Nutex Health - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 revenue rose 220.7% year over year to $243.985M, driven by hospital division growth; gross margin expanded to 51.2% from 29.7% in Q2 2024.
• Revenue modestly increased vs Q1 2025 ($243.985M vs $211.789M), but diluted EPS swung to a loss of $2.95 due to $78.7M non‑cash stock‑based compensation tied to under‑construction/ramping hospitals.
• Nutex authorized a $25.0M share repurchase program to offset stock compensation dilution, contingent on reporting compliance; management emphasized shares are “undervalued”.
• Wall Street consensus for Q2 2025 was $221.9M revenue and -$1.43 EPS; Nutex delivered a top‑line beat but a larger‑than‑expected EPS loss; reported EBITDA was below consensus while Adjusted EBITDA was strong at $71.6M (definition differences matter).
• Call focused on NSA/IDR arbitration: ~71% of Q2 hospital revenue related to IDR; ~85% win rate; ~75% collection rate to date; arbitration costs ~26–28% of arbitration revenue—key drivers of margin and cash trends.

What Went Well and What Went Wrong

What Went Well

• Strong revenue growth and margin expansion: Q2 revenue $243.985M (+220.7% y/y), gross margin 51.2% (vs 29.7% y/y).
• Adjusted EBITDA inflected to $71.6M (vs $6.8M y/y), supported by arbitration wins and scale leverage; CFO noted “continued positive trend…since 2024”.
• Liquidity improved: cash reached $96.7M at quarter-end; operating cash flow $27.3M in Q2 and $78.2M YTD; management highlighted “record high cash balance”.

Selected quotes:

• “We are pleased to report 217.5% revenue growth… and a record high cash balance of $96.7 million” — CFO Jon Bates.
• “Arbitration… is now an ongoing part of our revenue cycle management process” — CEO Tom Vo.

What Went Wrong

• EPS miss and GAAP EBITDA softness: diluted EPS -$2.95 (vs -$0.07 y/y, +$3.33 in Q1) primarily due to $78.7M non‑cash stock‑based comp; reported EBITDA of -$0.458M missed consensus.
• Reporting delays/restatement created uncertainty: Q2 10‑Q was delayed for non‑cash reclassification of stock comp obligations; Nasdaq notice received; timeline to remediate reiterated on the call.
• Heavy arbitration dependence: ~71% of hospital revenue tied to IDR in Q2; collections ~75% of awards and timelines ~4–5 months; costs ~26–28% of arbitration revenue—execution and regulatory risks persist.

Transcript

Speaker 3

Greetings, and welcome to the Nutex Health shareholders' update conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Vivian Sanders, Corporate Director of Marketing and Business Development. Thank you. You may begin.

Good morning, everyone, and welcome to Nutex Health, Inc.'s second quarter 2025 company update conference call. I'm Vivian Sanders, 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, and a replay will be available on our website. With me today are our key leaders: Dr. Tom Vo, Chairman and CEO; Jon Bates, Chief Financial Officer; Dr. Warren Hosseinion, President; and Dr. Michael Chang, Chief Medical Officer. They will provide insights into our financial results, operational progress, clinical quality, 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 8-K filed last week and our other SEC filings. These preliminary results being presented today remain subject to the completion of normal quarter-end and fiscal-end accounting procedures and closing statement adjustments and the quarterly review process conducted by our auditors. With that, I'm pleased to turn the call over to Dr. Tom Vo, our founder and CEO. Dr. Vo, the floor is yours.

Speaker 0

Thank you, Vivian, and good morning, everyone. I am thrilled to present Nutex Health's preliminary results for the second quarter of 2025, which build on the strong momentum from our first quarter and reflect our continued execution of a patient-first, high-quality care model. Our micro-hospital approach, combined with strong operational efficiency and effective revenue cycle management, has driven continued robust growth. Let me first discuss our operational results. Jon will update everyone with our progress on the audit and interim review of our financials with our new auditor. Operationally, Q2 2025 shows strong performance, with total patient visits reaching 45,573, a 10.6% increase from Q2 of 2024. For the first half of 2025, total patient visits were 93,842, a 15.5% increase from the first half of 2024.

Total revenue increased to $244 million for the three-month period ended June 30, 2025, as compared to total revenue of $76.1 million for the same period in 2024, an increase of 220%. Gross profit was $124.8 million, or 51.1% of total revenue for the three-month period ended June 30, 2025, as compared to gross profit of $22.6 million, or 29.7% of total revenue for the same period of 2024. Adjusted EBITDA attributed to Nutex Health was $73.3 million, as compared to adjusted EBITDA attributed to Nutex Health of $6.8 million for the three-month period ended June 30, 2024. Net cash from operating activities was $78.2 million for the six-month period ended June 30, 2025, compared to $16.3 million for the same period in 2024. As of 6/30/2025, we had $96.7 million of cash in the bank.

