NUTX - NASDAQ

Greetings, and welcome to the Nutex Health Fourth Quarter 2024 Financial Results Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Ms. Jennifer Rodriguez, Investor Relations for Nutex's Health. Please begin.

Good morning, everyone, and welcome to Nutex Health 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, we'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 it 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, always 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.

Thank you, Jennifer, and 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 refinements and innovation as we've worked to reshape how high quality concierge level health care 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 a No Surprises Act and its arbitration process, where we've seen some positive developments. So 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 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: ER 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, and specifically 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. So 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 dispute. However, if this nonbinding open negotiation still doesn't work, then the next step would be to escalate to arbitration or the IDR process to resolve the differences. And while we've been participating in the open negotiation process since 2022, we have only started the arbitration process on roughly around July 1, 2024. The main reason that we pivoted from primarily using open negotiation which is non-binding and continuing and moving on towards 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 administration's made 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 arbitration process. It is 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. So entering into arbitration process is not a decision that would 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%. And 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% to 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% to 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% to 250% increase in reimbursement on the facility collection side compared to the initial payment. And 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. And 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 4 new hospitals opening in Green Bay, Wisconsin, Post Falls, Idaho, Milwaukee, Wisconsin and our very first hospital in Florida and 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 were 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 admission to our hospitals, increasing our revenue per patient by implementing efficient revenue cycle processes such as arbitration and mediation and maintain low cost as well as aggressive debt management and debt payback. And for those that have been in the health care industry for some time, you will know that every 5 to 7 years, there is a major disruption to our industry. That disruption for us came in 2022 with a 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. So we are very excited about the future of Nutex as we begin 2025. So with that, I'll pass to Jon Bates, our CFO, to dive further into the financials. Jon?

