Nutex Health Inc. (NUTX)

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.

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 3.571428575 shares of common stock, or an aggregate of 592,791,712 shares of common stock.

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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. Our financial statements presented for periods prior to April 1, 2022 are those of Nutex Health Holdco LLC, as the Company’s predecessor entity. 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 20 hospital facilities in eight 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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We employ 800 full-time employees, contract 230 doctors at our facilities and partner with over 1,700 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 and a healthcare information technology company providing a cloud-based platform for healthcare 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 are 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 and physician groups and for the licensing, training, and consulting related to our cloud-based proprietary technology. 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 entering new market areas either through development of new hospitals, formation of new IPAs or by making acquisitions. We expect to open 5 to 10 new hospital facilities by the end of the year 2025. These facilities are either under construction or in advanced planning stages and will result in our expansion into five new states: Florida, Wisconsin, Ohio, Pennsylvania and Idaho. We anticipate launching one-to-three additional IPAs per year principally in geographic areas around our existing micro-hospitals.

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Overview of Legislative Developments

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The U.S. Congress and many state legislatures have introduced and passed a large number of proposals and legislation designed to make major changes in the healthcare system, including changes that have impacted access to health insurance. The most prominent of these efforts, the Affordable Care Act, affects how healthcare services are covered, delivered and reimbursed. The Affordable Care Act increased health insurance coverage through a combination of public program expansion and private sector health insurance reforms. There is uncertainty regarding the ongoing net effect of the Affordable Care Act due to the potential for continued changes to the law’s implementation and its interpretation by government agencies and courts. There is also uncertainty regarding the potential impact of other health reform efforts at the federal and state levels.

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In response to the COVID-19 pandemic, federal and state governments passed legislation, promulgated regulations, and have taken other administrative actions intended to assist healthcare providers in providing care to COVID-19 and other patients during the public health emergency and to provide financial relief. Among these, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) had the most impact on our business.

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The CARES Act included a waiver of insurance copayments, coinsurance, and annual deductibles for laboratory tests to diagnose COVID-19 and visits to diagnose COVID-19 at an emergency department of a hospital. These provisions of the CARES Act expired on June 30, 2021. While these provisions were effective, we experienced higher levels of revenue due to a shift of payor mix. The larger number and acuity of patient claims for COVID-19 also resulted in higher revenue.

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No Surprises Act

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The No Surprises Act (“NSA”) is a federal law that took effect January 1, 2022, to protect consumers from most instances of “surprise” balance billing. The legislation was included in the Consolidated Appropriations Act, 2021, which was passed by Congress and signed into law by President Trump on December 27, 2020. With respect to the Company, ‎the NSA limits the amount an insured patient will pay for emergency services furnished by an out-of-network ‎provider. The NSA addresses the payment of these out-of-network providers by group health plans or health ‎insurance issuers (collectively, “insurers”). In particular, the NSA requires insurers to reimburse out-of-network ‎providers at a statutorily calculated “out-of-network rate.” In states without an all-payor model agreement or ‎specified state law, the out-of-network rate is either the amount agreed to by the insurer and the out-of-network ‎provider or an amount determined through an independent dispute resolution (“IDR”) process.

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Under the NSA, insurers must issue an initial payment or notice of denial of payment to a provider within ‎thirty days after the provider submits a bill for an out-of-network service. If the provider disagrees with the ‎insurer’s determination, the provider may initiate a thirty-day period of open negotiation with the insurer over the ‎claim. If the parties cannot resolve the dispute through negotiation, the parties may then proceed to IDR ‎arbitration. ‎

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Independent Dispute Resolution. The provider and insurer each submits a proposed payment amount and ‎explanation to the arbitrator. The arbitrator must select one of the two proposed payment amounts taking into ‎account the “qualifying payment amount” and additional circumstances including among other things the level of training, outcomes ‎measurements of the facility, the acuity of the individual treated, and the case mix and scope of services of the ‎facility providing the service. The NSA prohibits the arbitrator from considering the provider’s usual and ‎customary charges for an item or service, or the amount the provider would have billed for the item or service in ‎the absence of the NSA. ‎

