Nutex Health Inc. (NUTX) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to assist you in understanding our results of operations and our present financial condition and contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. We caution you that our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences are discussed elsewhere in this Annual Report, particularly in the “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors,” all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

Explanatory Note

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On April 1, 2022, Nutex Health Holdco LLC merged with Clinigence Holdings, Inc., a publicly traded Delaware corporation, which was renamed Nutex Health Inc. after the merger. Immediately prior to the merger, holders of 84% of the aggregate equity interests in subsidiaries and affiliates of Nutex Health Holdco LLC contributed these ownership interests to Nutex Health Holdco LLC in exchange for Nutex Health Holdco LLC equity interests. Immediately thereafter, in the merger, each unit representing an equity interest in Nutex Health Holdco LLC was converted into the right to receive shares of common stock of Clinigence Holdings, Inc. (n/k/a Nutex Health, Inc.).

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The Merger was accounted for as a reverse business combination under U.S. GAAP. Therefore, Nutex Health Holdco LLC was treated as the accounting acquirer in the merger. Beginning with the second quarter of 2022, our financial statements are presented on a consolidated basis and include Clinigence.

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Except where the context indicates otherwise, (i) references to “we,” “us,” “our,” or the “Company” refer, for periods prior to the completion of the merger, to Nutex Health Holdco LLC and its subsidiaries, (ii) references the “Nutex Health” for periods following the completion of the merger, refer to Nutex Health Inc. and its subsidiaries and (ii) references to “Clinigence” refer to Clinigence Holdings, Inc. and its subsidiaries prior to the completion of the merger.

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Overview

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Nutex Health Inc. is a physician-led, healthcare services and operations company with 24 hospital facilities in 11 states (hospital division), and a primary care-centric, risk-bearing population health management division. Our hospital division implements and operates innovative health care models, including micro-hospitals, specialty hospitals and hospital outpatient departments (“HOPDs”). The population health management division owns and operates provider networks such as independent physician associations (“IPAs”) and offers a cloud-based proprietary technology platform to IPAs which aggregates clinical and claims data across multiple settings, information systems and sources to create a holistic view of patients and providers.

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At December 31, 2024, we employed approximately 800 full-time employees, contracted 255 doctors at our facilities and partnered with over 2,100 physicians within our networks. Our corporate headquarters is based in Houston, Texas. We were incorporated on April 13, 2000 in the state of Delaware.

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Our financial statements present the Company’s consolidated financial condition and results of operations including those of majority-owned subsidiaries and variable interest entities (“VIEs”) for which we are the primary beneficiary.

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The hospital division includes our healthcare billing and collections organization and hospital entities. In addition, we have financial and operating relationships with multiple professional entities (the “Physician LLCs”) and real estate entities (the “Real Estate Entities”). The Physician LLCs employ the doctors who work in our hospitals. These entities are consolidated by the Company as VIEs because they do not have significant equity at risk, and we have historically provided support to the Physician LLCs in the event of cash shortages and received the benefit of their cash surpluses.

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The Real Estate Entities own the land and hospital buildings which are leased to our hospital entities. The Real Estate Entities have mortgage loans payable to third parties which are collateralized by the land and buildings. We consolidate the Real Estate Entities as VIEs in instances where our hospital entities are guarantors or co-borrowers under their outstanding mortgage loans. Since the second quarter of 2022, we deconsolidated 18 Real Estate Entities after the third-party lenders released our guarantees of associated mortgage loans, leaving three Real Estate Entities as current VIEs consolidated in our financial statements.

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The Company has no direct or indirect ownership interest in the Physician LLCs or Real Estate Entities, so 100% of the equity for these entities is shown as noncontrolling interest in the consolidated balance sheets and statements of operations.

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The population health management division includes our management services organizations. In addition, AHISP, IPA, a physician-affiliated entity that is not owned by us—is consolidated as a VIE of our wholly-owned subsidiary AHP since we are the primary beneficiary of their operations under AHP’s management services contracts with them.

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Sources of revenue. Our hospital division recognizes net patient service revenue for contracts with patients and in most cases a third-party payor (commercial insurance, workers compensation insurance or, in limited cases, Medicare/Medicaid).

