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Rennova Health, Inc. (RNVA)·Q2 2018 Earnings Summary

Executive Summary

  • Q2 revenue inflected with hospital scale: Net revenues rose to $3.29M from $1.60M in Q1 and $0.07M in Q2’17 as the second rural hospital (Jamestown) closed on June 1 and began contributing; operating loss narrowed sequentially, but reported net income was driven by non-cash derivative fair‑value gains and a bargain purchase gain .
  • Quality of earnings is low: A $44.16M non‑cash gain from revaluation of derivative instruments and a $7.73M bargain purchase gain masked an underlying operating loss; interest expense remained heavy at $4.45M in Q2 .
  • Liquidity is critical: Cash was $7k at quarter-end with a $123.9M working capital deficit and $102.94M in current derivative liabilities; fixed monthly cash costs run ~$2.4–$2.9M .
  • Outlook catalysts: Jamestown CHOW approved; management expects Jamestown to add ~$1.2–$1.5M collectible revenue per month and both hospitals to contribute >$2M/month when fully ramped; a new 64‑slice CT at Oneida targeted to drive incremental revenue .
  • Estimates context: No S&P Global consensus estimates available for RNVA; comparisons to Street are not included (coverage likely limited for this OTC microcap).

What Went Well and What Went Wrong

  • What Went Well

    • Hospital-driven top-line acceleration: “increase our quarterly revenues to approximately $3.3 million” as Big South Fork (opened Aug-2017) and Jamestown (acquired Jun-1) contributed .
    • Positive inorganic value capture: $7.73M bargain purchase gain recognized on Jamestown real property .
    • CMS/CHOW milestones and revenue ramp readiness: Jamestown CHOW and provider tie‑in approved June 29; billing started and “first collections in a matter of weeks” expected .

  • What Went Wrong

    • Earnings quality/volatility: Reported $45.46M net income from continuing ops driven primarily by a $44.16M derivative fair‑value revaluation, not operating strength .
    • Liquidity strain: $7k cash, $123.9M working capital deficit; “cash position is critically deficient and payments…are not being made in the ordinary course”; monthly fixed costs ~$2.4–$2.9M .
    • Lab segment softness: Hospital growth “offset by a $0.7 million decrease in Clinical Laboratory Operations revenue” vs Q2’17; Sales & marketing expense fell to zero reflecting retrenchment .

Financial Results

Multi-period comparison (oldest → newest)

MetricQ3 2017Q1 2018Q2 2018
Net Revenues ($)$1,400,000 $1,601,661 $3,292,217
Loss from Continuing Ops before Other/Taxes ($)$(5,200,000) $(3,712,024) $(2,393,385)
Net Income (Loss) from Continuing Ops ($)$(10,500,000) $(146,786,377) $45,464,498
Basic EPS – Continuing Ops ($)$(10.90) $(0.66) $0.06
Interest Expense ($)$5,300,000 $3,307,014 $4,446,090
Change in Fair Value of Derivative Instruments ($)N/A$(139,779,232) $44,162,579
Bargain Purchase Gain ($)——$7,732,302

Q2 year-over-year and sequential context (oldest → newest)

MetricQ2 2017Q1 2018Q2 2018
Net Revenues ($)$74,565 $1,601,661 $3,292,217
Loss from Continuing Ops before Other/Taxes ($)$(3,915,063) $(3,712,024) $(2,393,385)
Net Income (Loss) from Continuing Ops ($)$(10,000,288) $(146,786,377) $45,464,498
Basic EPS – Continuing Ops ($)$(19.75) $(0.66) $0.06
Interest Expense ($)$6,135,982 $3,307,014 $4,446,090

Notes:

  • Revenue recognition under new rules (ASC 606): Bad debts are treated akin to contractual adjustments and reduce revenue; Q2 included a $895k reserve against $5.8M sales; Q1 included a $591k reserve against $2.19M sales .
  • Final Q2 net revenues ($3.29M) were below prelim indication ($3.42M) as the company “continues to take a conservative position on revenue recognition” .