Thanks, Tom, and 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 taking -- been talking a little bit more about the full year of 2024. There is a lot to unpack. So let's start with the fourth quarter ended December 31, 2024, and compare those results to the same period in 2023. So for the fourth quarter of '24, 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. So of the $169.7 million arbitration revenue, $68.9 million related to dates of service for the fourth quarter of '24, $70.5 million related to dates of service for the third quarter of 2024 and $30.3 million related to dates of service for periods prior to the third quarter of 2024. So of that total revenue increase, mature hospitals, which are hospitals are open prior to December 31, 2021, and therefore, they provided two full years of comparative results, they increased their revenue by 175.6% for the fourth quarter '24 versus the fourth quarter of '23. 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 '24 versus 41,381 visits in the same period in 2023, with the mature hospitals growing at 3.1% in the fourth quarter '24 versus the fourth quarter of '23. 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 '24 from $7.1 million in a similar period in '23. Now we discussed the growth in the hospital revenue and visits that we've seen in the fourth quarter of '24. Now let us discuss the overall facility and corporate costs and the improvement in those areas. So 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 '24 versus 81.1% or about $56.5 million for the same period in '23. So of the $59.5 million increase, $57.6 million related to arbitration costs for the additional arbitration revenue booked during the period with cost of approximately $24 million related to the dates of service in the fourth quarter of '24, another $24 million related to the dates of service for the third quarter of '24, and then 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 '23, which is a whopping 973% improvement in the fourth quarter of '24 over '23. From a corporate and other cost perspective, the general and administrative expenses as a percentage of total revenue for the fourth quarter of '24 decreased to 4.9% compared to 12.2% for the fourth quarter of '23. When you look at operating income, which as you can see, includes a negative impact of $14.7 million of noncash stock-based compensation expense, for the fourth quarter [net operating] (ph) income was $114.2 million compared to an operating loss of $26 million in the fourth quarter of '23, representing a $140 million improvement quarter-over-quarter. So net income attributable to Nutex Health was $61.7 million for the fourth quarter of '24, again, including that negative impact from the stock comp expense. And the comparative net loss attributable to Nutex was $31.6 million for the fourth quarter of '23, showing a $93.3 million improvement fourth quarter '24 over the same period in '23. And we're out referencing adjusted EBITDA attributable to Nutex, it did increase $90.5 million from $3.1 million in the fourth quarter of '23 to $93.6 million in the fourth quarter of '24. Now on to the 12 months ended December of '24 compared to the 12 months ended December 31, 2023. Total revenue for the full year of '24 grew by 93.8% or $232 million to $479.9 million versus $247.6 million for the full year of '23. As mentioned previously, the arbitration process resulted in $169.7 million more in revenue in '24 versus '23, which amounted to approximately 73.1% of the $232 million of revenue increase. And as mentioned before, 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. So of the total revenue increase, mature hospitals increased their revenue by 56.6% for the year of '24 versus the same period in 2023. Talking about visits. Visits increase, as Tom mentioned earlier, by roughly 17% or 24,330 visits, up to 168,388 visits in '24 versus 144,058 visits in the same period in '23, with mature hospital visits growing at 6.5% in 2024 versus the same period in '23. Additionally, in the Population Health side it grew by 4.4% to $30.9 million in the first 12 months of '24 from $29.6 million in the same period in 2023. So in addition to the revenue and visit growth noted above, facility and corporate costs also showed improvement for the 12 months of '24 relative to '23. 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 '24 versus 86% or $212 million for the same period in 2023, a decrease of 26.9%. So 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 cost of approximately $24 million related to the dates of service for the fourth quarter, $24 million related dates for service for the third quarter and then roughly $9 million related to dates of service for the third quarter or prior. So 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 '23. A very large 464% increase for the 12 months into '24 for the same period in '23. From a corporate and other cost perspective, the G&A expenses as a percentage of total revenue for the 12 months of '24 decreased to 8.7% or $41.9 million from 13.4% or $33.2 million for the same period in '23. Operating income for the 12 months ended December '24 was a positive $130.6 million compared to an operating loss of just under $32 million for the 12 months ended '23. Net income attributable to new tax was $52.2 million for 2024 compared to that loss of $45.8 million for '23 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 '23 to $123.7 million in the first 12 months of '24. Now as Tom stated previously, we started the independent dispute resolution arbitration process in July of '24. 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 qualified payment amount on. And that QPA is defined as the median of the contracted rates the insurance plans recognized 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. So if we are unsuccessful in open negotiations and still believe we were being paid below the QPA, then we enter until the arbitration process. And with the entire process, from entering open negotiations to getting arbitration to actually getting paid by the payer, taking on average at least 3 to 5 months, we did not begin to see the wins in ultimate payments from the payers from this effort into the early part of the fourth quarter of '24. So as we finished out the year and the whole close process, we use our most recent results from the arbitration process to accrue revenue for all visits that have begun the open negotiations process at the end of the year. And as communicated previously, we have been submitting claims on the arbitration process for approximately 60% to 70% of our billable visits and achieving over an 80% win rate and that's factoring in a 70% collection rate on each win, and we continue to refine our process each period based upon the most recent detail that we have. And finally, and 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 '23. And 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 has increased to $21.9 million for the 12 months ended December of '24, 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 '23, and again, with the majority of that debt relating to equipment loans in our hospitals for such things as MRIs, x-rays, ultrasounds, CT machines, et cetera. So outside of this normal $40-plus million of bank debt type items, the only other items of material look like that on the balance sheet are liabilities related to financing and operating lease liabilities. And we talked about this a little bit in the third quarter, I wanted to reemphasize again. And so those liabilities are really just future lease payments due to our landlords on our hospital facilities. And they are 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 to 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 a corresponding of right to use liability on the balance sheet. As a result, on our balance sheet at December 31, of '24, the net asset balance for the operating and financing of our used assets amounted to $247 million, which is roughly 38% of total assets. And 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 don't view these right-of-use liabilities is 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 Population Health update. Warren?

