Nutex Health - Earnings Call - Q4 2024

Executive Summary

• Q4 revenue surged to $257.6M (+269.6% y/y), driven primarily by ~$169.7M of Independent Dispute Resolution (IDR) arbitration-related revenue; Adjusted EBITDA rose to $93.6M from $3.1M in Q4’23, and diluted EPS was $11.12 versus $(7.47) a year ago.
• Massive beats vs S&P Global consensus: revenue $257.6M vs $81.1M*, EBITDA $93.6M vs $8.4M*, and diluted EPS $11.12 vs $(0.12), as the company accrued arbitration wins and improved reimbursement per visit (particularly in mature hospitals).
• Operationally, hospital visits rose 9.8% y/y to 45,444, while mature-hospital revenue grew 175.6% y/y in Q4; G&A ratio fell to 4.9% of revenue in Q4 as scale and cost discipline improved.
• Sustainability/quality of earnings in focus: accounts receivable expanded to $232.4M as recognition moves ahead of cash; management expects to submit 60–70% of billable visits into IDR, has >80% win rate, typical cash realization lags 3–5 months, and will transition to monthly accrual updates in 2025.

Note: * Values retrieved from S&P Global.

What Went Well and What Went Wrong

• What Went Well

  • Arbitration materially lifted reimbursement and mix: “The arbitration initiative that we began in July 2024 is generating higher reimbursement amounts per visit… more in line with a fair market rate.” – CEO.
  • Margin expansion and scale efficiency: gross profit was $141.6M (55% of revenue) vs $13.2M in Q4’23; CFO highlighted “impressive margin expansion” with G&A down to 4.9% of revenue in Q4.
  • Volume and acuity mix improved: hospital visits +9.8% y/y; COO cited “higher ER acuity and an enhanced service mix, with greater focus on observation patients and inpatients”.

• What Went Wrong

  • Heavy reliance on IDR accruals and cash timing: ~$169.7M of Q4 revenue was arbitration-related (spanning Q3/Q4 dates of service) and carries costs (~$57.6M tied to Q3/Q4 IDR), with cash collection typically 3–5 months after award.
  • Non-cash items and accounting complexity: Q4 included $14.7M non-cash stock-based comp; finance lease liabilities are large (related to long-term facility leases), adding complexity to leverage optics.
  • Regulatory and process risk: company warned outcomes could change with NSA/IDR revisions or payer behavior; success may not persist at current levels.

Transcript

Operator (participant)

As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Ms. Jennifer Rodriguez, and Investor Relations for Nutex Health. Please begin.

Jennifer Rodriguez (Head of Investor Relations)

Good morning, everyone, and welcome to Nutex Health's fourth quarter and full year 2024 earnings call. My name is Jennifer Rodriguez, and I'm happy to serve as your moderator today. We're truly grateful for your participation and your continued interest in our company as we share the highlights of an exceptional year. Please note that this call is being recorded for future reference. Joining me this morning are some of the key leaders driving Nutex Health forward: our Chairman and CEO, Dr. Tom Vo, our Chief Financial Officer, Jon Bates, our President, Dr. Warren Hosseinion, and our Chief Operating Officer, Josh DeTillio. Together, they'll provide prepared remarks to give you a comprehensive view of our performance, strategies, and vision, after which we'll open the floor for your questions. Before I turn things over to Dr. Vo, I'd like to take a moment to address a few important points.

Today's discussion may include forward-looking statements which reflect management's current expectations about our future performance. These statements are based on what we know today, but they're subject to risks, uncertainties, and other factors that could cause our actual results to differ from what we'll share. For a deeper dive into these forward-looking statements and the factors that might influence them, I encourage you to review the press release and the Form 10-K filed earlier this week, as well as our various SEC filings. You'll find all the details there. Additionally, we may reference non-GAAP financial measures such as adjusted EBITDA during the call.

For those interested in how these metrics reconcile to GAAP standards, please refer to the press release and the Form 10-K, where we've included that information. With those housekeeping items out of the way, it's my pleasure to hand the call over to Dr. Tom Vo, our Founder and Chief Executive Officer. Dr. Vo, the floor is yours.

Tom Vo (CEO)

Thank you, Jennifer. Good morning to everybody, and thank you for joining us on our today's investors' call. It is my pleasure to speak with you as we recap Nutex Health's fourth quarter and full year results for 2024. This has been a period of exceptional growth, operational refinement, and innovation as we've worked to reshape how high-quality, concierge-level healthcare is delivered across the communities we serve. Our entire organization is committed to our mission of providing concierge-level care to the communities that we serve, with a specific emphasis on patient-first values. I'm excited to walk you through the details of our achievement, the strategies propelling us forward, and the challenges we're navigating, particularly with the No Surprises Act and its arbitration process, where we've seen some positive developments. Let's start with our financial performance.

For the full year of 2024, our total revenue reached $479.9 million, up 94% from $247.6 million in 2023. Our adjusted EBITDA increased from $10.8 million in 2023 to $123.7 million in 2024, up over 1,000%. Our full year of 2024 net income was $52 million for 2024, compared to a loss of $46 million for 2023. On the patient volume side, our total visit at our hospital increased by 17% from 144,000 in 2023 to 168,000 in 2024. Of that 17% growth in patient volume, 6.5% was from our mature hospitals.

On the debt side, even with the four new hospitals that we opened in 2024, the current portion of the long-term debt increased only slightly from $10.8 million in 2023 to $14 million in 2024, while the net long-term debt actually decreased from $26 million in 2023 to $22 million in 2024, signifying our dedication to maintaining low debt and fiscal responsibility. These figures reflect the success of our expansion strategy, the strength of our mature facilities, and the tireless dedication of our entire team to achieve three key metrics: patient volume increase, inpatient volume growth, and revenue per patient growth. Now, let's turn to a critical piece of our 2024 story, the No Surprises Act, or the NSA, and the arbitration process, otherwise known as Independent Dispute Resolution Process, or IDR.