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Qualifying Payment Amount. The “qualifying payment amount” (QPA) is generally the median of the contracted ‎rates recognized by the plan or issuer under such plans or coverage, respectively, on January 31, 2019, for the ‎same or a similar item or service that is provided by a provider in the same or similar specialty and provided in the ‎geographic region in which the items or service is furnished, with annual increases based on the consumer price ‎index. In other words, the qualifying payment amount is typically the median rate the insurer would have paid for ‎the service if provided by an in-network provider or facility.‎

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HHS Final Rule. As required by the NSA, the United States Department of Health and Human ‎Services (“HHS”) has established an IDR process under which a certified IDR ‎entity determines the ultimate amount of payment. The HHS’ final rule became effective October 25, 2022. The final rule eliminated the rebuttable presumption that the qualified payment amount is the correct price and also abandoned the requirement that the certified IDR entity must select the offer closest to the qualifying payment amount. These key provisions were initially part of the interim rule issued in 2021 and were challenged by several court cases. Under the final rule, the certified IDR entity must instead select the offer that best reflects the value of the item or service provided, by first considering the QPA and then considering “additional information” that is relevant to the dispute.

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After the NSA became effective January 1, 2022, our average payment by insurers of patient claims for emergency services had declined by approximately 30%, including 37% reduction for physician services, at the end of 2022. In 2023, we experienced a 5% improvement from 2022 in emergency services but a 10% reduction for physician services, for an overall impact of 3% increase combined in 2023. In our experience, insurers often initially pay amounts lower than the QPA without regard for other information relevant to the claim. This requires us to make appeals using the IDR process. We submitted 90,000 cases for IDR open negotiation in 2023 and 28,000 cases for IDR open negotiation in 2022, most in the fourth quarter. The IDR process, subsequent appeals and insurance payor delays require extensive administrative time and delays in collections. While we are working within the established processes for IDR, we have had varying successes at achieving collections at or higher than the established QPA.

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Our experience is similar to that of other healthcare providers. In February 2023, the Emergency Department Physician Management Association reported survey results of its membership. The survey found that in more than 90% of claims surveyed, insurance companies followed the final rules implemented under the NSA for QPA disclosure and that the average claim payment declined 32% per ER Visit post-NSA.

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While we are working within the established processes for IDR, we have had varying successes at achieving collections at or higher than the established QPA. We have undertaken several strategic actions designed to improve our collections results. These include:

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The final rule is already the subject of legal challenges. The Texas Medical Association (TMA) in September of 2022 filed motions for summary judgment in the U.S. Eastern District of Texas, Tyler Division, seeking to invalidate the IDR related provisions of the

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final rule, arguing that the QPA does not represent the fair value of the services rendered by the physicians and providers and that the final rule illegally favors the QPA over the fair value of the provider services in contravention of the statutory language of the NSA.

On October 19, 2022, and in addition to amicus briefs by several other national medical associations, the American Society of Anesthesiologists, the American College of Emergency Physicians, and the American College of Radiology, professional associations representing an aggregate of approximately 136,000 physicians, filed an Amicus brief supporting the TMA Motion.

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On February 6, 2023, the U.S. District Court ruled in favor of the TMA by granting its motion for summary judgment against the HHS and stating that the revised IDR process in the final rule "continues to place a thumb on the scale" in favor of insurers and conflicts with the statutory provisions of the NSA, is unlawful and must be set aside. The Courts decision vacated all of the revised regulations challenged by the TMA, including HHS’ rule that arbiters must primarily consider the QPA in the IDR process. The court stated that the final rules wrongly require arbitrators to presume the correctness of the QPA and then impose a heightened burden on the remaining statutory factors to overcome that presumption. In addition, the TMA on January 1, 2023, also in the U.S. Eastern District, filed a lawsuit seeking declaratory and injunctive relief to invalidate a recent 600% percent increase in the administrative fees payable in the IDR process.