Thank you, John, 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 health care. In 2024, we made strides in this area, and I'm excited to share the progress, the strategies driving it and our plans to keep pushing forward. This isn't just about numbers or operations, it's about improving patient care, reducing disparities and creating a health care 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 IPA. 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 are 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 are 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 1 or 2 more markets in the pipeline. Why Phoenix and Dallas? They are growing regions with health care gaps we can fill, and our hospital presence there gives us a head start. This isn't random expansion. It is deliberate building on our strengths to maximize impact. By 2026, these new IPAs will broaden our patient base and deepen our influence on local health care delivery. Coordinating large physician networks takes effort aligning incentives, standardizing care and managing data across systems. There is a lot of competition, and we are 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 are not just talking the talk. In 2026, we plan to scale this, refine it and keep proving the 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?

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 health care 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 is 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 health care promises faster check-ins, predictive staffing, note writing for doctors and nurses, which can free them up to see more patients, optimize 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 are just in the early stages of AI in health care 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 and their family, they pick us because they know and trust will 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 health care. As you know, health care is all about people, and we believe we have the very best people, which is why our model and service to continue to shape the future of health care. Thank you. Back to you, Jen.

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

[Operator Instructions] Our first question comes from the line of Bill Sutherland with The Benchmark Company. Please proceed with your question.

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

Yeah, hi, Bill, this is Tom. Great for you to join us and thank you. So our philosophy on arbitration, and Jon, feel free to chime in. But our philosophy and 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. And really, that is the main reason why we use it. And a fair rate is, as Jon stated, is defined as the QPA or essentially median in network. And 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. And that's basically it. And so as long as the No Surprises Act is still in effect, as long as arbitration is within the rules and confines of NSA, we will continue to use it. And 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 don't have to do arbitration. But that's something that we're going to have to watch very closely month by month, quarter by quarter. Jon, do you have anything else to add?

Absolutely. And 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 would land. And as we started to see some of these benefits happen and come through in the latter part of the fourth quarter, we are getting a better picture at least what's happening currently. But I'll still say this is very much in the early stages of this process. If you think about it, when it takes 3 to 5 months or more to get paid on something, you have to go through a pretty long process to get there. So we are watching and identifying and trying to determine what the realization will be. And 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. But 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 ultimately get paid. And then when cash came in, we would adjust accordingly. And I think our ability to predict was very, very good in previous years because we didn't have a lot more history. And so now we're getting some history, and 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, so we hope that it will -- the trend that we have would continue, but there is no guarantee of that. But the good news is we feel solid about where we were at the end of the year, and we're very bullish on making sure that we are getting paid what would be the qualified payment amount, and we're watching to see if that will happen. It's a great question.

So Jon, so just to clarify a little bit more, the file size, if you will, that you have in the arbitration is -- was it like a catch-up process that occurred? Or is this -- or we should think of it more 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?

Yes, that's a very -- that's a loaded question, a great question. And I think we'll better understand that in these next couple of months as well. But we still take the same approach on -- as we look at its visit by visit, if we don't believe that we are getting paid equitably then we're working through the process and going through what we 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, and that 60% to 70% of the visits -- billable visits that we have seems to be in line with what we're consistently so far seeing that can go into this process. So that piece for now is pretty consistent, if it changes we would certainly let you know. But I think that's one of the independent variables, right? Then you also have how many visits come in, in general that drive up or down and then different acuities, et cetera, that come into place. So the answer is we see it being somewhat consistent at this point, and we'll adjust as necessary.

Okay, that’s good. I’ll pass along. Thanks a lot guys.

Thanks Bill.

Our next question comes from the line of Carl Byrnes with Northland Capital Markets. Please proceed with your question.

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 are currently recognizing revenue at the time of service? And then are you subsequently adjusting it after the IDR adjudication process is finalized? And then I have a follow-up as well. Thanks.

Jon, go ahead.

Yes. Great question, Carl. So 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 its 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. And so we are continuing that exact same process even adding this kind of new twist to it with the arbitration piece. And so we are 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 claim -- similar claim in the past and how it ultimately would get realized. So as that continues to prove itself out and that continues to feed sort of the engine and the model, and so 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. But -- so through the end of the year, to answer your question Carl, so that process was in place and to the best of our data that we have at that point, which is all the information on the wins, losses, et cetera, 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 try 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.