The strong performance was a testament to our strong fundamentals and dedication and collaboration from all the team members here at Nutex, as we strive to fulfill our core mission of providing better access to healthcare. One driver of our financial success, in addition to strong volume growth and higher patient acuity, is our arbitration strategy under the No Surprises Act independent dispute resolution process. Congress enacted the No Surprises Act, "NSA," effective January 1, 2022, to protect patients from surprise medical bills incurred when they receive emergency medical services from out-of-network healthcare providers. Providers bill the insurers directly, and if the insurer doesn't pay or in view of the provider underpays for the medical services provided, the NSA creates the Independent Dispute Resolution, or IDR, process for unresolved billing disputes between providers and insurers.

The patient is not involved in this process, and payment is issued directly to the provider from the insurer. The IDR process safeguards providers by promoting fair reimbursement from payers, helping ensure their continued ability to deliver care. This process, though administratively intensive, is critical for securing fair compensation when insurers do not pay fair and reasonable awards, as is evidenced by the recent governmental data, which shows that during the second half of 2024, 85% of arbitration awards are in favor of the highest offers submitted by the providers. Nutex Health undertakes extensive labor and cost-intensive efforts to comply with all applicable laws and regulations in each of the jurisdictions in which it operates, including the eligibility rules in effect at the time a claim is being submitted to federal arbitration.

For more information on the NSA and IDR process, please go to our Form 8K filed on August 22, 2025, under Term 8.01, and to CMS.gov under Independent Dispute Resolution. On July 1, 2024, we engaged HaloMD, a third-party expert, to work with us in challenging underpaid out-of-network claims. HaloMD specializes in independent dispute resolution through the NSA and state regulation for out-of-network healthcare providers. Nutex Health determines which claims to submit to arbitration. Given the complexity of the federal arbitration process and its interaction with state surprise billing laws, it is crucial for providers like Nutex Health to seek tech-enabled expert assistance in the highly complex submission process. This third-party expertise, such as that provided by HaloMD, is essential for navigating the complexity of submission of claims in bifurcated states where either state or federal law may apply, depending on the insurance coverage and services provided.

As such, independent federal arbitration is now, by necessity, an integral part of our revenue cycle management operating procedure. Next, I'd like to address a few items that were published in a recently highly misleading short seller report revolving around HaloMD and allegations made by large insurers in several lawsuits against HaloMD. We strongly disagree with the allegations in the short seller report. Further, we believe that the report misrepresents Nutex Health's business, its claim process, and its ability to collect revenue. Further, we believe the short seller completely misunderstands the regulatory framework underpinning the independent federal arbitration system implemented under the No Surprises Act. Nutex Health has not been named in any lawsuit filed by Blue Cross Anthem or any other insurer against HaloMD, and Nutex Health has no hospital locations in jurisdiction where HaloMD is subject to litigation initiated by insurers.

In a press release issued on June 4, 2025, with respect to the lawsuit filed by Blue Cross Blue Shield of Georgia, HaloMD states that it is prepared to vigorously defend itself in this litigation in a manner that will highlight the lawsuit's meritless nature. Patient eligibility seems to have been a large point of contention in the lawsuit, so a few clarifying points related to our situation. Nutex Health undertakes extensive labor and cost-intensive efforts to comply with all applicable laws and regulations in each of the jurisdictions in which it operates, including the eligibility rules in effect at the time a claim is being submitted to the federal arbitration.

The claims process for out-of-network claims differs from state to state, and it's highly complex due to mainly the bifurcated nature of many states, which have their own surprise billing rules for fully insured claims and for certain types of providers. Further, there are different rules in each state governing the determination whether individual claims may be bundled or batched when submitting to the certified independent dispute resolution entity. The short seller, extrapolating from the HaloMD lawsuit, which does not apply to Nutex Health, seeks to allege that Nutex Health participated in an intentional flooding of the arbitration system, fraudulently obtained large payment, and could be subject to revenue clawback. As we have outlined in detail in our Form 8K filed on August 22, 2025, the eligibility determination for the submission of out-of-network claims to the federal arbitration process is complex.

We believe we meticulously adhere to the existing rules underlying those eligibility criteria. As further detailed in our Form 8K, according to the data published by CMS, Nutex Health is part of an industry-wide trend resulting in a large increase in the number of claims submitted for arbitration. During the final two quarters of 2024, providers initiated 1.5 million disputes, which represents more than 70 times the predicted annual caseload. Of those, 85% were decided in favor of the provider, the higher offer, resulting in a median winning offer of over four times the median in-network rate of each insurer. Contrary to the allegations contained in the short seller report, we believe that Nutex Health complies with the federal arbitration rules as currently in effect.

