Excellent patient care is our best marketing through word-of-mouth, and our reputation in our markets continues to grow. In addition to our focus on increasing ER volumes, which began towards the end of 2023, one of our major initiatives has been to shift our service mix to increase inpatient and observation volumes in our hospitals. As part of this initiative, our hospitals did a lot of work locally partnering with local hospitals and specialists to provide additional care to our existing patients versus transferring them out to other hospital systems. We're starting to see the financial benefits of this changing service mix of becoming more inpatient-centric. This shift will continue to benefit us going forward. At Nutex Health, we are also very focused on our costs. As you heard, our largest costs are labor, supplies, and contract services…

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

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

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

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

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

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

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

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

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

Okay. Thanks everybody. Appreciate taking the questions.

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

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