Got it. That's very helpful. And then just sort of on that line, just as a follow-up. You had adjusted EBITDA in the fourth quarter, let's just call it, $94 million. I think it was $93.7 million. And for the year, it was $123.7 million. So it is 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.

Yes. So 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. And I would say that our best scenario or best situation right now that we would anticipate that would follow a similar trajectory. So you have even of that arbitration revenue that we recorded in the fourth quarter and have provided how, from a data service perspective, it related back to the third quarter, it is really -- most of it was third and fourth quarter, and there was some that was prior to that period. So I think on a similar percentage basis, I would -- 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 is for the year of next year or whether it's quarter-by-quarter.

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

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

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 '25, 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?

Anthony, great question. And it is 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. So now as we get better and get more data, so now we are working that into the models every single month. So our intent is we are doing that every single month, first quarter, second quarter, third quarter. So it's not going to be necessarily at all in a backloading scenario in 2025 -- or excuse me, 2025. It will 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.

Great. That's helpful. Thanks Jon. And then just on the hospital. So 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. But 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?

Yes. Anthony, this is Tom. So yes, absolutely. So the four hospitals that we opened up were in Green Bay, Wisconsin; Milwaukee, Wisconsin; Tampa, Florida; and Post Falls, Idaho. And as you know, medicine is local every facility is slightly different. But I would say that two of those hospitals are performing up to par and even better than expected. And then the other two are a little bit newer, like, for example, Tampa opened late December, so we don't have a lot of data on that yet. But I would say half of them are performing better than expected and the other two are performing as expected.

Okay. Great. And then can you provide a little more color at this point on the planned openings in '25 as we roll through this year, what's the schedule look like for the planned '25 openings?

Yes. So we have three hospitals that are currently under development and under construction as we speak. And 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. And then '26, we have probably four more after that. And then '27, I think we have a couple more and then we're already working on hospital pipelines for 2028.

Okay. Excellent. And then 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? Because I know the larger hospitals, they're lucky to get low single digits depending on what they are doing or if they're changing specialty, sometimes they can increase that. But what are you seeing? And what's your expectations for your mature hospitals?

Yes. So great question, and I'll answer, and then Josh, maybe you could chime in also. So we're shooting for also single digits in our ER 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 ER volume. We're also growing our other service lines. So for example, we are actually ramping up our specialists. We're wrapping up our hospitalist so that we could admit more patients to our hospitals. So the idea of using all four walls of the hospital in order to bring as much patients through the ER and then after that, do as much observation as we can, and increase inpatient as much as we can. And 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?

No, Tom, that was very well said, increasing mature hospital ER visits, but then also the service mix is changing as well. So we're expecting a great year.

Okay. And then – sure --.

I'm sorry. I was going to say one more thing that is very unique to us is that since we're small, we're able to pivot to a lot of different needs. And so what we do is we find what the community needs, and we try to pivot to solve that need. And so that's the beauty of having a hospital that has pretty much all the functions of a particular hospital. So I just want to say that. And so every market is slightly different. And so we're sort of like tailor the need of that market for our hospital.

Okay. And Tom, you touched on an important point, right, which is for hospitals hiring not just ER 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? And do you have an executive recruiter or someone that helps to staff your hospitals?

The answer is yes and no. So 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 don't want to admit their patients to the local hospitals and so they admit their patients to us and we take care of them, right? So that's one. And then 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 are through personal relationship with our local physicians. And so our local physicians are all sort of like superstars of the communities that they live in. And so they tend to know pretty much everybody in terms of the health care dynamics. And so through those relationships, we get a lot of specialists that want to send their patients to our hospital.

That's great. And then just lastly, I want to switch back for the last question to the IDR. So you've been -- in your commentary, you said you've been submitting about 60% to 70% of your claims to the IDR process and your win rate is about 80%. As you've demonstrated to these insurance companies that you are willing to, a, go through this process and your win rate has 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 '25 for it to be similar in that you're still expecting to submit about 60% or 70% of your claims to the IDR process?