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Effective January 1, 2024, in consultation with the Departments of Labor and Health and Human Services, the Internal Revenue Service (IRS) announced the annual increase that health plans must apply to the calculation of the QPA for insurance reimbursements to account for inflation from 2023 to 2024 (Notice 2024-1). Under the No Surprises Act, QPAs are calculated based on median contracted rates for the same or similar service as they existed in 2019. Treasury Regulations direct the IRS to anchor the annual inflationary update in the Consumer Price Index for All Urban Consumers (CPI-U). In Notice 2024-1, the IRS directs health plans to update QPAs in 2024 by an increase of 5.4% over 2023 QPAs. Alternatively, to update 2023 rates, health plans may return to the original 2019 calculation and apply a cumulative update factor to account for the IRS inflationary updates from 2019 to 2024. Under that approach, the cumulative update that must be applied to 2019 base year rates is 20.9%.

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We are supportive of industry efforts challenging NSA. Our experience, like that of many other healthcare providers, is that the final rule continues to unfairly favor insurers in the determination of the QPA we receive for our healthcare services. It is difficult to predict the ultimate outcome of efforts to challenge or amend the final rule. As well, there can be no assurance that third-party payors will not attempt to further reduce the rates they pay for our services or that additional rules issued under the NSA will not have adverse consequences to our business.

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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 (ii) the real estate division. Activity within our business segments is significantly impacted by 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 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 $0.07 per share, for 2023 as compared with a net loss attributable to Nutex Health Inc. of $424.8 million, or a loss of $0.67 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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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

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We reported a net loss attributable to Nutex Health Inc. of $424.8 million, or a loss of $0.67 per share, for 2022 as compared with net income attributable to Nutex Health Inc. of $132.6 million, or $0.22 per diluted share, for 2021. Our 2022 results were principally affected by:

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Adjusted EBITDA for 2022 was $12.5 million as compared $145.2 million for 2021. 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 two new hospitals in 2022 contributed significantly to the decline in Adjusted EBITDA in the 2022 period.

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A discussion of our segment results is included below.

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Hospital Division. Our revenue for 2022 totaled $198.5 million as compared to $331.5 million for 2021, a decrease of 40% caused by a reduction in both collection amounts and the number of patient visits. The following table shows the number of patient visits during the periods:

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Total patient visits decreased 15% during 2022 as compared with 2021. Patient visits in 2021 included significant volumes of COVID-19 related cases. The average acuity or severity of patient cases in the 2022 period was slightly higher than in 2021 but only minimally offset the impact of the lower number of total patient visits.

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Collections during the years 2020 and 2021 benefited from provisions of the CARES Act which waived insurance copayments, coinsurance, and annual deductibles for laboratory tests and visits at an emergency department of a hospital to diagnose COVID-19. These provisions of the CARES Act expired on June 30, 2021. While these provisions were effective, we experienced higher levels of revenue due to a shift of payor mix.

In 2022, the average payment by insurers for patient claims for emergency services declined by approximately 30% principally because of the NSA compared to prior periods. We also experienced a decrease in collection for the remaining amounts of account receivable for periods before 2022. We believe this decline was caused, in part, by insurers underpaying these claims in the same way we are experiencing lower claim payments since the NSA became effective.

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The hospital division’s operating income was $13.1 million during 2022, down 93% as compared $179.3 million in the same period of 2021. Our operating income for 2022 was adversely affected by the reduction in net revenue discussed above. Further, start-up costs for newer facilities contributed to reduced segment operating results. We have opened five new facilities since April 2021. Start-up costs include complete staffing for 24/7 operations, lease costs, in-market advertising and other operating expenses. These costs often exceed our revenue at these facilities until they achieve sustaining volumes of patient visits. In general, we expect new facilities to reach profitability within 12 months. In this time, we also added additional staff to manage higher volumes of medical claims billing and collection administration.

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Population Health Management Division. We completed our reverse business combination with Clinigence in April 2022. Clinigence’s operations are reported as the population health management division. Our total revenue for 2022 for this division was $20.8 million consisting of capitation revenue of $15.5 million, management fees of $4.3 million and SaaS revenue of $946 thousand. 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 $0.4 million of operating income for 2022 since completion of the reverse business combination. 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.