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We receive payment for facility services rendered by us from federal agencies, private insurance carriers, and patients. The Physician LLCs receive payment for doctor services from these same sources. On average, greater than 90% of our net patient service revenue is paid by insurers, federal agencies, and other non-patient third parties. The remaining revenues are paid by our patients in the form of copays, deductibles, and self-payment. We generally operate as an out-of-‎network provider and, as such, do not have negotiated reimbursement rates with insurance ‎companies.

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The following tables present the allocation of the transaction price with the patient between the primary patient classification of insurance coverage:

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The population health management division recognizes revenue for capitation and management fees for services to IPAs. Capitation revenue consists primarily of capitated fees for medical services provided by physician-owned entities we consolidate as VIEs. Capitated arrangements are made directly with various managed care providers including HMOs. Capitation revenues are typically prepaid monthly to us based on the number of enrollees selecting us as their healthcare provider. Capitation is a fixed payment amount per patient per unit of time paid in advance for the delivery of health care services, whereby the service providers are generally liable for excess medical costs. We receive management fees that are based on gross capitation revenues of the IPAs or physician groups we manage.

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Our growth strategy. We plan to expand our operations by expanding our clinical services at our existing facilities, by entering new market areas either through development of new hospitals, formation of new IPAs or by making acquisitions. We expect to open three new hospital facilities by the end of the year 2025. These facilities are either under construction or in advanced planning stages. We anticipate launching one-to-three additional IPAs per year, principally in geographic areas around our existing micro-hospitals.

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Industry Trends

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The demand for healthcare services continues to be impacted by the following trends:

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The healthcare industry, particularly emergency care hospitals, continues to be subject to ongoing regulatory uncertainty. Changes in federal or state healthcare laws, regulations, funding policies or reimbursement practices, especially those involving reductions to government payment rates or limitations on what providers may charge, could significantly impact future revenue and operations. For example, the No Surprises Act prohibits providers from charging patients an amount beyond the in-network cost sharing amount for services rendered by out-of-network providers, subject to limited exceptions. For services for which balance billing is prohibited, the No Surprises Act includes provisions that may limit the amounts received by out-of-network providers from health plans. Any reduction in the rates that we can charge or amounts we can receive for our services will reduce our total revenue and our operating margins.

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Results of Operations

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We report the results of our operations as three segments in our consolidated financial statements: (i) the hospital division, (ii) the population health management division and (iii) the real estate division. Activity within our business segments is significantly impacted by the demand for healthcare services we provide, competition for these services in each of the market areas we serve, and the legislative changes discussed above.

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Following is our results of operations for the periods shown:

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Year December 31, 2024 Compared to Year December 31, 2023

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We reported a net income attributable to Nutex Health Inc. of $52.2 million, or earnings of $9.71 per share, for 2024 as compared with a net loss attributable to Nutex Health Inc. of $45.8 million, or a loss of $10.39 per share, for 2023. Our 2024 results were principally affected by:

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Adjusted EBITDA for 2024 was $123.7 million as compared to $10.8 million for 2023. Refer to Non-GAAP Financial Measures discussed below for a definition and reconciliation of Adjusted EBITDA.

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A discussion of our segment results is included below.

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Hospital Division. Our revenue for 2024 totaled $449.1 million as compared to $218.1 million for 2023, an increase of 106% caused by successful participation in arbitration through the IDR process under the NSA and by an increase in the number of patient visits associated with higher utilization of premium services. The following table shows the number of patient visits during the periods:

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Total revenue increased $231.0 million in 2024 from 2023 primarily due to successful participation in arbitration through the IDR process, contributing $169.7 million to the increase, and by an increase in the number of patient visits and the number of visits associated with higher utilization of more complex clinical services.

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On July 1, 2024, we engaged with a third-party IDR vendor to further support our out of network claims appeals and determine which claims would be beneficial to arbitrate. The IDR process can take up to three to five months to receive payments relative to the start of a claim’s open negotiation process. In order to facilitate the dispute arbitration process, the Company incurred fees to the Centers for Medicare and Medicaid Services (“CMS”), the organizations that arbitrate the payment amount between the plan and providers (“IDRE”), and commission and fees to the third-party IDR vendor. Total accrued arbitration expenses are $47.7 million as of December 31, 2024.