With respect to revenue collection, CMS has recently allowed the reopening of awards made prior to June 6, 2025, based purely on narrowly defined clerical, jurisdictional, or procedural errors by the independent federal arbitration entity. Neither insurers nor providers may challenge prior awards based on their own errors or on substantial grounds. Further, to address the potential of non-payment by insurers in violation of the No Surprises Act, the No Surprises Act enforcement act has been recently reintroduced in Congress and the Senate. In addition, almost all claims are for out-of-network services, and the percentages of Medicare and Medicaid of our patients are less than 5%. Since our claims process and revenue cycle management team are all in-house, we believe we expend significant resources to review and determine which claims are sent to the independent dispute resolution entity.

Lastly, the short seller report also mentions Neighbors Emergency Center bankruptcy in 2018. Neighbors Emergency Center was indeed co-founded by myself in 2008. However, I left Neighbors in 2011 to start Nutex Health. The two models are completely different. Neighbors was a freestanding model located only in Texas, whereas Nutex Health is a micro-hospital model with facilities on a national level. Neighbors did eventually file for bankruptcy around 2018, seven years after I left its management team. On the regulatory front, we are not seeing any significant legislative changes to either the No Surprises Act or the Independent Dispute Resolution process. We feel that Congress is currently content with the No Surprises Act because it has done its job to protect the American public from surprise bills. Any changes to the No Surprises Act (NSA) may potentially put the American public at risk.

We expect the federal arbitration process for out-of-network services will continue to evolve and become more efficient and less complex. As an example, on July 1, 2025, the federal Independent Dispute Resolution (IDR) portal was upgraded to streamline the arbitration process and enhance the quality of data submitted. We believe the proposed No Surprises Act enforcement act will also be beneficial to providers such as Nutex Health. It was reintroduced on July 23 by a bipartisan, bicameral group, including Representative Greg Murphy of North Carolina, Raul Ruiz and Jimmy Panetta of California, John Joyce of Pennsylvania, Kim Schreier of Washington, and Bob Under of Missouri. A companion legislation was also introduced by the Senate by Senators Roger Marshall of Kansas and Senator Michael Bennett of Colorado. If enacted, either version would offer significant benefits to providers participating in the NSA's IDR process.

Importantly, both bills impose penalties for late or non-payments where the non-prevailing party fails to make the required payment within 30 days of an IDR determination. The penalty imposed will be three times the difference between the initial payments and the IDR determination per claim. Interest will also apply to late or non-payments. The bills authorize the imposition of civil monetary penalties on health plans and insurers for violation of the NSA's balance billing provision. HHS would have discretion to assess penalties of up to $10,000 per violation, the same maximum penalty currently applicable to providers who violate these requirements. The bills also include the new HHS labor and treasury requirements aimed at better reporting transparencies for insurers and health plans. Please refer to our current report on Form 8-K dated August 20, 2025, for additional information.

Our growth strategy remains robust, with over 15 hospital projects in development, including two confirmed openings by the end of 2025 and a potential third. These projects target high-growth markets with strong demand for our micro-hospital model, as discussed in Q1. We are also advancing our population health management division, planning to launch one to two Independent Physician Associations (IPAs) annually, particularly near our micro-hospitals to enhance care coordination and synergies. To drive organic growth, we're investing in existing facilities by expanding clinical services and optimizing workflow, a strategy refined from Q1 feedback to boost performance. Our combination of organic growth, new market entries, and strategic acquisitions position Nutex Health for sustained success. To further enhance shareholder value, on July 30, 2025, the Board of Directors has authorized a stock repurchase program of up to $25 million of the company's common stock over the next six months.

In summary, Q2 2025 was a transformative quarter, with strong volume growth, strong cash generation, and a clear development pipeline. We remain committed to delivering value to patients and shareholders while navigating industry trends. I will now turn the call over to Jon Bates, our Chief Financial Officer.

Speaker 7

Thank you, Tom, and good morning, everyone. I was going to go over a couple of different topics today, some Tom discussed and some others as well. First of all, I want to provide some background and color on the recent delay in the filing of our second quarter 2025 10-Q and our timeline for completing all the necessary filing. I'll follow up with some key financial data for the second quarter, June 2025, and the six-month ended June of 2025 period. We believe we'll be unaffected by the accounting issue that led to this delay, highlighting the continued positive trend the company has experienced since the fourth quarter of 2024, with no fundamental changes in our operational model. Let's first discuss the details around the delay in our second quarter 2025 10-Q filing that was noted in our current report on Form 8-K dated August 20, 2025.

During the preparation of our financials to be included in the company's second quarter 2025 10-Q filing, we reevaluated the accounting treatment of stock-based compensation obligations for certain under-construction and ramping hospitals under U.S. GAAP accounting standards. In our go public merger transaction with Clinigence back in April of 2022, we entered into earnout agreements with the former owners of those hospitals for payments of additional consideration after these facilities become operational. These obligations were recorded to equity and stock compensation expense. However, based on our reevaluation of the accounting treatment, we have determined that the obligations should be classified as liability and not equity along the way. We are also making changes in how the accounting recorded for those obligations are determined.