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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.

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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

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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, 2022, three 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 2022 included general and administrative expenses totaling $18.0 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. Our corporate costs for 2021 included general and administrative costs of $5.5 million and acquisition costs of $3.6 million. General and administrative costs include our executive management, accounting, human resources, corporate technology, insurance and professional fees. We have incurred higher levels of professional fees as a public company. In 2022, we have made staffing additions commensurate with our operational growth and made key additions to our executive management team.

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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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In 2022, 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 acquired in the reverse business combination. This impairment was determined as part of our annual test for impairment of goodwill. This test is made 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 and is subject to significant estimates and assumptions. In performing this test, we determined that the estimated fair value of our population health management division reporting unit was less than its carrying value recorded in the reverse business combination. Therefore, we conducted a second step of the goodwill impairment test to determine the implied fair value of the reporting unit’s goodwill. The non-cash impairment charge reduced the excess carrying amount of goodwill for the population health management division that were greater than its residual fair value. As discussed in Item 8, “Financial Statements – Note 20 – Quarterly Financial Data, we made a retrospective adjustment to reduce the amount of goodwill impairment expense from the $408.5 million previously recognized in our quarterly report on Form 10-Q for the period ended September 30, 2022 to $398.1 million.

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Nonoperating items

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Interest expense. Interest expense totaled $12.5 million in 2022 as compared with $6.2 million for 2021. 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. Interest expense is expected to decline in future periods as a result of the deconsolidation of 17 Real Estate Entities and their associated mortgage indebtedness during the second quarter of 2022 as well as due to the elimination of accretion costs related to the conversion of notes payable 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. 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 also recognized 2022, are one-time, non-cash items.

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Liquidity and Capital Resources

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As of December 31, 2023, we had $22.0 million of cash and equivalents, compared to $34.3 million of cash and equivalents at December 31, 2022.

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Significant sources and uses of cash during 2023.

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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, 2023 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, 2023, we were not in compliance with the debt service coverage ratio for term loan with an outstanding balance of $0.3 million. This balance has been included in current liabilities. At December 31, 2023, we had remaining availability of $1.4 million under outstanding lines of credit.

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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.

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Nutex intends to use the ‎net proceeds from the future sale of its Common Stock for working capital and general corporate ‎purposes to support its growth.‎

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In connection with the execution of the Yorkville agreement, the Company issued ‎1,356,318‎ shares of Common Stock to the Investor as a commitment fee, in a private transaction exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

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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, 2023, 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. 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 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). The Company’s performance obligations are to provide emergency health care services primarily on an outpatient basis. Net patient service revenues are recorded at the amount that reflects the consideration to which the Company expects to be entitled in exchange 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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Patient service net revenues earned by the Company are recognized at a point in time when the services are provided, net of adjustments and discounts. Because all the Company’s performance obligations relate to contracts with a duration of less than one-year, certain disclosures are limited.

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The transaction price is determined based on gross charges for services provided, reduced by contractual adjustments provided to third-party payors, discounts and implicit e 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. 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.

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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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Software licenses are provided as SaaS-based subscriptions that grants access to proprietary online databases and data management solutions. Training and consulting are project based and billable to customers on a monthly-basis or task-basis. Revenue from training and consulting are generally recognized upon delivery of training or completion of the consulting project. The duration of training and consulting projects are typically a few weeks or months and last no longer than 12 months.

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SaaS-based subscriptions are generally marketed under multi-year agreements with annual, semi-annual, quarterly, or month-to-month renewals and revenue is recognized ratably over the renewal period with the unearned amounts received recorded as deferred revenue. For multiple-element arrangements accounted for in accordance with specific software accounting guidance, multiple deliverables are segregated into units of accounting which are delivered items that have value to a customer on a standalone basis.

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Cash payments for SaaS-based subscriptions received in advance of the satisfaction of our performance obligations as deferred revenue and recognized as revenue over the period in which the performance obligations are satisfied. The Company completes its contractual performance obligations through providing its customers access to specified data through subscriptions for a service period, and training on consulting associated with the subscriptions. We primarily invoice our customers on a monthly basis and do not provide any refunds, rights of return, or warranties.