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For these reasons, we refined our estimates of variable consideration and revenue recognition timing, particularly to claims subject to arbitration. Our methodology now incorporates historical arbitration outcomes, payor behavior, and expected resolution timing in determining the expected transaction price for applicable claims. The result of this change in estimate increased our estimate of the ultimate amounts of accounts receivable we will collect for the current and prior periods. This change in estimate increased revenue and net income before tax for the year ended December 31, 2024 by approximately $169.7 million and $112.0 million, respectively.

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The hospital division’s operating income was $195.5 million during 2024, up 438.0% as compared to $36.3 million in the same period of 2023. Our operating income for 2024 was positively affected by an increase in net revenue as noted above. Our contract services expense increased $57.6 million due to the cost associated with the IDR process. Our payroll expense increased due to the opening of four facilities in 2024 as well as due to the accrual of bonus payable in 2025. Our operating income was adversely impacted by $4.1 million from the opening of four new hospital locations in 2024. Start-up and operating expenses at new facilities often exceed our revenue at these facilities until they achieve stabilized volumes of patient visits.

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Population Health Management Division. We completed our reverse business combination with Clinigence in April 2022. Legacy Clinigence’s operations are reported as the population health management division. Our total revenue for 2024 for this division was $30.9 million consisting of capitation revenue of $27.8 million, management fees of $2.1 million and SaaS revenue of $1 million. The increase in revenue is attributed to increases in capitation revenue in 2024. Capitation revenue is recognized by our consolidated VIE, AHISP. We do not have an equity interest in this VIE but consolidate it since we are the primary beneficiary of its operations under our management services contract with them. We also earn management fees under our management services contracts with other IPAs and MSOs which are reported as revenue.

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The population health management division had $1.4 million of operating income for 2024 driven by our divestiture of Procare and Clinigence Health Inc. entities. These two entities were negatively impacting the population health management division’s operating performance. This strategic move contributed to improved gross margins from 2024 onward, reinforcing the organization's long-term profitability.

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Real Estate Division. This division reports on the operations of consolidated Real Estate Entities where we provide guarantees of their indebtedness or are co-borrowers. During the second quarter of 2022, we deconsolidated 17 Real Estate Entities after the third-party lenders released our guarantees of associated mortgage loans. During 2023, we deconsolidated one Real Estate Entity after the third-party lenders released our guarantees of associated mortgage loans. As of December 31, 2024, we provided guarantees to the indebtedness of two Real Estate Entities.

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Revenue and operating expenses of consolidated Real Estate Entities are not significant since the extent of these entities’ operations is to own facilities leased to our hospital division entities which are financed by a combination of contributed equity by related parties and third-party mortgage indebtedness. Such leases are typically on a triple net basis where our hospital division is responsible for all operating costs, repairs and taxes on the facilities. Finance lease income is recognized outside of segment operating income as other income by the Real Estate Entities. However, these amounts are largely eliminated in the consolidation of these entities into our financial statements.

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Corporate and other costs. Corporate and other costs in 2024 included general and administrative expenses totaling $41.9 million, impairment losses of assets and goodwill of $7.1 million due to facility closures and stock-based compensation of $16.6 million. Our corporate costs for 2023 included general and administrative costs of $33.2 million, a non-cash impairment charge of $30.2 and stock-based compensation of $2.8 million. General and administrative costs increased $8.6 million attributed to increases in accrued bonus expense ($2.7 million), professional services ($2.3 million), insurance expense ($2.3 million) and in other ($1.3 million).

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As a public company, we must comply with new laws, regulations and requirements, certain corporate governance provisions of the Sarbanes-Oxley Act of 2002, related regulations of the SEC and the continued listing requirements of the NASDAQ, with which we were not required to comply with as a private company. We incur additional annual expenses related to these matters and, among other things, additional directors’ and officers’ liability insurance, director fees, reporting requirements of the SEC, transfer agent fees, hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses.

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Nonoperating items

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Interest expense. Interest expense totaled $19.9 million in 2024 as compared with $16.3 million for 2023. The increase in interest expense is primarily due to leases entered into in 2024 for the opening four facilities throughout the year.