Yes. I think the answer is that if the insurance company pay better upfront and pay close to the QPA or the median in network, then we don't have to submit anything to the arbitration process. And by the way, 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 wasn't designed to be the first form of payment, if that makes sense. But 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. But if the insurance company starts to pay better at the first time or in the beginning, then we wouldn't have to go through it. And so 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 arbitrator is also borne by the insurance company or by the loser, right unfortunately. And so I think that may be an incentive for them to come around. But we'll see. I mean, I think that this is very new, like Jon said, and there is a lot of things that is uncertain at this point.

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

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

Hi, thanks and good morning everybody. Congratulations on the above-average quarter, nicely done. 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 extraordinary or one-time event, but it will be in the course of business going forward.

Yes, that's right. So 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. And so -- and I'm just going to put in a very layman's term is that we can't report it in the third quarter because the arbitration process was not completed yet. And so we didn't know how much we were going to win. So the 80% win that was -- all that was in the fourth quarter. And so once we saw that, then Jon obviously reported that in the fourth quarter, right? So -- and so 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. And so that revenue in our opinion, should be the QPA because we went through a very expensive formal binding process where you have two sides or like arguing, using the letter of the law, according to the NSA. And so we feel confident that, that final payment is probably as close to the QPA as we think it should be, right? So going forward, to Jon's point, we are still going to continue to evaluate each patient and determine whether or not the payment is, we think it's fair, according to market value. And if it is fair that we accept it. If it is not fair, then we run it through the queue, first starting with open negotiation. And then if that doesn't work, then put in them through the arbitration. But once again, as I mentioned arbitration is not cheap. It's not free. It's very expensive, time consuming, lots of stress on our team to do it. But unfortunately, we have to do it. We're going to have to do it.

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

Jon, do you want to tackle this?

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 stage as it is. We do not know what is -- how it will translate into first or second quarter and beyond, but it's starting to show a trend. That's what I would say. And we're 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 of the data we had at that point. Well, now we have data in January and February, and we'll have something in March shortly. So all of that will start to prove this out. But 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 cannot commit to that, of course. But I think it is starting to give us a pattern of what we should expect.

Okay. No, that's fair, John. And just two more from me. So there was $30 million of dispute-related revenue for dates of service prior to Q3. How far back does that go? Was that in Q2?

Most of that is Q2. But there are -- just to remind everybody, the process started in July, but you don't -- you can't go into the open negotiations arbitration process until you get the first payment from the insurance provider or payer. In this case -- so you have some that were, of course, second quarter as well. You even have a couple that were even in the early part of last year, 1 or 2 a very small piece that might have even been 2023 because it takes sometimes 3, 4, 5 months on some of these claims to get that first payment. And you can't start the process until then. But predominantly third and fourth quarter. Then you have a little trickle into the second quarter. Much past that, it is pretty small into the first quarter of last year and even prior to that. So it's predominantly third and fourth quarter.

Got it. Thank you. And lastly, these claims that you are disputing, do they tend to be specific to certain payers? Or are they across the board?

Yes, great question. There's not a specific payer. It is pretty across the board. And it's not -- we're really payer agnostic from that respect. It's more about what we believe to be the equitable QPA-type payment. And then just so happens if it happens to be one payer in one location or another, it honestly does not matter. And we are 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.

Very good. All right. Thanks and congrats again.

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

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

Let me make sure I understand your question, step back if you don't mind. So 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?

No, I'm just -- I'm 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 volume?

Okay. Well, 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. So I know it's a little backloaded into the fourth quarter. But if you look at it compared to, say '23, 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. And then if you go forward into, say, for the full year of '24 under this scenario, it's a little under -- it's around $2,600 or so. And I think you have still a muddied picture of what you're looking at when it comes in there. So I think as you look forward, it's going to be somewhere in between those numbers is my -- is how we look at it at this point. We don't know exactly where that will be. But it's somewhere between what you would see for the full year '24 and full year of '23 with of course, arbitration starting midyear of '24.

Got it. Thanks. Congratulations again.

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

Thank you all for the valuable questions and answers. For all those joining us today, if you have more questions, please e-mail 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, strategy, challenges and our vision, and 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.