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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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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. As discussed in Item 8, “Financial Statements – Note 20 – Quarterly Financial Data, we made a retrospective adjustment to reduce the amount of goodwill impairment expense from the $408.5 million previously recognized in our quarterly report on Form 10-Q for the period ended September 30, 2022 to $398.1 million.

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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.

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 (the “Merger Date”), Nutex Health Holdco LLC and Clinigence Holdings, Inc. (“Clinigence”) completed the merger (the “Merger”) contemplated by the Agreement and Plan of Merger (the “Merger Agreement”) dated as of November 23, 2021 between Clinigence, Nutex Acquisition LLC, a Delaware limited liability company and wholly-owned subsidiary of Clinigence, Nutex, Micro Hospital Holding LLC (solely for the purposes of certain sections of the Merger Agreement), Nutex Health Holdco LLC and Thomas Vo, M.D., solely in his capacity as the representative of the equity holders of Nutex. Immediately following the completion of the Merger, Clinigence amended its certificate of incorporation and bylaws to change its name to “Nutex Health Inc.” In connection with the Merger, each outstanding equity interest of Nutex Health Holdco LLC was exchanged for 3.571428575 shares of Clinigence common stock. 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. Our financial statements presented for periods prior to the Merger Date are those of Nutex Health Holdco, LLC, as the Company’s predecessor entity. 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 19 hospital facilities in eight 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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We employ 1,150 full- and part-time employees and partner with over 800 physicians. 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. During the second quarter of 2022, we deconsolidated 17 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 and a healthcare information technology company providing a cloud-based platform for healthcare 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 are 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. In the fourth quarter of 2022, we signed in-network provider contracts with the Provider Network of America (PNA). These contracts provide for payment to us of claims at 300% of the Medicare allowable rates for our services provided to PNA members.

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The following tables present the allocation of the estimated 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 and physician groups and for the licensing, training, and consulting related to our cloud-based proprietary technology. 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 entering new market areas either through development of new hospitals, formation of new IPAs or by making acquisitions. We expect to open 15 to 20 new hospital facilities by the middle of the year 2025. These facilities are either under construction or in advanced planning stages and will result in our expansion into four new states: Florida, Wisconsin, Ohio and Idaho. We anticipate launching one-to-three additional IPAs per year principally in geographic areas around our existing micro-hospitals.

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COVID-19 Pandemic

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A novel strain of coronavirus causing the disease known as COVID-19 was first identified in December 2019 and spread throughout the world. While vaccines and booster shots for the COVID-19 virus became widely available in the United States during 2021, COVID-19 continued to result in a significant number of hospitalizations.

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As a provider of healthcare services, we were significantly affected by the public health and economic effects of the COVID-19 pandemic. Our hospitals, medical personnel, and employees have been actively caring for COVID-19 patients. We implemented considerable safety measures for treatment of COVID-19 patients and have incurred, and may continue to incur, certain increased expenses arising from the COVID-19 pandemic, including additional labor, supply chain, capital and other expenditures. Moreover, in recent months, the COVID-19 pandemic resulted in general inflationary pressures and significant disruptions to global supply networks. In this regard, we have experienced disruptions in connection with the provision of equipment, construction services, as well as inflationary pressures in connection with labor, supply chain, capital and other expenditures. We also experienced a delay in billing and collection of patient claims during this period.

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The COVID-19 pandemic affected, and may continue to affect, our service mix, revenue mix, payor mix and/or patient volumes, as well as our ability to collect outstanding receivables. Pandemic-related factors may continue to adversely affect demand for our services, as well as the ability of patients and other payors to pay for services rendered.

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While we are not able to fully quantify the impact that the COVID-19 pandemic will have on our future financial results, we expect developments related to COVID-19 to continue to affect our financial performance. Moreover, the COVID-19 pandemic may otherwise have material adverse effects on our results of operations, financial position, and/or our cash flows if economic and/or public health conditions in the United States deteriorate.