Segment and KPIs

  • Segment commentary (quantitative detail not fully disclosed in release): Q2 revenue growth was “due to revenue from Jamestown Regional Medical Center… and Big South Fork Medical Center”; Clinical Lab Ops revenue declined ~$0.7M YoY; no quarterly segment P&L was provided in the 8‑K .
KPIQ1 2018Q2 2018
Cash and Equivalents ($)$35,096 $7,058
Working Capital Deficit ($)$174,800,000 $123,900,000
Derivative Liabilities – Current ($)$152,423,375 $102,940,555
Accounts Receivable, net ($)$1,101,758 $2,920,100
Fixed Operating Cash Costs per Month ($)~$1.5–$2.0M ~$2.4–$2.9M
Bad Debt Reserve in Quarter ($)$591,323 $895,000

Guidance Changes

Metric/ItemPeriodPrevious GuidanceCurrent Guidance/CommentaryChange
Jamestown monthly collectible revenue contributionH2 2018 onwardN/A~$1.2–$1.5M per month expected Initiated
Combined hospitals monthly sales revenue (at full operation)Ramp to full run-rateN/A“contribute in excess of $2 million a month” Initiated
Spin‑out of AMSG and HTS2H 2018Expected Q3 2018 completion “intend to complete in the second half of 2018” Slight delay/clarified window
Capex – 64‑slice CT installation (Oneida)July 2018N/A“installed and in operation before the end of July” Initiated
Revenue recognition approach for hospitalsOngoingConservative (start-up) Maintain conservative recognition until adequate collection history Maintained

Earnings Call Themes & Trends

No Q2 2018 earnings call transcript was found; themes are drawn from company press releases.

TopicPrevious Mentions (Q3 2017)Previous Mentions (Q1 2018)Current Period (Q2 2018)Trend
Rural hospital expansionOneida opened Aug-2017; plans for second hospital; predictable revenue focus Second hospital acquisition confirmed; expand services/beds Jamestown closed Jun‑1; management team enhanced; exploring further acquisitions Execution progressing
CMS/CHOW and collectionsCMS certification for Oneida in Oct-2017; awaiting first payments —Jamestown CHOW approved Jun‑29; billing started; first collections expected in weeks Positive milestone
Revenue recognition conservatismStartup collection % assumptions; expect to increase with evidence ASC 606; bad debts reduce revenue; conservative reserves Maintain conservative stance during startup; reserved $895k Continuing
Liquidity and financingOngoing financing needs; costs reduced $3.0M proceeds; critical cash position disclosed Cash critically deficient; further private placements; high fixed costs Persistent risk
Lab segment repositioningReduce headcount; expand beyond toxicology Continued repositioning; lab revenue modest Lab revenue down ~$0.7M YoY; focus on hospitals Mixed
Corporate actions (spin‑offs)Planned AMSG spin; later HTS spin Proceeding with AMSG/HTS spin‑outs Target completion in 2H18 Advancing

Management Commentary

  • “The second quarter saw us crossing a significant milestone in our efforts to regrow Rennova’s business opportunities and revenues… Completion of the acquisition of a second hospital demonstrates our capability to grow the business in this sector” – Seamus Lagan, CEO .
  • “We remain confident that our two hospitals will be profitable and contribute in excess of $2 million a month to sales revenue in full operation” – Seamus Lagan, CEO .
  • “Our second hospital acquisition confirms our determination to expand our business model into a sector where the provision of needed services is less reliant on an expensive sales strategy and more reliant on management of inherently predictable revenues and related costs” – Seamus Lagan, CEO .

Q&A Highlights

No Q2 2018 earnings call transcript was available; no Q&A to summarize.

Estimates Context

  • S&P Global consensus estimates were not available for RNVA at the time of review; therefore, no comparisons to Street revenue or EPS are included.
  • The company’s own preliminary Q2 net revenue indication (~$3.42M) was revised to reported net revenues of $3.29M in the 8‑K as conservative revenue recognition and bad debt reserves were applied .

Key Takeaways for Investors

  • Top-line is ramping as hospital assets scale, but underlying operations remain loss-making and earnings are highly distorted by non‑cash derivative revaluations and a one‑time bargain purchase gain .
  • Liquidity risk is acute (cash $7k; $123.9M working capital deficit; high fixed monthly burn), making near‑term collections from Jamestown, additional financings, or asset actions critical catalysts .
  • Revenue recognition remains conservative during hospital start‑ups; expect volatility between preliminary indications and reported revenues until sufficient collections history accrues .
  • Management’s outlook implies a potential >$2M/month revenue run-rate from two hospitals at full operation; monitoring payer mix (Medicare/Medicaid >60% at Jamestown) and reimbursement dynamics is key to gross-to-net outcomes .
  • Balance sheet complexity (large derivative liabilities; ongoing convertibles; share authorization increased to 3B) creates dilution and volatility risk that can overwhelm fundamentals near term .
  • Near-term tactical watch items: evidence of Jamestown collections, Oneida CT scanner revenue uplift, sequenced reduction in derivative liabilities/interest expense, and any progress on AMSG/HTS spin‑outs .

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