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Rennova Health, Inc. (RNVA)·Q3 2018 Earnings Summary

Executive Summary

  • Q3 revenue rose to $5.0M, up sharply YoY on the first full quarter from Jamestown Regional Medical Center; net income of $97.4M was driven by a non‑cash $109.3M gain from revaluing derivative instruments rather than core operations .
  • Hospitals’ cash collections reached ~$2.0M in September and ~$2.1M in October, with management targeting ~$2.5M/month exiting 2018; labs revenue declined by ~$0.7M YoY, partially offsetting hospital gains .
  • Liquidity remains stressed (no cash on hand at quarter‑end; working capital deficit ~$30M) and fixed opex ran ~$2.6M/month in Q3, underscoring the need for continued financing and collections ramp .
  • Corporate actions included increasing authorized common shares to 10B (Sept 18) and a 1‑for‑500 reverse split effective Nov 12; management progressed a planned spin‑out of Health Technology Solutions with a Form 10 expected before year‑end 2018 .

What Went Well and What Went Wrong

What Went Well

  • Revenue momentum: net revenues increased to $5.0M, benefiting from the first full quarter of Jamestown; management said, “The third quarter demonstrates progress… and further solidifies the foundation for further growth” .
  • Collections inflecting: hospitals delivered increased cash collections of ~$2.0M (Sep) and ~$2.1M (Oct), supporting the ~$2.5M/month target exiting 2018 .
  • Non‑cash tailwinds: recognized a $109.3M gain from derivative revaluation, producing $97.4M net income from continuing operations for the quarter .

What Went Wrong

  • Core profitability still negative: loss from continuing operations before other income/expense was $(2.8)M in Q3; interest expense was $9.3M, reflecting heavy financing costs .
  • Liquidity constraints: zero cash at quarter‑end, ~$30.0M working capital deficit, and ~$2.6M/month fixed opex during Q3 .
  • Mix pressure in legacy business: Clinical Laboratory Operations revenue fell by ~$0.7M YoY, partially offsetting hospital revenue growth .

Financial Results

Consolidated P&L trend (oldest → newest)

MetricQ1 2018Q2 2018Q3 2018
Net Revenues ($)$1,601,661 $3,292,217 $5,039,112
Loss from Cont. Ops before OI&E and taxes ($)$(3,712,024) $(2,393,385) $(2,815,575)
Change in Fair Value of Derivative Instruments ($)$(139,779,232) $44,162,579 $109,305,331
Interest Expense ($)$(3,307,014) $(4,446,090) $(9,322,333)
Net Income (Loss) from Continuing Ops ($)$(146,786,377) $45,464,498 $97,356,081
Basic EPS – Net (Total) ($)$(0.66) $0.06 $14.33
Diluted EPS – Net (Total) ($)$(0.66) $0.00 $(0.08)

YoY comparison

MetricQ3 2017Q3 2018YoY Δ
Net Revenues ($)$810,088 $5,039,112 +$4,229,024
Net Income (Loss) from Continuing Ops ($)$(9,817,278) $97,356,081 +$107,173,359

Operating metrics and balance sheet highlights

MetricQ3 2018
Direct Costs of Revenue ($)$3,350,286
General & Administrative ($)$4,348,818
Cash (end of period)$0
Working Capital Deficit ($)~$30,000,000
Stockholders’ Deficit ($)~$30,134,730
Fixed Operating Expenses per Month (Q3)~$2.6M

KPIs and operating cadence

KPIQ3 2018 / Recent
Hospitals Cash Collections (Sep)~$2.0M
Hospitals Cash Collections (Oct)~$2.1M
Targeted Collectible Revenue (Exit 2018)~$2.5M/month
Expected Jamestown Monthly Collectible~$1.2–$1.5M/month

Note: Segment revenue detail (Hospitals vs. Clinical Labs) was discussed qualitatively but not provided as a numeric split; management cited a ~$0.7M YoY decline in Clinical Laboratory Operations revenue offset by hospital growth .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Collectible Revenue (Hospitals)Exit 2018“In excess of $2M/month” (Q2 commentary and preliminary updates) Targeting ~$2.5M/month; Sep ~$2.0M, Oct ~$2.1M actual collections Raised
Jamestown ContributionOngoingExpected ~$1.2–$1.5M/month (post-acquisition) Reiterated ~$1.2–$1.5M/month Maintained
HTS Spin‑out (Form 10)By YE 2018“Intend to complete in H2 2018” “File Form 10 before year‑end” Clarified timing
Hospital ProfitabilityNear‑term“We expect hospitals will be profitable and cash flow positive” (prelim Q3 update) Reiterated expectation alongside improving collections Maintained

Earnings Call Themes & Trends

No Q3 2018 earnings call transcript was available in our document set; themes below reflect disclosures across Q1–Q3 press releases.