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Overview of Legislative Developments

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The U.S. Congress and many state legislatures have introduced and passed a large number of proposals and legislation designed to make major changes in the healthcare system, including changes that have impacted access to health insurance. The most prominent of these efforts, the Affordable Care Act, affects how healthcare services are covered, delivered and reimbursed. The Affordable Care Act increased health insurance coverage through a combination of public program expansion and private sector health insurance reforms. There is uncertainty regarding the ongoing net effect of the Affordable Care Act due to the potential for continued changes to the law’s implementation and its interpretation by government agencies and courts. There is also uncertainty regarding the potential impact of other health reform efforts at the federal and state levels.

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In response to the COVID-19 pandemic, federal and state governments passed legislation, promulgated regulations, and have taken other administrative actions intended to assist healthcare providers in providing care to COVID-19 and other patients during the public health emergency and to provide financial relief. Among these, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) had the most impact on our business.

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The CARES Act included a waiver of insurance copayments, coinsurance, and annual deductibles for laboratory tests to diagnose COVID-19 and visits to diagnose COVID-19 at an emergency department of a hospital. These provisions of the CARES Act expired on June 30, 2021. While these provisions were effective, we experienced higher levels of revenue due to a shift of payor mix. The larger number and acuity of patient claims for COVID-19 also resulted in higher revenue.

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No Surprises Act

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The No Surprises Act (“NSA”) is a federal law that took effect January 1, 2022, to protect consumers from most instances of “surprise” balance billing. The legislation was included in the Consolidated Appropriations Act, 2021, which was passed by Congress and signed into law by President Trump on December 27, 2020. With respect to the Company, ‎the NSA limits the amount an insured patient will pay for emergency services furnished by an out-of-network ‎provider. The NSA addresses the payment of these out-of-network providers by group health plans or health ‎insurance issuers (collectively, “insurers”). In particular, the NSA requires insurers to reimburse out-of-network ‎providers at a statutorily calculated “out-of-network rate.” In states without an all-payor model agreement or ‎specified state law, the out-of-network rate is either the amount agreed to by the insurer and the out-of-network ‎provider or an amount determined through an independent dispute resolution (“IDR”) process.

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Under the NSA, insurers must issue an initial payment or notice of denial of payment to a provider within ‎thirty days after the provider submits a bill for an out-of-network service. If the provider disagrees with the ‎insurer’s determination, the provider may initiate a thirty-day period of open negotiation with the insurer over the ‎claim. If the parties cannot resolve the dispute through negotiation, the parties may then proceed to IDR ‎arbitration. ‎

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Independent Dispute Resolution. The provider and insurer each submits a proposed payment amount and ‎explanation to the arbitrator. The arbitrator must select one of the two proposed payment amounts taking into ‎account the “qualifying payment amount” and additional circumstances including among other things the level of training, outcomes ‎measurements of the facility, the acuity of the individual treated, and the case mix and scope of services of the ‎facility providing the service. The NSA prohibits the arbitrator from considering the provider’s usual and ‎customary charges for an item or service, or the amount the provider would have billed for the item or service in ‎the absence of the NSA. ‎

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Qualifying Payment Amount. The “qualifying payment amount” (QPA) is generally the median of the contracted ‎rates recognized by the plan or issuer under such plans or coverage, respectively, on January 31, 2019, for the ‎same or a similar item or service that is provided by a provider in the same or similar specialty and provided in the ‎geographic region in which the items or service is furnished, with annual increases based on the consumer price ‎index. In other words, the qualifying payment amount is typically the median rate the insurer would have paid for ‎the service if provided by an in-network provider or facility.‎

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HHS Final Rule. As required by the NSA, the United States Department of Health and Human ‎Services (“HHS”) has established an IDR process under which a certified IDR ‎entity determines the ultimate amount of payment. The HHS’ final rule became effective October 25, 2022. The final rule eliminated the rebuttable presumption that the qualified payment amount is the correct price and also abandoned the requirement that the certified IDR entity must select the offer closest to the qualifying payment amount. These key provisions were initially part of the interim rule issued in 2021 and were challenged by several court cases. Under the final rule, the certified IDR entity must instead select the offer that best reflects the value of the item or service provided, by first considering the QPA and then considering “additional information” that is relevant to the dispute.