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Income tax expense. In periods before our merger with Clinigence, Nutex Health Holdco LLC and the Nutex Subsidiaries were pass-through entities treated as partnerships for U.S. federal income tax purposes. No provision for federal income taxes was provided for these periods as federal taxes were obligations of these companies’ members. After the merger, Nutex Health Holdco LLC became a wholly-owned subsidiary of Clinigence and is included in its consolidated corporate tax filings. We recognized a non-cash charge of $21.3 million to income tax expense during 2022 for the change in tax status of Nutex Health Holdco LLC. This charge provides for the accumulated net deferred tax liabilities representing the differences between the book and tax bases of Nutex Health Holdco LLC’s assets and liabilities as of the April 1, 2022 change in tax status.

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At the time of our merger with Clinigence, Clinigence had a full valuation allowance against its deferred tax assets. For the year ended December 31, 2022 we recorded a non-cash benefit of $2.4 million to income tax expense to remove the acquired valuation allowance after we concluded that the associated deferred tax assets would be realizable.

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As of December 31, 2023, a valuation allowance was established against the net deferred tax asset because the Company determined it was more likely than not that future earnings would not be sufficient to realize the corresponding tax benefits. In determining the appropriate valuation allowance, the Company considered the projected realization of tax benefits based on expected levels of future taxable income, available tax planning strategies and reversals of existing taxable temporary differences.

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As of December 31, 2024, we recorded a non-cash benefit of $6.5 million to income tax expense to remove the majority of the valuation allowance after we concluded that the associated deferred tax assets would be realizable. In determining the appropriate valuation allowance, the Company considered its net cumulative earnings (adjusted for permanent items) for the last three years, along with the change to its business related to the higher revenue estimates without impacting its existing cost structure. $1.0M valuation allowance remains to offset the deferred tax asset related to capital loss carryforwards that the company does not expect to realize.

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Each of the discrete items above, as well as the non-deductible goodwill impairment expense recognized in 2024, 2023 and 2022, are one-time, non-cash items.

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Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

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We reported a net loss attributable to Nutex Health Inc. of $45.8 million, or a loss of $10.39 per share, for 2023 as compared with a net loss attributable to Nutex Health Inc. of $424.8 million, or a loss of $100.36 per share, for 2022. Our 2023 results were principally affected by:

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Adjusted EBITDA for 2023 was $10.8 million as compared to $12.5 million for 2022. Refer to Non-GAAP Financial Measures discussed below for a definition and reconciliation of Adjusted EBITDA. The items affecting revenue and start-up costs of four new hospitals in 2023 contributed significantly to the decline in Adjusted EBITDA in the 2023 period.

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A discussion of our segment results is included below.

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Hospital Division. Our revenue for 2023 totaled $218.1 million as compared to $198.5 million for 2022, an increase of 10% caused by an increase in collection amounts, offset by a decrease in the number of patient visits. The following table shows the number of patient visits during the periods:

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Total revenue increased $19.6 million in 2023 from 2022 primarily due to increase in improved collections and higher patient acuity, offset by a 11% drop in COVID related visits.

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In 2022, the average payment by insurers for patient claims for emergency services declined by approximately 30% compared to prior periods principally because of the NSA compared to prior periods.

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The hospital division’s operating income was $36.3 million during 2023, up 142% as compared $15.0 million in the same period of 2022. Our operating income for 2023 was positively affected by an increase in net revenue. We have made significant progress with the IDR process for both the NSA (Federal) as well as the Texas Department of Insurance, resulting in higher average payments in 2023 as compared to 2022. Our operating income was adversely impacted by $1.4 million due to the opening of four new locations in 2023. Start-up and operating expenses at new facilities often exceed our revenue at these facilities until they achieve stabilized volumes of patient visits.

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Population Health Management Division. We completed our reverse business combination with Clinigence in April 2022. Legacy Clinigence’s operations are reported as the population health management division. Our total revenue for 2023 for this division was $29.6 million consisting of capitation revenue of $25.4 million, management fees of $2.9 million and SaaS revenue of $1.3 million. The increase in revenue is attributed to three quarters of revenues being reported in 2022 due to the reverse merger versus a full year of revenues in 2023, contributing $7.0 million of the increase. The remaining increase is attributed to increases in capitation revenue in 2023. Capitation revenue is recognized by our consolidated VIE, AHISP. We do not have an equity interest in this VIE but consolidate it since we are the primary beneficiary of its operations under our management services contract with them. We also earn management fees under our management services contracts with other IPAs and MSOs which are reported as revenue.