Based upon this work, while the adjustments we are anticipating are non-cash in nature, the quantitative impacts of these changes are material to the financial statements filed in our 10-Q for the quarter ended March 31, 2025, and filed in our Form 10-K for the year ended December 31, 2024. On August 24, 2025, we filed the Form 8-K stating that these SEC statements should not be relied upon until we complete corrections and make amended filings with the SEC. We're working with the auditors on this restatement at present. Based on our preliminary calculations, just to give you some perspective, the estimated impact of the corrections is as follows. Total liabilities as of December 31, 2024, would increase by approximately a range of $10 to $20 million, with a corresponding decrease in reported equity on the balance sheet.

Total liabilities as of March 31, 2025, would increase by approximately a range of $20 to $50 million, with a corresponding decrease in reported equity in the balance sheet. The net income for the three months ended March 31, 2025, is expected to increase by a range of between $2 and $10 million as a result of this. These obligations and expenses are non-cash as they are exclusively for stock-based compensation. The corrections have no impact on previously reported amounts for key financial statement line items such as revenue, gross profit, liquidity, working capital, short and long-term debt, operating cash flow, adjusted EBITDA, or the number of patient visits, just to name a few. While adjusted EBITDA is a non-GAAP measure, we feel it highlights the important trend in operating results by excluding significant non-cash items reported in net income as required by GAAP.

We are working to address the corrections quickly while we continue to execute our company's operating and growth plans. As mentioned before, on August 20, 2025, the company did receive a notice from NASDAQ notifying the company that due to the company's failure to timely file its June 30, 2025 Form 10-Q with the SEC, the company has 60 calendar days or until October 20, 2025, from the date of the notice to file its June 30, 2025 Form 10-Q. The company plans to complete this process within this timeline and will provide updates as necessary along the way if anything changes. Next, let's discuss some of the key financial data for the second quarter of 2025 and then the six-month ended June of 2025 period that we believe will be unaffected by the accounting issue that led to this delay.

First of all, financial highlights for the three months ended June 30 of 2025. As Tom mentioned earlier, total revenue was $244 million for the three months ended June of 2025 as compared to total revenue of $76.1 million for the same period in 2024, an increase of 220%. The hospital division drove most of this growth, generating $236.3 million, up 350% from $76.1 million in the second quarter of 2024. Of the $236 million in hospital revenue, $167.7 million related to the independent dispute resolution revenue, which amounts to approximately 71%. Revenue from mature hospitals, which are hospitals open prior to December 31, 2021, increased by 203% in 2025 compared to 2024. Additionally, the population health division revenue increased by $0.8 million or 9.2% to $7.7 million in the second quarter of 2025 from $8.5 million in the same period in 2024.

With regard to arbitration-related revenue, we have continued to submit between 60% to 70% of our visits through the Independent Dispute Resolution process. We have also won a legal determination on 85%+ of the claims submitted, and we currently have an average collection rate of 75%+ of the legal determination wins. Arbitration costs have remained relatively consistent, approximating between 26% to 28% of the arbitration revenue reflected. From a corporate cost perspective, the G&A expenses as a percentage of total revenue for the second quarter of 2025 decreased to 5.1% compared to 14% for the second quarter of 2024, showing our continued focus on controlling costs while improving revenue. Gross profit was $125 million for this time period, or 51.1% of total revenue, as compared to the gross profit of $22.6 million, or 29.7% of total revenue for the same period in 2024.

Regarding visits at the hospital division, they were 45,573 for the three months ended June of 2025, as compared to 41,208 for the same period in 2024, an increase of 4,365 visits, or 10.6%. Visits in mature hospitals increased by 0.6% in the three months ended June, as compared to the same period in 2024. For the three months ended in June, the company did collect $175 million in hospital revenue, which was the highest collection amount for any quarter, and $109 million, or roughly 62% of the collections, related to the arbitration revenue. Adjusted EBITDA was $71.6 million for the three months ended June of 2025, as compared to $6.8 million for the same period in 2024. Operating cash flow was $27.1 million for the three months ended June, as compared to $13.3 million for the same period in 2024.

Now I'll move on to some of the highlights for the six months ended June of 2025. Total revenue was $455.8 million for the six months, as compared to total revenue of $143.5 million for the same period in 2024, an increase of 217.5%. The hospital division drove most of this growth, generating $440.2 million, up 244.9% from $127.6 million in the first half of 2024. Of the $440.2 million in hospital revenue, $280.8 million related to IDR revenue, which amounts to approximately 64%. Revenue from the mature hospitals, which are hospitals open prior to December 31, 2021, increased by 195.2% in 2025 compared to 2024. Additionally, the population health division, which revenue decreased by $0.4 million or 2.4% to $15.5 million in the first half of 2025 from $15.9 million in 2024.