The NSA, effective January 1, 2022, aimed to shield patients from surprise medical bills, a noble intent we fully support and fully adhere to. However, the flawed implementation of the NSA has hit providers like us very, very hard, especially on the revenue per patient reimbursement side. In 2022, our average insurer payments for emergency services dropped roughly 30%. The root issue is that insurers often pay below the qualifying payment amount, or QPA, which was described and mandated in the NSA. The QPA is the median contracted rate insurers recognize as of January 31, 2019, for a similar service in a similar region, adjusted manually by the Consumer Price Index. In essence, the QPA is the amount that the insurers are required to pay providers according to the law.

If the providers find that the QPA payment by the insurers is consistently lower than the national benchmarks, the NSA has a provision where the providers can appeal through a formal process of mediation, sometimes referred to as open negotiation, to resolve the disputes. However, if this non-binding open negotiation still doesn't work, the next step would be to escalate to arbitration or the IDR process to resolve the differences. While we've been participating in the open negotiation process since 2022, we have only started the arbitration process on roughly around July 1 of 2024.

The main reason that we pivoted from primarily using open negotiation, which is non-binding, and continuing and moving on toward arbitration, which is binding, in most cases, was because of the low success rate of open negotiations, where we only achieved a roughly 10% increase in collections from the original low payment amount. Once the previous administrations made the arbitration process more streamlined, more efficient, and more cost-effective, beginning in late 2023 and early 2024, we took advantage of this tool to leverage our positions with our insurers. However, compared to open negotiations, there are significant disadvantages to the arbitration process.

It's very costly, very labor-intensive, and takes a long time to collect from the insurance companies. It also has a lot of upfront costs, like Medicare administrative fees and arbitrator fees. To further add to the risk, the loser of this arbitration process bears the IDR arbitration fee cost. Entering into the arbitration process is not a decision that we take lightly at all, whatsoever. However, if this results in a fair payment that is close to the QPA payment that the insurers are required to pay by law, then, of course, we will proceed and use any tools necessary.

Since we have implemented the arbitration process, the results have been positive. As I mentioned earlier, while our volume, our patient volume, increased by about 30% in 2024 compared to 2023, our revenue increased by about 94%. Some of this as a result, some of this was a result of higher patient volume and acuity to our facility, but a lot of it also was directly from our arbitration initiative. Since 2024, we have submitted roughly between 60%-70% of our billable visits to the IDR or arbitration portal. Of these claims submitted, we have achieved a roughly 80% win rate. Of these over 80% plus arbitration wins, once again, which are binding, we expect the insurers to pay 60%-70% in the first 60 days and the rest later.

In terms of revenue per visit increase from the IDR process, we typically find a 150%-250% increase in reimbursement on the facility collection side compared to the initial payment. Once again, this is all consistent with the public data and consistent with the data that are published by other providers that are also doing arbitration like we are. Once again, the goal of arbitration really is just to get to the QPA payment level as outlined in the No Surprises Act. So far, arbitration seems to be working as it was designed to do. Today, our network spans 24 hospitals across 11 states. In 2024, we hit our target of four new hospitals opening in Green Bay, Wisconsin, Post Falls, Idaho, Milwaukee, Wisconsin, and our very first hospital in Florida in Tampa. We are already working on new hospital pipelines for 2025, 2026, 2027, and 2028.

Each new facility is designed to deliver concierge-level care, eliminating emergency room wait times, easing patient stress, and providing inpatient and outpatient services tailored to local needs. Communities and doctors across the country still reach out to us weekly to open new hospitals in their areas. We target high-demand growth markets, ensuring every new site aligns with our mission to serve where we're needed the most. Meanwhile, our mature hospitals are continuing to grow, expanding their offerings to meet evolving demand. On the corporate side, we are laser-focused on increasing hospital volume systems-wide, increasing inpatient admissions to our hospitals, increasing our revenue per patient by implementing efficient revenue cycle processes such as arbitration and mediation, and maintaining low costs as well as aggressive debt management and debt payback.

For those that have been in the healthcare industry for some time, you will know that every five to seven years, there is a major disruption to our industry. That disruption for us came in 2022 with the No Surprises Act. The great news is that we were able to pivot and adapt to the current environment. Our company is designed to operate and continually be adaptable, flexible, and resilient to adjust to any future geopolitical, legislative, or financial challenges, just as we have done for the past 14 years. We are very excited about the future of Nutex as we begin 2025. With that, I will pass to Jon Bates, our CFO, to dive further into the financials. Jon?

Jon Bates (CFO)

Hey, thanks, Tom. Good morning, everyone. I'm very excited to break down the financials for Nutex Health's fourth quarter and full year 2024, a year where we didn't just grow, but we have begun delivering transformative financial performance. Tom has given you the big picture, and I'm going to zoom in on some more detail, beginning with the fourth quarter of 2024 and their results, and then talking a little bit more about the full year of 2024. There is a lot to unpack. Let's start with the fourth quarter ended December 31, 2024, and compare those results to the same period in 2023. For the fourth quarter of 2024, our total revenue grew 270%, or $187.9 million, to $257.6 million versus $69.7 million for the fourth quarter of 2023.

Of this increase, the arbitration process resulted in $169.7 million more in revenue in the fourth quarter compared to the same period in 2023, which amounted to approximately 90.3% of the $187.9 million increase in overall revenue. Of the $169.7 million arbitration revenue, $68.9 million related to dates of service for the fourth quarter of 2024, $70.5 million related to dates of service for the third quarter of 2024, and $30.3 million related to dates of service or periods prior to the third quarter of 2024. Of that total revenue increase, mature hospitals, which are hospitals that were open prior to December 31, 2021, and therefore they provided two full years of comparative results, increased their revenue by 175.6% for the fourth quarter of 2024 versus the fourth quarter of 2023.