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The population health management division had $1.6 million of operating loss for 2023 driven by losses in our MSOs and technology platform. Strategically, we are focused on the growth of this division principally through the addition of new independent physician associations and have staffed our organization to manage larger numbers of such organizations. In August 2023, we completed the acquisition of two IPAs in Florida.

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Real Estate Division. This division reports the operations of consolidated Real Estate Entities where we provide guarantees of their indebtedness or are co-borrowers. During the second quarter of 2022, we deconsolidated 17 Real Estate Entities after the third-party lenders released our guarantees of associated mortgage loans. During 2023, we deconsolidated one Real Estate Entity after the third-party lenders released our guarantees of associated mortgage loans.

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Revenue and operating expenses of consolidated Real Estate Entities are not significant since the extent of these entities’ operations is to own facilities leased to our hospital division entities which are financed by a combination of contributed equity by related parties and third-party mortgage indebtedness. Such leases are typically on a triple net basis where our hospital division is responsible for all operating costs, repairs and taxes on the facilities. Finance lease income is recognized outside of segment operating income as other income by the Real Estate Entities. However, these amounts are largely eliminated in the consolidation of these entities into our financial statements.

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At December 31, 2023, two Real Estate Entities continue to be consolidated in our financial statements. We expect that hospitals we open in the future may be leased from new Real Estate Entities which may be owned in whole or part by related parties. Third-party lenders to these entities may require that we provide a guarantee or become co-borrowers under mortgage indebtedness financings for such facilities. In such instances, we may be required to consolidate these new Real Estate Entities in our financial statements as VIEs.

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Corporate and other costs. Corporate and other costs in 2023 included general and administrative expenses totaling $33.2 million, impairment losses of $30.2 million due to facility closures and stock-based compensation of $2.2 million. Our corporate costs for 2022 included general and administrative costs of $19.8 million, acquisition costs for the reverse business combination with Clinigence totaling $3.9 million and a non-cash impairment charge reducing goodwill totaling $398.1 million. General and administrative costs increased $13.4 million attributed to increases in payroll ($8.0 million) and professional services ($1.6 million) as the Company increased corporate staffing to support the Company’s public company obligations. General and administrative costs include our executive management, accounting, human resources, corporate technology, insurance and professional fees.

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As a public company, we must comply with new laws, regulations and requirements, certain corporate governance provisions of the Sarbanes-Oxley Act of 2002, related regulations of the SEC and the continued listing requirements of the NASDAQ, with which we were not required to comply with as a private company. We incur additional annual expenses related to these matters and, among other things, additional directors’ and officers’ liability insurance, director fees, reporting requirements of the SEC, transfer agent fees, hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses.

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Nonoperating items

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Interest expense. Interest expense totaled $16.3 million in 2023 as compared with $12.5 million for 2022. The increase was due to addition of finance leases and debt for new facilities ($2.2 million), Yorkville amortization and payments ($1.9 million) and September 2023 Private Offering amortization ($0.2 million) offset by no interest payments as a result of the paydown of East Valley debt. This includes interest expense associated with the mortgage indebtedness of consolidated Real Estate Entities, interest expense on outstanding term notes and lines of credit for financing operating equipment and working capital needs, interest expense for financing leases and the accretion costs related to the conversion of notes assumed in the Clinigence transaction.

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Income tax expense. In periods before our merger with Clinigence, Nutex Health Holdco LLC and the Nutex Subsidiaries were pass-through entities treated as partnerships for U.S. federal income tax purposes. No provision for federal income taxes was provided for these periods as federal taxes were obligations of these companies’ members. After the merger, Nutex Health Holdco LLC became a wholly-owned subsidiary of Clinigence and is included in its consolidated corporate tax filings. We recognized a non-cash charge of $21.3 million to income tax expense during 2022 for the change in tax status of Nutex Health Holdco LLC. This charge provides for the accumulated net deferred tax liabilities representing the differences between the book and tax bases of Nutex Health Holdco LLC’s assets and liabilities as of the April 1, 2022 change in tax status.

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At the time of our merger with Clinigence, Clinigence had a full valuation allowance against its deferred tax assets. For the year ended December 31, 2022 we recorded a non-cash benefit of $2.4 million to income tax expense to remove the acquired valuation allowance after we concluded that the associated deferred tax assets would be realizable.

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Each of the discrete items above, as well as the non-deductible goodwill impairment expense recognized in 2023 and 2022, are one-time, non-cash items.