TopicPrevious Mentions (Q2, Q1)Current Period (Q3)Trend
Hospital expansion/integrationClosed Jamestown acquisition; CHOW completed; expecting more significant contribution; exploring further acquisitions First full quarter contribution; exploring additional acquisitions in same geography Improving
Revenue recognition/bad debt policyConservative stance during startup; bad debts reduce revenue under ASC 606 ~$(1.8)M bad debt elimination in Q3; ongoing refinement as history accrues Stable/conservative
Liquidity/financingRaised $3.0–$5.5M convertible notes; severe liquidity constraints in Q1/Q2 Raised $2.5M notes in Q3; still no cash on hand; WC deficit ~$30M Mixed: financing raised but liquidity tight
Corporate actions (shares/split)Authorized shares increased to 3B (May) Authorized shares increased to 10B (Sep); 1‑for‑500 reverse split (Nov 12) Active balance‑sheet actions
Spin‑outs (HTS/AMSG)Progressing spin‑outs; intended completion H2 2018 HTS audit engaged (Aug 27); Form 10 expected by YE Advancing
Equipment/capex for service expansionOrdered new 64‑slice CT for Oneida to drive revenue (installed by late July) No new capex disclosed in Q3 PR; collections improving Stabilizing
Non‑cash derivative impactsLarge negative change in Q1; positive in Q2 Large positive change driving net income in Q3 Volatile/beneficial in Q3

Management Commentary

  • “We believe the third quarter demonstrates progress in keeping with our expectations on many fronts in our business plan and strategy and further solidifies the foundation for further growth throughout the remainder of 2018 and beyond.” — Seamus Lagan, CEO .
  • “We will monitor and refine our revenue recognition policy as we have adequate history to better confirm our collection rate… We believe this will lead to a reduction in the number we currently use.” .
  • “September and October 2018, the hospitals have delivered an increased cash collection of approximately $2 million and $2.1 million per month respectively, supporting our expectations.” .
  • “We continue to enhance our management team with specific expertise and experience in the Hospital sector and continue to explore further acquisitions… in the same general geographic location as our current hospitals.” .
  • “We have taken the necessary steps to create adequate authorized shares and reduce the derivative liability on our balance sheet and as a result have recognized a gain of $109 million in the third quarter…” .

Q&A Highlights

  • No Q3 2018 earnings call transcript was available; the company’s press releases provided clarifications on collections cadence, conservative revenue recognition, financing activity, and anticipated HTS spin‑out timing .

Estimates Context

  • S&P Global consensus estimates were not available for RNVA for Q3 2018 (no CIQ mapping/coverage identified). As a result, no formal beat/miss vs. Street can be assessed for revenue or EPS this quarter.

Key Takeaways for Investors

  • Revenue trajectory is improving as hospital operations scale (Q1: $1.6M → Q2: $3.3M → Q3: $5.0M), but core operations remain loss‑making pre‑other‑income .
  • Collections momentum (Sep ~$2.0M, Oct ~$2.1M) underpins management’s ~$2.5M/month exit‑2018 target; watch for sustained run‑rate and conversion of billed revenue to cash .
  • Q3 profitability was driven by a non‑cash derivative revaluation gain; earnings quality is low, and interest expense remains elevated ($9.3M in Q3) .
  • Liquidity is a critical risk (no cash on hand; ~$30M WC deficit); continued reliance on external financing and working capital management is likely near‑term .
  • Corporate actions (10B authorized shares; 1‑for‑500 reverse split) and planned HTS spin‑out signal ongoing balance sheet and portfolio restructuring; execution and market reception are key .
  • Mix shift from Clinical Labs to Hospitals continues (labs down ~$0.7M YoY), reinforcing the importance of hospital integration, payer mix management, and service line expansion to drive durability .
  • Near‑term trading likely hinges on updates to hospital collections, any additional acquisitions, and progress on the HTS Form 10 filing; absent Street coverage, liquidity headlines may amplify volatility .

Appendix: Additional Reference Tables

Balance sheet snapshot

MetricDec 31, 2017Jun 30, 2018Sep 30, 2018
Total Assets ($)$6,290,794 $16,246,245 $19,432,784
Total Liabilities ($)$41,068,961 $138,320,808 $39,768,064
Stockholders’ Deficit ($)$(40,613,461) $(129,945,975) $(30,134,730)

Corporate actions timeline

  • Authorized common shares increased to 10,000,000,000 on Sept 18, 2018 .
  • 1‑for‑500 reverse split effective Nov 12, 2018; all share and per‑share amounts restated accordingly .

Prior quarter updates (for trend context)

  • Q2 revenue $3.3M; one month of Jamestown; bargain purchase gain $7.7M; severe liquidity constraints and high derivative liabilities .
  • Q1 revenue $1.6M; conservative bad‑debt under ASC 606; significant derivative liability increase drove large loss; liquidity severely constrained .