For hospital division visits, we saw growth as well during the quarter as they increased by 9.8%, or 4,063 visits, to 45,444 visits in the fourth quarter of 2024 versus 41,381 visits in the same period in 2023, with the mature hospitals growing at 3.1% in the fourth quarter of 2024 versus the fourth quarter of 2023. Additionally, the population health division revenue increased by just under $1 million, or roughly about 11%, to $7.9 million in the fourth quarter of 2024 from $7.1 million in a similar period in 2023. Now, we discussed the growth in the hospital revenue and visits that we've seen in the fourth quarter of 2024. Now let's discuss the overall facility and corporate costs and the improvement in those areas.

Total facility-level operating costs and expenses increased $59.5 million during the period, but only represented about 45%, or $116 million, of total revenue for the fourth quarter of 2024 versus 81.1%, or about $56.5 million for the same period in 2023. Of the $59.5 million increase, $57.6 million related to arbitration costs for the additional arbitration revenue booked during the period, with costs of approximately $24 million related to the dates of service in the fourth quarter of 2024, another $24 million related to the dates of service for the third quarter of 2024, and just about $9 million related to dates of service prior to the third quarter of 2024.

As a result of the revenue and facility cost improvement, our 2024 fourth quarter gross profit was $141.6 million, or 55% of total revenue, as compared to $13.2 million, or just 18.9% of total revenue in 2023, which is a whopping 973% improvement in the fourth quarter of 2024 over 2023. From a corporate and other cost perspective, the general administrative expenses as a percentage of total revenue for the fourth quarter of 2024 decreased to 4.9% compared to 12.2% for the fourth quarter of 2023. When you look at operating income, which, as you can see, includes a negative impact of $14.7 million of a non-cash stock-based compensation expense, for the fourth quarter, that operating income was $114.2 million compared to an operating loss of $26 million in the fourth quarter of 2023, representing a $140 million improvement quarter over quarter.

Net income attributable to Nutex Health was $61.7 million for the fourth quarter of 2024, again, including that negative impact from the stock-comp expense. The comparative net loss attributable to Nutex was $31.6 million for the fourth quarter of 2023, showing a $93.3 million improvement fourth quarter of 2024 over the same period in 2023. Without referencing adjusted EBITDA attributable to Nutex, it did increase $90.5 million from $3.1 million in the fourth quarter of 2023 to $93.6 million in the fourth quarter of 2024. Now on to the 12 months ended December of 2024 compared to the 12 months ended December 31 of 2023. Total revenue for the full year of 2024 grew by 93.8%, or $232 million, to $479.9 million versus $247.6 million for the full year of 2023.

As mentioned previously, the arbitration process resulted in $169.7 million more in revenue in 2024 versus 2023, which amounted to approximately 73.1% of the $232 million of revenue increase. As mentioned before, of the $169.7 million arbitration revenue, $68.9 million related to dates of service in the fourth quarter, just over $70 million related to dates of service for the third quarter, and just over $30 million related to dates of service for periods prior to the third quarter of 2024. Of the total revenue increase, mature hospitals increased their revenue by 56.6% for the year of 2024 versus the same period in 2023.

Talking about visits, visits increased, as Tom mentioned earlier, by roughly 17%, or 24,330 visits, up to 168,388 visits in 2024 versus 144,058 visits in the same period in 2023, with mature hospital visits growing at 6.5% in 2024 versus the same period in 2023. Additionally, on the population health side, it grew by 4.4% to $30.9 million in the first 12 months of 2024 from $29.6 million the same period in 2023. In addition to the revenue and visit growth noted above, facility and corporate costs also showed improvement for the 12 months of 2024 relative to 2023. Total facility-level operating costs and expenses increased $70.8 million during the period, but only represented about 59%, or $283 million of total revenue for the 12 months ended December of 2024 versus 86%, or $212 million for the same period in 2023, a decrease of 26.9%.

Of that $70.8 million for the period, as mentioned previously, $57.6 million related to arbitration costs for the additional arbitration revenue booked during the period, with costs of approximately $24 million related to the dates of service for the fourth quarter, $24 million related to dates of service for the third quarter, and then roughly $9 million related to dates of service for the third quarter or prior. The gross profit for the 12 months for the full year of 2024 was $196.3 million, or just under 41% of total revenue, as compared to $34.8 million, or 14% of total revenue in the same period in 2023, a very large 464% increase for the 12 months into 2024 for the same period in 2023.

From a corporate and other cost perspective, the G&A expenses, as a percentage of total revenue for the 12 months of 2024, decreased to 8.7%, or $41.9 million, from 13.4%, or $33.2 million for the same period in 2023. Operating income for the 12 months ended December of 2024 was a positive $130.6 million compared to an operating loss of just under $32 million for the 12 months ended 2023. Net income attributable to Nutex was $52.2 million for 2024 compared to that loss of $45.8 million for 2023, which was a $98 million positive increase. Adjusted EBITDA attributable to Nutex increased $112 million, or just over 1,000%, from $10.8 million in the first 12 months of 2023 to $123.7 million in the first 12 months of 2024. Now, as Tom stated previously, we started the independent dispute resolution arbitration process in July of 2024.

As part of the arbitration process, we first went through the required 30-business-day open negotiation process for each claim that we believe we were paid less than the qualifying payment amount on, and that QPA is defined as the median of the contracted rates the insurance plans recognize for similar services, or same or similar services, services provided by a provider in the same or similar specialty, and then services provided in the same geographic area as the service at issue. All of this, of course, is inflation-adjusted. If we were unsuccessful in open negotiations and still believed we were being paid below the QPA, we entered into the arbitration process.