Related to arbitration costs, again, approximately 26% to 28% of the arbitration revenue was attributed to the costs of arbitration. Gross profit was a very strong $243.1 million or 53.3% of total revenue for the six months ended June of 2025, as compared to a gross profit of $32.7 million or $22.8 million of total revenue for the same period in 2024. From a corporate cost perspective, G&A, again, as a percentage of total revenue for the first half of 2025, decreased to 4.9% from $13.4 million for the first half of 2024, again showing our continued focus on controlling costs and again improving that revenue.

Total revenue at the hospital division, excuse me, total visits at the hospital division were 93,842 for the six months ended June 2025, as compared to 81,276 for the same period in 2024, an increase of 12,566 visits or 15.5%, and visits at mature hospitals increased by 3% in the six months ended June of 2025 as compared to the same period in 2024. For the six months ended June of 2025, the company did collect $311 million in cash, the highest collection amount for the first two quarters of any year, $172 million or roughly 55% of the collections related to arbitration revenue. Adjusted EBITDA was $144.4 million for that six-month period as compared to $6.4 million for the same period in 2024. Operating cash flow was $78.1 million for the six months ended June of 2025 as compared to $16.1 million for the same period in 2024.

As of June 30, 2025, the company had total assets of just under $855 million, including cash of $96.4 million and accounts receivable of $349.2 million. During the six-month period, we did have some larger tax payments made related to the 2024 tax year, along with our estimated payments for 2025 that amounted to around just under $51 million, along with other member distribution payments of around $18.8 million during the six-month period, helping to explain some of the larger outflows during the period. Current portion of long-term debt, current portion of the long-term debt, and the long-term debt itself was $15 million and $20.5 million, respectively, at June of 2025.

Now, as we look at some of these key financial data, we feel strong about the company and the direction it's headed with a very strong balance sheet, continued solid cash flow, and limited true debt, which allows us to comfortably handle all the current needs, whether it is opening a hospital, supporting our existing hospitals, buying back shares, as Tom mentioned earlier in the discussion, or looking for other creative opportunities for our shareholders. Now, lastly, I wanted to provide a little more insight into the 21 named hospitals that had contribution agreements signed when the company went public back on 4/1/22. There were certain owners of hospitals that were either determined to be what we call ramping hospitals, which there were four of them, or under-construction hospitals, which there were 17 of them.

Once any of the hospitals were open for two years, the owners of each hospital would be eligible to receive a one-time additional issuance of company common stock based upon the earnings of the hospital in the second year of their operations, which we denote as the earnout period. I'll give you a little more specifics on those. As of June 30, 2025, we talked about there was 21 total, and of those, there were four ramping hospitals at that point when we went public. Of those four ramping hospitals, all of them, of course, were opened, but none of them met the criteria for an earnout shares. They went through the process with no earnout. Of the 17 under-construction hospitals, four hospitals had their development plans abandoned, so obviously no share dilution at all, so they're out of the picture.

Of the remaining 13 under-construction hospitals, six of those had measurement periods that ended on or before June 30, 2025, and two of those six did not meet the criteria for an earnout share. One of the hospitals had a measurement period that ended on February 28, 2024. One of the hospitals had a measurement period on the end of February in 2025, and then two other hospitals had a measurement period that ended on June 30, 2025. For the three hospitals that had measurement period ends in the first six months of 2025, their dilution approximates, the number of shares of dilution approximates about 1 million shares. One-third of those shares vesting six months after issuance, one-third after 12 months of issuance, and the remaining one-third vesting after 18 months of issuance. Over three tranches of one-third each of six-month periods.

Of the remaining seven under-construction hospitals, four hospitals have measurement periods ending after June 30, 2025. One hospital has a measurement period ending in August 2025, one has a measurement period ending in March 2026, and two hospitals have measurement periods ending in the fourth quarter of 2026. That leaves the remaining three named hospitals, each of which have not opened yet, with one scheduled to open later in 2025 and the two others potentially opening later in 2026. With that, I'm going to turn over the call to Warren Hosseinion, our President, to talk more about the population health side of the business. Warren.

Speaker 6

Thank you, Jon, and good morning, everyone. I'm pleased to update you on Nutex Health's population health management division, a key pillar of our value-based care strategy. Building on our Q1 discussion, we've refined our focus on growth and operational efficiency to drive long-term success. As outlined previously, our strategy integrates hospitals and Independent Physician Associations, or IPAs, to deliver coordinated, cost-effective care. Our IPAs, comprising primary care physicians and specialists near our facilities, now manage over 41,000 patients in risk-based arrangements. In Q2 2025, the division generated $7.7 million, down slightly from $8.5 million in Q2 2024, reflecting the divestiture of two non-core assets in mid-2024. For the first half of 2025, revenue was $15.5 million compared to $15.9 million in 2024. Operating income for the first half improved to $0.1 million from a $0.6 million loss in 2024.