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As of December 31, 2023, a valuation allowance was established against the net deferred tax asset because the Company determined it was more likely than not that future earnings will not be sufficient to realize the corresponding tax benefits. In determining the appropriate valuation allowance, the Company considered the projected realization of tax benefits based on expected levels of future taxable income, available tax planning strategies and reversals of existing taxable temporary differences.

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Liquidity and Capital Resources

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As of December 31, 2024, we had $43.6 million of cash and equivalents, compared to $22.0 million of cash and equivalents at December 31, 2023.

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Significant sources and uses of cash during 2024.

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Sources of cash:

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Uses of cash:

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Future sources and uses of cash. Our operating activities are financed with cash on hand which is generated from revenues. Most of our hospital facilities are leased from various lessors including related parties. These leases are presented in our consolidated balance sheets unless the lease is from a consolidated Real Estate Entity. Our growth plans include the development of new hospital locations. We expect that in many of these locations we will lease facilities from newly established entities partially owned by related parties.

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We routinely enter into equipment lease agreements to procure new or replacement equipment and may also finance these purchases with term debt‎. We have smaller lines of credits available for working capital purposes and are presently working to supplement or replace these with larger financing commitments. These larger financing commitments are subject to market conditions and we may not be able to obtain such larger financing commitments at favorable economic terms or at all.

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Indebtedness. The Company’s indebtedness at December 31, 2024 is presented in Item 8, “Financial Statements – Note 8 – Debt” and our lease obligations are presented in Item 8, “Financial Statements—Note 9 – Leases.”

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We have entered into private debt arrangements with banking institutions for the purchase of equipment and to provide working capital and liquidity through cash and lines of credit. Unless otherwise delineated above, these debt arrangements are obligations of Nutex and/or its wholly-owned subsidiaries. Consolidated Real Estate Entities have entered into private debt arrangements with banking institutions for purposes of purchasing land, constructing new emergency room facilities and building out leasehold improvements which are leased to our hospital entities. Nutex is a guarantor or, in limited cases, a co-borrower on the debt arrangements of the Real Estate Entities for the periods shown. Since the second quarter of 2022, we deconsolidated 18 Real Estate Entities after the third-party lenders released our guarantees of associated mortgage loans.

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Certain outstanding debt arrangements require minimum debt service coverage ratios and other financial covenants. At December 31, 2024, we were in compliance with these debt arrangements; we had remaining availability of an aggregate of $5.5 million under outstanding lines of credit.

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Pre-Paid Advance Agreement with Yorkville. On February 15, 2024, the parties terminated the Pre-Paid Advance Agreement (the “PPA”) dated April 11, 2023 between the Company and YA II PN, Ltd. (“Yorkville”) pursuant to which the Company requested an advance of $15.0 million from Yorkville a “Pre-Paid Advance”) purchased by Yorkville at 90% of the face amount. Interest accrued on the outstanding balance of the Pre-Paid Advance at an annual rate equal to 0% subject to an increase to 15% upon events of default described in the PPA. The Pre-Paid Advance had a maturity date of 12 months from the Pre-Paid Advance Date. As a result of the Pre-Paid Advance, the Company (i) issued, on April 11, 2023, 0.2 million shares of common stock to Yorkville (23.1 million prior to the 2024 Reverse Stock Splits), reducing the principal of initial Pre-Paid Advance to $7.3 million, (ii) made Optional Prepayments of $8.2 million in accordance with the PPA, consisting of $7.7 million of principal and $1.0 million attributed to the Payment Premium offset by $0.5 million in debt discount amortization, and (iii) paid off in full the remaining outstanding balance of the PPA on January 30, 2024.