With the entire process, from entering open negotiations to getting a win in arbitration to actually getting paid by the payer, taking on average at least three to five months, we did not begin to see the wins and ultimate payments from the payers from this effort until the early part of the fourth quarter of 2024. As we finished out the year and the whole or close process, we used our most recent results from the arbitration process to accrue revenue for all visits that had begun the open negotiations process at the end of the year. As communicated previously, we have been submitting claims on the arbitration process for approximately 60%-70% of our billable visits and achieving over an 80% win rate, and that's factoring in a 70% collection rate on each win.

We continue to refine our process each period based upon the most recent detail that we have. Finally, I'll talk about our balance sheet a little bit. It remains very strong with cash and cash equivalents at December at just under $44 million, up from just under $22 million from 2023, a 98.2% increase. The other sizable increase at the end of the year is the accounts receivable balance, which was at $232 million compared to $58.6 million at the end of 2023. As discussed previously, the major increase for that relates to the arbitration process that we began back in July of 2024. Regarding cash flow, net cash from operating activities increased to $21.9 million for the 12 months ended December of 2024, all the way to $23.2 million, as compared to just over $1 million for the same period in 2023.

On the liability side, our total bank and equipment debt decreased by $1 million to $41.4 million, down from $42.4 million in December of 2023. With the majority of that debt relating to equipment loans on our hospitals for such things as MRIs, X-rays, ultrasounds, CT machines, etc. Outside of this normal $40 million-plus of bank debt type items, the only other items of material that look like debt on the balance sheet are liabilities related to financing and operating lease liabilities. We talked about this a little bit in the third quarter but I wanted to reemphasize again. Those liabilities are really just future lease payments due to our landlords on our hospital facilities.

They're reflected on the balance sheet because the accounting rules require us to aggregate all these lease payments that we pay to a landlord for the entirety of its lease, which might be 15-20 years of payments, and then present value that back for each to the inception of that lease and record both a right-of-use asset and correspondingly a right-of-use liability on the balance sheet. As a result, on our balance sheet at December 31 of 2024, the net asset balance for the operating and financing right-of-use assets amounted to $247 million, which is roughly 38% of total assets. The net liability balance for the operating and financing right-of-use liabilities amounted to just under $300 million, which is 66% of total liabilities.

Now, most investors and analysts do not view these right-of-use liabilities as real operating debt, so I just wanted to clarify that for everybody. With all that said, our balance sheet remains very solid, and we have provided our company great flexibility that should allow us to execute on all of our growth plan in 2025 and beyond. Now, on to Warren Hosseinion, our President, for a population health update. Warren.

Warren Hosseinion (President)

Thank you, Jon, and good morning, everyone. It is great to be with you today to discuss how Nutex Health is advancing population health management, a cornerstone of our mission to deliver sustainable, impactful healthcare. In 2024, we made strides in this area, and I am excited to share the progress, the strategies driving it, and our plans to keep pushing forward. This is not just about numbers or operations. It's about improving patient care, reducing disparities, and creating a healthcare model that works for everyone: patients, providers, and communities alike. Let's start with where we are today. Our population health division currently manages over 40,000 patients across our platform.

That's a broad reach, and it's growing because of the trust we've built through our independent physician associations, or IPAs. Revenue for the division hit $30.9 million in 2024, up slightly from $29.6 million in 2023. That growth might seem modest, but it's intentional. We divested two smaller entities that were unprofitable in 2024 to sharpen our focus on core operations, ensuring every dollar and effort aligns with our long-term vision. Our strategy revolves around building physician networks, both primary care physicians and specialists, around our hospitals. Building strong partnerships with local doctors is critical.

These relationships create a web of care that's seamless for patients, whether they're seeing a specialist, getting diagnostics, or managing a chronic illness. It's all coordinated and connected. Our vision is that our hospitals and IPAs, working hand in hand, amplify our reach and effectiveness. We're not just adding doctors. We're fostering collaboration, sharing best practices, and ensuring every provider is aligned with our patient-first culture. We're growing our IPA strategically, focusing on areas near our hospitals to leverage existing relationships and infrastructure. In 2024, we laid the groundwork for new IPAs in Phoenix, Arizona, and Dallas, Texas, with one or two more markets in the pipeline.

Why Phoenix and Dallas? They are growing regions with healthcare gaps we can fill, and our hospital presence there gives us a head start. This isn't random expansion. It's deliberate building on our strengths to maximize impact. By 2026, these new IPAs will broaden our patient base and deepen our influence on local healthcare delivery. Coordinating large physician networks takes effort, aligning incentives, standardizing care, and managing data across systems.

There's a lot of competition, and we're up against bigger players in some markets, but our edge is our integration: hospitals and IPAs feeding each other. Our 2024 progress, 40,000 members and $30.9 million in revenue, shows we're not just talking the talk. In 2026, we plan to scale this, refine it, and keep proving that population health management continues to be a vital service for us. With that, I'll turn it over to Josh DeTillio, our Chief Operating Officer, to dive into our operations. Josh.

Josh DeTillio (COO)

Thanks, Warren. As Tom and Jon mentioned on volume, overall Q4 hospital visits were 45,444, up 9.8% from last year. For the whole year of 2024, total patient visits were 168,388 versus 144,058 in 2023, an increase of 16.9%. We've been very intentional about growth in 2024 with our hospital leadership and business development teams and have added a lot of specialists at our hospitals to take care of more acute patients. The volume numbers also include a shift in service mix and acuity to more observation patients and inpatients. This service shift just isn't about volume. It's about meeting the community and patient demand to stay at our hospital instead of being transferred when appropriate.