Our strategic focus remains on expanding our IPA network, targeting one to two new IPAs annually near our micro-hospitals to leverage synergies as discussed in Q1. In 2025, we expand and now have over 300 primary care physicians and over 900 specialists contracted in our network, supported by a team equipped to manage this larger network. The division is well-positioned to capitalize on value-based care trends with growth driven by organic expansion, partnerships, and potential acquisition. In conclusion, our improved profitability and strategic investments position the division for growth. We're excited to expand our IPA network and enhance our value-based offerings. I'll now turn the call over to Dr. Michael Chang, our Chief Medical Officer.

Speaker 1

Thank you, Warren, and good morning, everyone. I'm pleased to provide an update on Nutex Health's clinical quality and patient experience, which remain at the core of our mission to deliver high-quality, patient-centric care. Building on our Q1 focus, we continue to prioritize clinical excellence and exceptional patient satisfaction, which sets us apart in the healthcare industry. Our commitment to clinical quality is reflected in our rigorous standards and outcomes. In Q2 2025, we maintained a patient satisfaction rate exceeding 96% across our facilities, as measured by internal surveys. This is complemented by our outstanding Google ratings, which average above 4.7 out of 5 in every market, with most facilities achieving 4.9 or 5.0. Such high satisfaction levels are nearly unheard of in healthcare today, underscoring the strength of our micro-hospital model, which emphasizes personalized, concierge-style care in a low-wait time environment.

These metrics reflect our dedication to meeting patient needs with efficiency and compassion, a priority we've consistently highlighted in our product calls. As Tom already mentioned, Nutex continues growing patient volume. Q2 2025 total patient visits increased 10.6% to 45,573 compared to Q2 2024, which reflects growth in both new and mature hospitals. Mature hospitals grew by 0.6% in the second quarter. For six months ended June 30, 2025, total visits were 93,842 as compared to 81,276 for the same period in 2024, an increase of 15.5%. This continued growth reflects our leadership team's ongoing efforts in community engagement, business development, and adding specialists and service lines to manage more complex cases. Our capacity to provide high-quality around-the-clock observation and inpatient stays is a key strength and positions Nutex as a trusted provider in the communities we serve. Cost discipline remains a priority, excluding arbitration costs.

Operating costs remain stable despite higher volumes and new hospitals this year. Labor costs did increase 31% from $27 million to $34.9 million, which was comprised of increased payroll and benefits for opening four new hospitals in 2024 and staffing for higher volumes and an increased volume of higher acuity observation and inpatients. Overall, labor costs continue to be a much smaller percentage of net revenue than most hospital companies, at 14.7% for the second quarter, which exemplifies our lean, high-quality model. Supply costs continue to be a very good story for us. Supply costs did increase 34% from $3.36 million to $4.8 million in the quarter, in part due to our anticipated opening of two more new hospitals in Q4 2025, as well as growth in the overall volume and services.

Despite the uptick, our overall medical supply spend is actually lower by 3% year to date compared to the same period of 2024. We will continue to see supply cost savings throughout 2025 as a result of our GPO and vendor realignment, as previously stated in the third quarter 2024 earnings call. We're continuing to explore technology investments, including AI for patient check-ins, staff staffing optimization, provider note writing, and coding. Our clinical and operational teams remain focused on delivering high-quality care while supporting a sustainable revenue cycle. By integrating clinical excellence with strategic revenue management, we ensure that our patient-first mission translates into both exceptional outcomes and financial stability. I will now turn the call back to Vivian for Q&A. Thank you.

Speaker 3

Thank you, Tom, Jon, Warren, and Mike, for those updates. We'll move over to Q&A. Operator, please provide instructions for our analysts.

Speaker 4

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, if you would like to ask a question, press star one on your telephone keypad. One moment, please, while we pull for questions. Thank you. Our first question comes from a line of Anthony Vendetti with Maxim Group. Please proceed with your question.

Speaker 2

Thank you. Thank you for all that information on the call. It's very helpful. I was wondering, in terms of the restatement process, do you have a timeline for when you think you'll get the audited results and be able to file the amended 2024 10-K and the first quarter 2025 10-Q?

Speaker 7

Yeah, Anthony, I can speak. Thank you for the question. We're working through it right now, right? Engagement's already begun in that process. I know we have, as I mentioned before, the 60 days to file the second quarter, which to do that, you have to finish out 2024, and then make sure the first and second quarters of 2025 are there. We're working actively to try to get all of that done in that time period. As things evolve and change, if that looks like it wouldn't happen for some reason, we will let everybody know. Our focus right now is all hands on deck to get that done, especially when, you know, our main focus, if you talk about what that restatement is really for, is really mostly reclassifications of, you know, equity to debt and just making sure that everything else remains, you know, consistent.

That's where we're at right now. We're working hard in the 60 days. As things change, we'll definitely let everyone be made aware if it's going to go outside of that.