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Unsecured Convertible Term Notes and Warrants with Accredited Investors. From September 2023 to December 2023, the Company conducted a private offering of convertible notes (“Unsecured Convertible Term Notes”) and six-year warrants (“Warrants”) to accredited investors (the “Holders”) as defined in Rule 501 under the 1933 Act and issued Unsecured Convertible Term Notes convertible into an aggregate of 89,751 shares (13,462,500 prior to the 2024 Reverse Stock Splits) of common stock at a conversion price of $60.00 per share ($0.40 prior to the 2024 Reverse Stock Splits) and Warrants to purchase an aggregate of 44,875 shares of common stock (6,731,250 prior to the 2024 Reverse Stock Splits) at an exercise price of $60.00 per share ($0.40 prior to the 2024 Reverse Stock Splits). We also issued Warrants for the purchase of 26,925 shares (4,038,750 prior to the 2024 Reverse Stock Splits) to the placement agent. On March 26, 2024, the Company and the Holders agreed to amend the conversion price of the Unsecured Convertible Term Notes and exercise price of the Warrants to $30.00 each ($0.20 prior to the 2024 Reverse Stock Splits), resulting in the Unsecured Convertible Term Notes being convertible into 179,500 shares of common stock (26,925,000 prior to the 2024 Reverse Stock Splits), the Warrants exercisable for 89,750 shares of common stock (13,462,500 prior to the 2024 Reverse Stock Splits) and the placement agent Warrants exercisable for 53,850 shares of common stock (8,077,500 prior to the 2024 Reverse Stock Splits). The Unsecured Convertible Term Notes mature on October 31, 2025 and the Warrants expire on December 31, 2029.

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Committed Investment Agreement with Lincoln Park Capital. On November 14, 2022, Nutex and Lincoln Park Capital Fund, LLC, an Illinois limited liability company (the “Investor”), entered into a purchase agreement pursuant to which Nutex has the right, in its sole ‎discretion, but not the obligation, to sell to the Investor up to $100 million worth of shares of Common Stock, over ‎the 36-month term of the purchase agreement, subject to the terms and conditions provided therein. Nutex will control the timing and amount of any future sales of its Common Stock and the Investor is obligated to make purchases in accordance with the purchase agreement, subject to ‎various limitations including those under the Nasdaq listing rules. Under the Agreement, issuances of Common Stock may be suspended upon the occurrence of customary events, including the unavailability of the resale registration statement. The Company has the right at any time for any reason to terminate the Agreement.

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Off-Balance Sheet Arrangements

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As of December 31, 2024, we had no material off-balance sheet arrangements.

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Non-GAAP Financial Measures

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Adjusted EBITDA. Adjusted EBITDA is used as a supplemental non-GAAP financial measure by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. We believe Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance.

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We define Adjusted EBITDA as net income (loss) attributable to Nutex Health Inc. plus net interest expense, income taxes, depreciation and amortization, further adjusted for stock-based compensation, certain defined items of expense, any acquisition-related costs and impairments. Interest expense includes interest on lease liabilities, which is a component of total finance lease cost. A reconciliation of net income to Adjusted EBITDA is included below. Adjusted EBITDA is not intended to serve as an alternative to U.S. GAAP measures of performance and may not be comparable to similarly-titled measures presented by other companies.

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Significant Accounting Policies

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Revenue recognition.

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Hospital division – Our hospital division recognizes patient service revenue for contracts with patients, and in most cases, patients with out of network benefits with a third-party payor, such as, commercial insurance, workers compensation insurance or, in limited cases, Medicare/Medicaid. The Company’s performance obligations are to provide emergency health care services primarily on an outpatient basis. Patient service revenues are recorded at the amount that reflects the consideration that the Company expects to be paid for providing patient care. These amounts are net of appropriate discounts giving recognition to differences between the Company’s charges and reimbursement rates from third party payors.

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Hospital revenues earned by the Company are recognized at a point in time when the services are provided to patients, net of adjustments and discounts. Because all the Company’s performance obligations relate to contracts with patients with a duration of less than one-year, certain disclosures are limited.

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We are considered “out-of-network” with commercial health plans. As there are no contractual rates established with insurance entities, revenues are estimated based on the “usual and customary” charges allowed by insurance payors using historical collection experience, historical trends of refunds and payor payment adjustments (retractions). Revenue from the Medicare program is based on reimbursement rates set by governmental authorities. For insured patients, the transaction price is determined based on gross charges for services provided, reduced by adjustments provided to third-party payors, discounts and implicit price concessions provided primarily to uninsured patients in accordance with the Company’s policy. For uninsured patients, the Company recognizes revenue based on established rates, subject to certain discounts and implicit price concessions. The Company is reimbursed from third party payors under various methodologies based on the level of care provided.