Keeping patients under observation helps avoid unnecessary admissions, and admitting them when they meet criteria helps foster a great continuum of care. Cost management continues to be a very good story for us at Nutex. Inflation has hit labor and supplies hard across the healthcare industry. We've worked very hard to stay lean this year. We don't struggle with the staffing challenges and turnover that large hospitals do. Our employees love working with us. We have a great culture, a better pace, and are totally focused on our patients and their experience. It's about delivering excellent care without burning out and exhausting our teams, and our model works extremely well.

In terms of supply chain savings, as stated previously, we continue to be on target for 2025 with the GPO realignment we completed back in Q3 of 2024. We continue to work on corporate contracts for services with corporate discounts, and we'll keep at it in 2025. We held costs essentially flat except for the arbitration expenses on higher volume throughout 2024 while also opening four new hospitals. In 2024, we also incorporated several new software packages, including HR and procurement software.

For 2025, we want to expand our technology with more software and AI to save costs and provider and back office time. Some of the new AI tools are showing increased promise, and our better cash flow position will allow us to pilot some of these AI agents. The latest AI for healthcare promises faster check-ins, predictive staffing, note writing for doctors and nurses, which can free them up to see more patients, optimized coding, and personalized treatment and care plans. It can also predict supply usage and optimize schedules, freeing resources for patient care and providing further cost savings. We believe we're just in the early stages of AI in healthcare and hospitals, but we believe this transition will happen fast, and we want to be an early adopter.

Lastly, one of our big competitive advantages and differentiators besides our concierge care model is that we are deeply integrated into our communities and markets. In 2024, we ramped up outreach and business development, including more health fairs, school and clinic collaborations, community events, and patient education. This visibility builds trust and relationships. When patients have an emergency in their family, they pick us because they know and trust that we'll take excellent care of them. We also get a lot of repeat visits. We have great doctors, leaders, and employees who are some of the best in healthcare. As you know, healthcare is all about people, and we believe we have the very best people, which is why our model and service continue to shape the future of healthcare. Thank you. Back to you, Jen.

Jennifer Rodriguez (Head of Investor Relations)

Thank you, Josh and team, for those updates. I'll now turn it over to our operator, Melissa, who will begin the Q&A portion of the call.

Operator (participant)

Thank you. If you'd like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star 2 if you'd 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. One moment, please, while we pull for questions. Our first question comes from the line of Bill Sutherland with The Benchmark Company. Please proceed with your question.

Bill Sutherland (Director of Research)

Thank you. Good morning, everybody. Great, great work, and the year just ended. I think on the top of everyone's mind is trying to think about your perspective about the arbitration process and just trying to get a handle on kind of what's a realistic way to think about what you can realize in the coming quarters.

Tom Vo (CEO)

Yeah. Hi, Bill. This is Tom. Great for you to join us, and thank you. Our philosophy on arbitration, and Jon, feel free to chime in, but our philosophy on arbitration is that it is a tool that we can use from the NSA, and the tool allows for us to collect a fair rate. Really, that is the main reason why we use it. A fair rate is, as Jon stated, defined as a QPA or essentially median in-network.

Really, all we want to do is just get to a median in-network, which is basically right in the middle of where we should get paid. That is basically it. As long as the No Surprises Act is still in effect, as long as arbitration is within the rules and confines of the NSA, we will continue to use it. Hopefully, long term, the insurance company will start paying us better and closer to the QPA or the median in-network rate so that we do not have to do arbitration. That is something that we are going to have to watch very closely, month by month, quarter by quarter. John, do you have anything else to add?

Jon Bates (CFO)

Absolutely. Bill, great question. What I would say is, and we've talked about this when we were finishing up, say, the third quarter, we were early, early stage in this process, not knowing exactly where we'd land. As we started to see some of these benefits happen and come through in the latter part of the fourth quarter, we're getting a better picture, at least what's happening currently. I'll still say this is very much in the early stages of this process. If you think about it, when it takes three to five months or more to get paid on something, you have to go through a pretty long process to get there. We're watching and identifying and trying to determine what the realization will be.

I feel like certainly, as we finished out the year and the financials you're seeing, we feel pretty confident in what we have in there. As things progress, just like our business prior to even getting into the arbitration business, we were always watching and seeing or estimating what we were ultimately going to get paid. When cash came in, we would adjust accordingly. I think our ability to predict was very, very good in previous years because we did have a lot more history. Now we're getting some history.

I think now we finished out the year and rolling into the first quarter, I think we'll have even more data as we go through each quarter this year. We hope that the trend that we have would continue, but there's no guarantee of that. The good news is that we feel solid about where we were at the end of the year, and we're very bullish on making sure that we're getting paid what would be the qualifying payment amount. We're watching to see if that will happen. Great question.

Bill Sutherland (Director of Research)

John, just to clarify a little bit more, the file size, if you will, that you have in the arbitration, was there a catch-up process that occurred, or is this—or should we think of it more as just an ongoing process? I know you can't talk to whatever success rates will be, but just in terms of the claims that you're going to be moving into arbitration, is it going to be at a similar pace on a go-forward basis, assuming they don't step up and start negotiating more fairly?

Jon Bates (CFO)

Yeah. That's a loaded question, a great question. I think we'll better understand that in these next couple of months as well. We still take the same approach as we look at visits visit by visit. If we don't believe that we're getting paid equitably, then we're working through the process and going through what we've described as being the arbitration process in those cases. As we mentioned back, even in the end of the third quarter and in the press release that we did a month or two ago, that 60%-70% of the billable visits that we have seems to be in line with what we're consistently so far seeing that can go into this process.

That piece for now is pretty consistent. As it changes, we would certainly let you know. I think that's one of the independent variables, right? You also have how many visits come in in general that drive up or down, and then different acuities, etc., that come into play. The answer is we see it being somewhat consistent at this point, and we'll adjust as necessary.

Bill Sutherland (Director of Research)

Okay. That's good. I'll pass it along. Thanks a lot, guys.