Speaker 2

All right, Jon, yeah, that's helpful. I just wanted to make sure I had these numbers correct. You mentioned 75% of the IDR awards have been collected. I think in the second quarter, 62% or 64% of those awards have been collected. I know there's a penalty if these insurers do not pay according to the current legislation. Is there any recourse for them to appeal the arbitration award? Is there any other methodology to force them to pay other than a potential government penalty? Maybe just get into that. The revenue recognition, are you recognizing 100% of the award, or are you recognizing the amount that has been paid? Thanks.

Speaker 7

Okay, great questions. I'll start backwards. Tom and the rest of the team might jump in as well. Let me just, as I'm reiterating kind of what we talked about, it starts out with the number of claims ultimately going to the independent dispute resolution. We've been somewhat consistent since we started the process. It turns out that about 60% to 70% of the payments that we get from payers, we believe we are underpaid, in a lot of cases, materially underpaid. The 60% to 70% is the amount that's physically going through this process. Of those, we've talked about when it goes to the arbitrator for a winner or loss, we've continued to see, like the industry has shown, a very, very high success rate on winning and getting a legal determination.

In this quarter, and now collectively, we feel like we're up and around 85% plus of what we submit to the independent dispute resolution process that we're winning on. You win 85% plus of the time, which is fantastic, we believe. Then you have to collect. That has continued to improve as well. I do think that's, industry even shows that you'll get up to maybe 80%, 85%, 90%, and then you're always going to fight for the last 10% to 15% with the payers. We've progressively improved and actually been able to get over 75% of those determinations in a timely fashion. We're still focusing hard on trying to get the rest of those. We believe that will continue to improve.

You also asked about, from an accrual perspective, because we wanted to be conservative in the process, but it's fairly accurate what we're seeing, since we're seeing that we're currently getting paid, collection rates have been around 75% or so. That's what we're accruing from a revenue perspective on a visit that walks in the door on average today. As that improves, obviously that would change up or down as well. Obviously, if it goes down, it can adjust that way. Currently, we've continued, we've seen sort of a steady uptick in that collection rate up to 75% plus. We're going to continue to force, trying to make sure we're getting 100% of that when the dust settles. There are different approaches you can take.

Obviously, we're working hard to get information back to, you know, CMS if there's an issue with a determination where they've come back and said, you know, we've won, but we're not getting paid. There's communication directly to some of the payers. In some cases, it's just they have to be reminded, and then they turn around and make that payment. I think there's always going to be a push-pull there until, you know, one of the enforcement items that Tom alluded to earlier was if and when that gets in place here, that will really help with this process. We're watching it closely. What can you do? You can always attempt to litigate, but in a lot of cases, that doesn't necessarily have any sort of immediate impact. We look for opportunities where we can, if that makes sense.

Generally, we're working just one-on-one back through our third-party provider, HaloMD, plus the payers directly to try to get feedback and try to get those payments coming in a little bit quicker. I don't know if Tom might have some more information on that, but that's kind of our approach.

Speaker 1

Okay. If Tom, if you don't have anything to add there, I have just one last question for the team, maybe, so whoever wants to respond. On the new hospital openings, any update there, or is everything on track based on the schedule you've outlined? On the mature hospitals, in terms of, I know that's obviously based on patients that come in, and that can vary quarter to quarter. Is there anything that you're doing internally to try to ensure that the mature hospitals continue to see growth in terms of patient visits? I'll hop back in the queue. Thank you.

Speaker 7

Yeah, Anthony, thank you for the question. Thank you once again for covering us. To answer your first question, in terms of the opening schedule for this year, yes, we originally had three hospitals scheduled for this year, but it looks like two of them will be open for sure. The third one is suspect, and it's all 100% dependent on construction. Sherman, Texas, will probably open in October. Houston will probably open in November. San Antonio, we're still working with the contractor to see if they could speed up the process and open in 2025. If not, then probably first quarter of 2026. That's basically the schedule. In 2026, we have probably four more hospitals that are opening, including Jacksonville, West Little Rock, Bixby, and I think one more later in 2026. The pipeline is very robust.

On top of that, for 2027, we have four more, and we're already working on 2028. That's the pipeline. Now, in terms of the mature hospitals, we market 24/7 to our own patients and the communities that we serve. Obviously, the goal is to get higher volume. Like I mentioned last time, last quarter, we are doing everything we can to keep those patients that are in the hospital once they get to the hospital. In other words, instead of transferring people out to other hospitals, we do everything we can to keep patients in-house through either observation or inpatient. So far, we're seeing good results. Even though the mature hospital has only increased by about 0.5% quarter over quarter, the number of observations and admissions from the mature hospitals are going up quarterly.

You should see that in the year-over-year financial because obviously, the reimbursement for inpatient is a lot higher. That's one of the reasons why the revenue year-over-year is higher, even though the patient increase may not be as dramatic.

Speaker 1

Okay. That's very helpful. I'll hop back in the queue. Thank you so much. Appreciate it.