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Patients who have health care insurance may also have discounts applied related to their copayment or deductible. Estimates of contractual adjustments and discounts are determined by major payor classes for outpatient revenues based on historical experience. The Company estimates implicit price concessions based on its historical collection experience with these classes of patients using a portfolio approach. The portfolios consist of major payor classes for outpatient revenue. Based on historical collection trends and other analyses, the Company concluded that revenue for a given portfolio would not be materially different than if accounting for revenue on a contract-by-contract basis.

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Customer payments are due upon receipt of an explanation of benefits for insured patients or it is due upon receipt of the bill from the Company for uninsured payments. There is no financing component associated with payments due from insurers or patients.

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Population health management division – The population health management division recognizes revenue for capitation and management fees for services to IPAs and physician groups and for the licensing, training, and consulting related to our cloud-based proprietary technology.

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Capitation revenue consists primarily of capitated fees for medical services provided by physician-owned entities we consolidate as VIEs. Capitated arrangements are made directly with various managed care providers including HMOs. Capitation revenues are typically prepaid monthly to us based on the number of enrollees selecting us as their healthcare provider. Capitation is a fixed payment amount per patient per unit of time paid in advance for the delivery of health care services, whereby the service providers are generally liable for excess medical costs.

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We receive management fees that are based on gross capitation revenues of the IPAs or physician groups we manage. Revenue is recognized and received monthly for our services. In addition, we provide consultant services that are charged as a flat fixed rate and recognized as revenue when the service is performed. Consultant services revenues represent a small portion of our total revenue.

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Construction in Progress. The Company regularly is in the process of constructing new facilities. Generally, our hospital facilities are responsible for the leasehold buildout and equipment while the associated Real Estate Entity procures the land, if any, and constructs a new or remodeled facility. Costs incurred to construct assets which will ultimately be classified as fixed assets are capitalized and classified in our financial statements as construction in progress until construction is completed and the asset is available for use. Once the asset is available for use, it is reclassified as another category of fixed assets and depreciated across its useful life.‎

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Goodwill Impairment. We test goodwill for impairment at least annually by comparing the estimated fair values of our reporting units to their respective carrying values. We use an income method to estimate the fair value of these assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants and include the amount and timing of future cash flows (including expected growth rates and profitability). Estimates utilized in the projected cash flows include consideration of macroeconomic conditions, overall category growth rates, competitive activities, Company business plans and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.

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On June 30, 2024, the impairment of goodwill of $3.2 million and the derecognition of goodwill of $0.5 million, both for the Population Health Management Division, relate to the sale of Procare Health, Inc., a wholly-owned subsidiary of Nutex. Procare was considered part of the Population Health Management Division. Prior to the sale of Procare, the Company recognized a goodwill

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impairment amount of $3.2 million. On the sale of Procare, the Company recognized the derecognition of goodwill of $0.5 million based on the remaining carrying amount of goodwill for the Procare business after impairment.

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Due to the sale of Procare, the Company tested for impairment the remaining goodwill in the Population Health Management Division of $13.9 million. On June 30, 2024, we determined that the fair value of our Population Health Management Division was greater than its carrying value. Therefore, no goodwill impairment was recognized for the quarter ended June 30, 2024. No goodwill impairment was recognized for year ended December 31, 2024.

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On December 31, 2023, we recognized an impairment loss of $1.1 million in a reporting unit within our Hospital Division for the closure of a facility in January 2024.

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During the three months ended September 30, 2022, we determined that the estimated fair value of our population health management division reporting unit which was acquired in the reverse business combination with Clinigence was less than its carrying value. Therefore, we conducted a second step of the goodwill impairment test to determine the implied fair value of the reporting unit’s goodwill. In this analysis, we allocated the fair value of the reporting unit to identifiable assets and liabilities of the reporting unit. The residual fair value after this allocation was compared to the goodwill balance with the excess goodwill charged to expense. Based on this analysis, we recognized a non-cash impairment charge of $398.1 million, as revised, to reduce the carrying amount of goodwill for the population health management division reporting unit.

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We believe the estimates and assumptions utilized in our impairment testing are reasonable and are comparable to those that would be used by other marketplace participants. However, actual events and results could differ substantially from those used in our valuations. To the extent such factors result in a failure to achieve the level of projected cash flows used to estimate fair value for purposes of establishing or subsequently impairing the carrying amount of goodwill and intangible assets, we may need to record additional non-cash impairment charges in the future.