Tom Vo (CEO)

Thank you, Bill.

Operator (participant)

Thank you. Our next question comes in line of Carl Burns with Northland Capital Markets. Please proceed with your question.

Carl Burns (Analyst)

Thanks for the question, and congratulations on the quarter and the year. I'm wondering if you can maybe help me out a little bit with the hospital division and how you're currently recognizing revenue at the time of service, and then are you subsequently adjusting it after the IDR adjudication process is finalized. I have a follow-up as well. Thanks.

Tom Vo (CEO)

Sure. Okay. Thank you, Carl. Great question. Yeah. Jon, go ahead.

Jon Bates (CFO)

Yep. Yeah. Great question, Carl. We absolutely, as we see visits, every visit that comes in, just like we did even pre-arbitration, we would go back and analyze that specific visit and look back at similarities to that visit with adjudicated claims in previous periods and see what average reimbursement would be based on the acuity, the payer, and the location. We're continuing that exact same process, even adding this kind of new twist to it with the arbitration piece. We're doing our best to guesstimate exactly what will be realizable down the road today with a visit that walks in the door based on its similarities to a similar claim in the past and how it ultimately would get realized. As that continues to prove itself out, and that continues to feed sort of the engine and the model, it will adjust up or down based on the realization that happens.

It just takes a little bit of time for that to prove itself out. To the end of the year, to answer your question, Carl, that process was in place. To the best of our data that we had at that point, which is all the information on the wins, losses, etc., through the end of December, we were able to go back and say, "Okay, for every visit that might not necessarily have gotten through the arbitration process if it was going there, but yet we believe it will go there, or maybe it's in one stage of that process," we used our most recent data by location, as I mentioned, by acuity, by payer, and then tried to do our best to estimate exactly what we believe will happen when the ultimate realization of that receivable happens, whether it's a month, two months, or three months down the road.

Carl Burns (Analyst)

Got it. That's very helpful. Just sort of on that line, just as a follow-up, you had adjusted EBITDA in the fourth quarter of, let's just call it $94 million. I think it was $93.7 million. And for the year, it was $123.7 million. It was very loaded in the fourth quarter. How much of that would be attributable to IDR adjudication awards? Or to kind of phrase it differently, how might we look at what would a normalized adjusted EBITDA number potentially be or look like? Thanks.

Jon Bates (CFO)

Yep. I know we described, and I talked about it in my prepared comments, talking to you a little bit about how the revenue side of things played out. I would say that our best scenario or best situation right now that we would anticipate, that would follow a similar trajectory. You have even of that arbitration revenue that we recorded in the fourth quarter, and I've provided how, from a data service perspective, it related back to third quarter. Most of it was third and fourth quarter, and there was some that was prior to that period. I think on a similar percentage basis, if I were projecting, which I'm not yet, but that would be where I would see it. I don't have any other data that tells me differently, but I think based on that trending, that would be where you would see the adjusted EBITDA, whether it's for the year of next year or whether it's quarter by quarter.

Carl Burns (Analyst)

Got it. Thanks. I'll jump back in the queue.

Tom Vo (CEO)

Thanks, Carl.

Operator (participant)

Our next question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.

Anthony Vendetti (Executive Managing Director of Research)

Thank you. Just a couple of questions. Just one more on the IDR and then a couple on the hospitals. So this independent dispute resolution, this amount was all accounted for here in the fourth quarter. Do you expect it to be, as you roll through this process in 2025, do you expect it to be spread more over the quarters, or is it likely that you do this kind of calculation at the end of the year when you do the full-year audit, and it's likely to be a fourth quarter event again?

Jon Bates (CFO)

Anthony, great question. It's not a backloaded scenario. Of course, it is in 2024 only based on the data that we had and the timing that we were able to work through it. Now, as we get better and get more data, now we're working that into the models every single month. Our intent is we're doing that every single month, first quarter, second quarter, third quarter. It's not going to be necessarily at all in a backloading scenario in 2025, or excuse me, yeah, 2025. It'll be progressively updated throughout the year based on data that we have, just like we had really started to accumulate at the end of the fourth quarter.

Anthony Vendetti (Executive Managing Director of Research)

Okay. Great. No, that's helpful. Yeah. Thanks, Jon. And then just on the hospitals, you opened four in 2024. Can you talk about how that is ramping up? I know some of them aren't—they haven't hit the mature date in terms of gauging that. Can you talk about how patient volume is ramping in those hospitals? Is it fairly evenly? Is one hospital doing much better than the others? Can you talk about how that's playing out so far?

Tom Vo (CEO)

Yeah. Hi, Anthony. This is Tom. Yes, absolutely. The four hospitals that we opened up were in Green Bay, Wisconsin, Milwaukee, Wisconsin, Tampa, Florida, and Post Falls, Idaho. As you know, medicine's local. Every facility is slightly different. I would say that two of those hospitals are performing up to par and even better than expected. The other two are a little bit newer. For example, Tampa opened late December, so we don't have a lot of data on that yet. I would say half of them are performing better than expected, and the other two are performing as expected.

Anthony Vendetti (Executive Managing Director of Research)

Okay. Great. Can you provide a little more color at this point on the planned openings in 2025 as we roll through this year? What's the schedule look like for the planned 2025 openings?

Tom Vo (CEO)

Yeah. We have three hospitals that are currently under development and under construction as we speak. All three of them are scheduled to be open either third quarter or fourth quarter of this year, assuming that construction and everything else goes well.

Anthony Vendetti (Executive Managing Director of Research)

Okay. Great.

Tom Vo (CEO)

In 2026, we have probably four more after that. In 2027, I think we have a couple more. We are already working on hospital pipelines for 2028.