Speaker 7

Yep, thank you, Anthony.

Speaker 4

Our next question comes from a line of Gene Mannheimer with Freedom Capital Markets. Please proceed with your question.

Speaker 6

Hey, thanks, and good morning. Thank you for doing the call and providing all that information. As I look at your preliminary results, I think the implied EBITDA margin is about 30% for the quarter. That's a little bit down from what we've seen the last couple of quarters, though your gross margin was strong, 51%. I'm just trying to reconcile that. Was there anything that was compressing EBITDA margins this quarter relative to the last couple of quarters, Jon?

Speaker 7

Yeah, I mean, that's a great question, Gene. I mean, there's obviously some more supplier payments. I know as we start to potentially look at opening some of the facilities, these new facilities later in the year, you're going to have costs that are happening early on in that later first quarter, second quarter. We'll have some more in the third quarter as well as we get ready to open up. Some of that will come into play there. Then, you know, obviously, with the improvement in the arbitration side, there's certainly some more arbitration-type costs period to period. That's something that's in there. There's nothing I'd say dramatic about that when it comes to, say, the EBITDA side. I know when you're talking about cash flow and, you know, the cash impact, we did have, and you didn't ask about this, but we talked about it earlier.

For the year, when you have the buildup of the accrued tax amount at the end of last year, and as we had started to make those payments, more so into the second quarter, we had a pretty large tax amount paid, almost $50-something million in that first six months, and mostly in the second half of this first six months. That was one of the things that played in, you know, some of the cash draw, if you want to call it, but with incredible cash collections and a continued trend, we're still very optimistic there.

Speaker 6

That's great color. Thank you, Jon. As I look at the revenue per visit, thanks for giving us that arbitration contribution in the quarter. If I back that out, if I back out the IDR-related revenue this quarter and the prior year quarter, is it correct to say that revenue per visit was up low single digits from a, you know, an organic perspective, if you will?

Speaker 7

Yeah, I think that's about right. As you think about it, that's probably true. You have to look now over, now we have a little bit longer time period, which is nice to see when we started the arbitration process. Now that we have roughly a year's worth of data, you kind of see the overall reimbursement that's been in place. Now you're a little over $4,000, almost $4,200 over the time period since we started, overall revenue divided by visits for that almost 12-month period. I know people have asked before, kind of where are you going to settle? It will depend on acuity and everything else around that. We're starting, I think, to see kind of a better idea of what we would expect as we look going forward.

I think your assumption is probably accurate as we go through this, and we'll more specifically watch that as we move forward too, Gene. Thank you for the insight.

Speaker 6

That's great. Thanks, thanks guys. Congratulations.

Speaker 7

Thanks, Gene.

Speaker 2

Thank you, Gene.

Speaker 4

Our next question comes from a line of Bradford Seagraves with Northbank Capital. Please proceed with your question.

Speaker 5

All right, thank you guys. A couple of quick ones. One, you know, we're halfway through Q3. Can you provide any commentary to the market on, you know, how Q3 to date is going, you know, specifically on kind of the free cash flow side?

Speaker 7

Gentlemen, we haven't reported on the Q3, so I'll hold back a little bit, but I can tell you that what we've seen since fourth quarter of 2024, first quarter of 2025, second quarter of 2025, and what we've talked about in each of sort of these calls, I think you can see where we feel things, you know, are headed in that respect. I think things remain very, very consistent and very, very strong in relation to that is how I would answer that question.

Speaker 5

Okay, thank you. Are you going to be able to provide to the market, are you going to be able to publish unaudited financial statements for Q2? You mentioned the tax payment, but still would be curious to see the rest of the cash flow statement.

Speaker 7

Yeah, so I mean, the answer is, you know, anything, even in a quarter, is unaudited, but I know what you're asking to be able to put all the specific information out there. We'll look and see how much more we can provide. We wanted to be sensitive to the fact that we were going back and, you know, going through that review process and looking back at 2024 as well. We were pretty happy that this information very comfortably, you know, should not be changing, and it gives some perspective. We'll look and see, you know, how much more we can provide. Really, the focus of what we were trying to communicate here is, you know, most of what you have, you know, related to the delay and the review around that delay is more of the non-cash items around the stock-based compensation expense.

The rest of the fundamentals are not, we have not seen any sort of changes, material changes in the operations.

Speaker 5

Thank you.

Speaker 4

We have reached the end of the question-and-answer session. Ms. Sanders, I'd like to turn the floor back over to you for closing comments.

Speaker 3

Thank you all for your valuable questions and answers. For those joining us today, if you have additional questions, email us at [email protected], and we'll respond promptly. On behalf of the Nutex Health management team, thank you for joining our Q2 2025 company update call. We've covered growth, strategy, clinical quality, and our vision, and we appreciate your interest. A recording of this call will be available on our website for a limited time. Take care, and we look forward to keeping you updated.

Speaker 4

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.