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Since the NSA became effective January 1, 2022, our average payment by insurers of patient claims for emergency services has declined by approximately 30% including as much as a 37% reduction for physician services. In our experience, insurers often initially pay amounts lower than the QPA without regard for other information relevant to the claim. This requires us to make appeals using the IDR process. We submitted almost 28 thousand cases for IDR in 2022, most in the fourth quarter. The IDR process and subsequent appeals, should we pursue them, require extensive administrative time and delays in collections.

​

Our experience is similar to that of other healthcare providers. In February 2023, the Emergency Department Physician Management Association reported survey results of its membership. The survey found that in more than 90% of claims surveyed, insurance companies followed the final rules implemented under the NSA for QPA disclosure and that the average claim payment declined 32% per ER Visit post-NSA.

​

While we are working within the established processes for IDR, we have had varying successes at achieving collections at or higher than the established QPA. We have undertaken several strategic actions designed to improve our collections results. These include:

​

​

The final rule is already the subject of legal challenges. The Texas Medical Association (TMA) in September of 2022 filed motions for summary judgment in the U.S. Eastern District of Texas, Tyler Division, seeking to invalidate the IDR related provisions of the final rule, arguing that the QPA does not represent the fair value of the services rendered by the physicians and providers and that the final rule illegally favors the QPA over the fair value of the provider services in contravention of the statutory language of the NSA.

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On October 19, 2022, and in addition to amicus briefs by several other national medical associations, the American Society of Anesthesiologists, the American College of Emergency Physicians, and the American College of Radiology, professional associations representing an aggregate of approximately 136,000 physicians, filed an Amicus brief supporting the TMA Motion.

​

On February 6, 2023, the U.S. District Court ruled in favor of the TMA by granting its motion for summary judgment against the HHS and stating that the revised IDR process in the final rule "continues to place a thumb on the scale" in favor of insurers and conflicts with the statutory provisions of the NSA, is unlawful and must be set aside. The Courts decision vacated all of the revised regulations challenged by the TMA, including HHS’ rule that arbiters must primarily consider the QPA in the IDR process. The court stated that the final rules wrongly require arbitrators to presume the correctness of the QPA and then impose a heightened burden on the remaining statutory factors to overcome that presumption. In addition, the TMA on January 1, 2023, also in the U.S. Eastern District, filed a lawsuit seeking declaratory and injunctive relief to invalidate a recent 600% percent increase in the administrative fees payable in the IDR process.

​

We are supportive of industry efforts challenging NSA. Our experience, like that of many other healthcare providers, is that the final rule continues to unfairly favor insurers in the determination of the QPA we receive for our healthcare services. It is difficult to predict the ultimate outcome of efforts to challenge or amend the final rule. As well, there can be no assurance that third-party payors will not attempt to further reduce the rates they pay for our services or that additional rules issued under the NSA will not have adverse consequences to our business.

​

Results of Operations

​

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 (ii) the real estate division. Activity within our business segments is significantly impacted by demand for healthcare services we provide, competition for these services in each of the market areas we serve, and the legislative changes discussed above.

​

Following is our results of operations for the periods shown:

​

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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

​

We reported a net loss attributable to Nutex Health Inc. of $424.8 million, or a loss of $0.67 per share, for 2022 as compared with net income attributable to Nutex Health Inc. of $132.6 million, or $0.22 per diluted share, for 2021. Our 2022 results were principally affected by:

​

​

Adjusted EBITDA for 2022 was $12.5 million as compared $145.2 million for 2021. Refer to Non-GAAP Financial Measures discussed below for a definition and reconciliation of Adjusted EBITDA. The items affecting revenue and start-up costs contributed significantly to the decline in Adjusted EBITDA in the 2022 period.

​

A discussion of our segment results is included below.