Anthony Vendetti (Executive Managing Director of Research)

Okay. Excellent. Just in terms of the mature hospitals in your portfolio, I know it's hard to gauge, but what is your expectation based on trends you're seeing for growth? Is it mid-single digits? Do you think you can outperform that? I know the larger hospitals, they're lucky to get—they're lucky to get low single digits. Depending on what they're doing or if they're changing specialties, sometimes they can increase that. What are you seeing, and what's your expectations for your mature hospitals?

Tom Vo (CEO)

Yeah. Great question, and I'll answer. Then Josh maybe could chime in also. We're shooting for also single digits in our volume growth year over year, which I think is doable and achievable. However, on top of that, we're not just trying to get single-digit volume. We're also growing our other service lines. For example, we're actually ramping up our specialists. We're ramping up our hospitalists so that we could admit more patients to our hospitals. The idea is using all four walls of the hospital in order to bring as much patients through, and then after that, do as much observation as we can and increase inpatient as much as we can. The only way to do that is to increase staffing and expertise so that you could treat more people and more variety of illnesses. Josh, do you have anything else to add to that?

Josh DeTillio (COO)

No, Tom. That was very well said. Increasing mature hospitals' visits, but then also the service mix is changing as well. We are expecting a great year.

Anthony Vendetti (Executive Managing Director of Research)

Okay.

Tom Vo (CEO)

Sure.

Anthony Vendetti (Executive Managing Director of Research)

Go ahead, Tom.

Tom Vo (CEO)

I'm sorry. I was going to say one more thing that is very unique to us is that since we are small, we are able to pivot to a lot of different needs. What we do is we find what the community needs, and we try to pivot to solve that need. That is the beauty of having a hospital that has pretty much all the functions of a regular hospital. I just want to say that. Every market is slightly different. We are sort of tailoring the need of that market for our hospital.

Anthony Vendetti (Executive Managing Director of Research)

Okay. Tom, you touched on an important point, right, which is for hospitals hiring not just physicians, but hospitalists or intensivists that can continue to see the patients and continue to treat the patients once they are in your setting. Are those particular specialists hard to come by? Do you have an executive recruiter or someone that helps to staff your hospitals?

Tom Vo (CEO)

The answer is yes and no. By that, what I mean is going back to the medicine is local kind of concept. A lot of the time, the specialists actually come to us because they are somehow either dissatisfied with their local hospital or they do not want to admit their patients to the local hospitals. They admit their patients to us, and we take care of them, right? That is one. In terms of using a recruiter of some type, we do have an in-house recruiting team. However, the best way that we get specialists is through a personal relationship with our local physicians. Our local physicians are all sort of like superstars of the communities that they live in. They tend to know pretty much everybody in terms of the healthcare dynamics. Through those relationships, we get a lot of specialists that want to send their patients to our hospital.

Anthony Vendetti (Executive Managing Director of Research)

That is great. Just lastly, I am going to switch back for the last question to the IDR. You said in your commentary, you said you've been submitting about 60-70% of your claims to the IDR process, and your win rate's about 80%. As you've demonstrated to these insurance companies that you're willing to, A, go through this process, and your win rate's been so high, have the insurance companies come back and said, "Okay, you know what? Going forward, we're going to start reimbursing so we don't have to go through this process"? Or are you expecting in 2025 for it to be similar in that you're still expecting to submit about 60-70% of your claims to the IDR process?

Tom Vo (CEO)

Yeah. I think the answer is that if the insurance company pays better upfront and pays close to the QPA or the median network, then we don't have to submit anything to the arbitration process. The arbitration process was designed as sort of like the last-ditch effort so that the providers like us could use it to get a fair payment. It was not designed to be the first form of payment, if that makes sense. Unfortunately, because of the way that this whole thing came about with a low payment upfront, we have to use it as a last-ditch effort. If the insurance company starts to pay better the first time or in the beginning, then we would not have to go through it.

I think that in time, and we'll see how this whole process works, I think in time, the insurance company will come around and start to pay a little bit better because if they lose 80% of the time, then that means that the expenses associated with the arbitrator are also borne by the insurance company or by the loser, right, unfortunately. I think that may be an incentive for them to come around. We'll see. I mean, I think that this is very new, like Jon said, and there are a lot of things that are uncertain at this point.

Anthony Vendetti (Executive Managing Director of Research)

Understood. Hey, that was great color. Thanks so much for all the information. Appreciate it. I'll hop back in the queue.

Tom Vo (CEO)

Thank you, Anthony.

Operator (participant)

Thank you. Our next question comes from Gene Manheimer with Freedom Capital Markets.

Gene Mannheimer (Senior Analyst)

Please proceed with your question. Hey, thanks. And good morning, everybody. Congratulations on the above-average quarter. Nicely done. Following up on Anthony's.

Tom Vo (CEO)

Thank you, Eugene.

Gene Mannheimer (Senior Analyst)

Yeah, you're welcome. Following up on Anthony's line of questioning, it sounds like then, Tom, you're going to get you're going to collect the money one way or the other, right, either through dispute or through a blanket increase in reimbursement. So we shouldn't be viewing the dispute process as an extraordinary or a one-time event, but it'll be in the course of business going forward.

Tom Vo (CEO)

Yeah, that's right. The way to think about this is that, and I think Jon spoke about this, is that the increase in the revenue for the fourth quarter was actually spanned over the third and fourth quarter when we started doing the arbitration. I'm just going to put it in very layman's terms is that we couldn't report it in the third quarter because the arbitration process was not completed yet. We didn't know how much we were going to win. The 80% win, all of that was in the fourth quarter. Once we saw that, then Jon obviously reported that in the fourth quarter, right?

The other way to think about it is that that revenue, that is revenue that we should have gotten from day one had the insurance company paid a fair rate. That revenue, in our opinion, should be the QPA because we went through a very expensive formal binding process where you have two sides sort of like arguing using the letter of the law according to the NSA.

We feel confident that that final payment is probably as close to the QPA as we think it should be, right? Going forward, to John's point, we are still going to continue to evaluate each patient and determine whether or not the payment is we think is fair according to market value. If it is fair, then we accept it. If it is not fair, then we run it through the queue, first starting with open negotiation. If that does not work, then put it through the arbitration. Once again, as I mentioned, arbitration is not cheap. It is not free. It is very expensive, time-consuming, lots of stress on our team to do it. Unfortunately, if we have to do it, we are going to have to do it.

Gene Mannheimer (Senior Analyst)

Yep. Yep. No, that all makes sense, Tom. I mean, as Jon pointed out, you recognized $70 million or $69 million from dates of service in Q4, $70 million in Q3. Is that kind of the ballpark number to think about going forward, or could there be a lot of variation around that number?

Tom Vo (CEO)

Jon, you want to tackle this?

Jon Bates (CFO)

I can speak to that. I mean, you know as well as I do that there's always going to be variation in this. In as early stages as it is, we do not know how it will translate into first or second quarter and beyond. It is starting to show a trend. That is what I would say. We are trying to look at it, and certainly, we are doing the calcs, the behind-the-scenes to come up with what the estimate should be.

Now, month by month by month, as we really were able to kind of go through the process at the end of the year based on all the data we had at that point, now we have data in January and February, and we'll have something in March or shortly. All of that will start to prove this out. I mean, the trend that we saw, as I described, the dates of service that those wins did relate to is starting to show kind of a trend. Whether that will be up or down going forward, I can't commit to that, of course. I think it's starting to give us a pattern of what we should expect.

Gene Mannheimer (Senior Analyst)

Okay. No, that's fair, Jon. Just two more from me. There was $30 million of dispute-related revenue for dates of service prior to Q3. How far back does that go? Was most of it in Q2?

Jon Bates (CFO)

Most of that is Q2. Just to remind everybody, the process started in July, but you cannot go into the open negotiations arbitration process until you get the first payment from the insurance provider or payer. In this case, you have some that were, of course, second quarter as well. You even have a couple that were in the early part of last year. One or two are a very small piece. It might have even been 2023 because it takes sometimes three, four, five months on some of these claims to get that first payment. You cannot start the process until then. Predominantly third and fourth quarter, then you have a little trickle into the second quarter. Much past that, it's pretty small into the first quarter of last year and even prior to that. It's predominantly third and fourth quarter.

Gene Mannheimer (Senior Analyst)

Got it. Thank you. Lastly, these claims that you're disputing, do they tend to be specific to certain payers, or are they across the board?

Jon Bates (CFO)

Yeah, great question. There's not a specific payer. It's pretty across the board. We're really payer-agnostic from that respect. It's more about what we believe to be the equitable QPA-type payment. It just so happens if it happens to be one payer in one location or another, it honestly does not matter. We're seeing it sort of across the board. There are some that pay a little bit better and a little bit more upfront, but generally, it's more of a pervasive situation than it is specific to one payer in one location.

Gene Mannheimer (Senior Analyst)

Very good. All right. Thanks and congrats again.

Jon Bates (CFO)

Thank you.

Operator (participant)

Thank you. Our next question is a follow-up from the line of Carl Burns with Northland Capital Markets. Please proceed with your question.

Carl Burns (Analyst)

Thanks for the follow-up. You've obviously had you're experiencing great success with increasing revenue on a per-visit basis driven by acuity and specialists and hospitalists and such. I'm wondering if you might be able to kind of quantify that in terms of a % in year-over-year increase on a normalized basis. Thanks.

Jon Bates (CFO)

Let me make sure I understand your question. Step back in if you don't mind. You're talking about year-over-year basis. Are we talking about the arbitration component relative to the non-arbitration component? What is your question again?

Carl Burns (Analyst)

No, I'm just wondering if you're able to look at the revenue per visit on a normalized basis and quantify that at all in terms of what you've been able to achieve in terms of increased acuity that would drive revenue per visit. Forgetting about, I'm just trying to look at it on a normalized basis because that's one of your initiatives is to drive acuity and various procedures that are high dollar value.

Jon Bates (CFO)

Okay. I don't know that I can speak specifically to a number that is going to be as you move forward, but I mean, you can see within the financials that's presented kind of that progression of you're asking about revenue per visit. I know it's a little backloaded into the fourth quarter, but if you look at it compared to, say, 2023, our revenue per visit, I think if you saw in the K that we filed at the end of last year was over $1,500, just maybe $1,514 a visit. If you go forward into, say, for the full year of 2024, under this scenario, it's a little under, it's around $2,600 or so. I think you have still a muddied picture of what you're looking at when it comes in there.

I think as you look forward, it's going to be somewhere in between those numbers is how we look at it at this point. We don't know exactly where that will be, but it's somewhere between where you would see for the full year of 2024 and full year of 2023 with, of course, arbitration starting mid-year of 2024.

Carl Burns (Analyst)

Got it. Thanks. Congratulations again.

Jon Bates (CFO)

Yeah. Thank you. Great question.

Operator (participant)

Thank you. Ladies and gentlemen, we've come to the end of our time allowed for questions. I'll turn the floor back to Ms. Rodriguez for any final comments.

Jennifer Rodriguez (Head of Investor Relations)

Thank you all for those valuable questions and answers. For all those joining us today, if you have more questions, please email us at [email protected], and we'll get back to you promptly. On behalf of the Nutex Management Team, thank you all for joining us for our fourth quarter and full year 2024 earnings call. We've covered a lot: growth, strategies, challenges, and our vision. We appreciate your time and interest. A recording of this call will be available on our website for a limited time, so feel free to revisit it there. Take care, everyone, and we look forward to keeping you updated on our journey.

Operator (participant)

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.