​

Hospital Division. Our revenue for 2022 totaled $198.5 million as compared to $331.5 million for 2021, a decrease of 40% caused by a reduction in both collection amounts and the number of patient visits. The following table shows the number of patient visits during the periods:

​

​

Total patient visits decreased 15% during 2022 as compared with 2021. Patient visits in 2021 included significant volumes of COVID-19 related cases. The average acuity or severity of patient cases in the 2022 period was slightly higher than in 2021 but only minimally offset the impact of the lower number of total patient visits.

​

Collections during the years 2020 and 2021 benefited from provisions of the CARES Act which waived insurance copayments, coinsurance, and annual deductibles for laboratory tests and visits at an emergency department of a hospital to diagnose COVID-19. These provisions of the CARES Act expired on June 30, 2021. While these provisions were effective, we experienced higher levels of revenue due to a shift of payor mix.

In 2022, the average payment by insurers for patient claims for emergency services declined by approximately 30% principally because of the NSA compared to prior periods. We also experienced a decrease in collection for the remaining amounts of account receivable for periods before 2022. We believe this decline was caused, in part, by insurers underpaying these claims in the same way we are experiencing lower claim payments since the NSA became effective.

​

The hospital division’s operating income was $13.1 million during 2022, down 93% as compared $179.3 million in the same period of 2021. Our operating income for 2022 was adversely affected by the reduction in net revenue discussed above. Further, start-up costs for newer facilities contributed to reduced segment operating results. We have opened five new facilities since April 2021. Start-up costs include complete staffing for 24/7 operations, lease costs, in-market advertising and other operating expenses. These costs often exceed our revenue at these facilities until they achieve sustaining volumes of patient visits. In general, we expect new facilities to reach profitability within 12 months. In this time, we also added additional staff to manage higher volumes of medical claims billing and collection administration.

​

Population Health Management Division. We completed our reverse business combination with Clinigence in April 2022. Clinigence’s operations are reported as the population health management division. Our total revenue for 2022 for this division was $20.8 million consisting of capitation revenue of $15.5 million, management fees of $4.3 million and SaaS revenue of $946 thousand. Capitation revenue is recognized by our consolidated VIE, AHISP. We do not have an equity interest in this VIE but consolidate it

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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.

​

The population health management division had $387 thousand of operating income for 2022 since completion of the reverse business combination. 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.

​

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.

​

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.

​

At December 31, 2022, three 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.

​

Corporate and other costs. Corporate and other costs in 2022 included general and administrative expenses totaling $18.0 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. Our corporate costs for 2021 included general and administrative costs of $5.5 million and acquisition costs of $3.6 million. General and administrative costs include our executive management, accounting, human resources, corporate technology, insurance and professional fees. We have incurred higher levels of professional fees as a public company. In 2022, we have made staffing additions commensurate with our operational growth and made key additions to our executive management team.

​

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.

​

In 2022, 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 acquired in the reverse business combination. This impairment was determined as part of our annual test for impairment of goodwill. This test is made 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 and is subject to significant estimates and assumptions. In performing this test, we determined that the estimated fair value of our population health management division reporting unit was less than its carrying value recorded in the reverse business combination. Therefore, we conducted a second step of the goodwill impairment test to determine the implied fair value of the reporting unit's goodwill. The non-cash impairment charge reduced the excess carrying amount of goodwill for the population health management division that were greater than its residual fair value. As discussed in Item 8, “Financial Statements – Note 20 – Quarterly Financial Data, we made a retrospective adjustment to reduce the amount of goodwill impairment expense from the $408.5 million previously recognized in our quarterly report on Form 10-Q for the period ended September 30, 2022 to $398.1 million.

​

Nonoperating items

​

Interest expense. Interest expense totaled $12.5 million in 2022 as compared with $6.2 million for 2021. 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. Interest expense is expected to decline in future periods as a

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result of the deconsolidation of 17 Real Estate Entities and their associated mortgage indebtedness during the second quarter of 2022 as well as due to the elimination of accretion costs related to the conversion of notes payable assumed in the Clinigence transaction.

​

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.

​

At the time of our merger with Clinigence, Clinigence had a full valuation allowance against its deferred tax assets. 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.

​

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

​

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

​

We reported net income attributable to Nutex Health Inc. of $132.6 million, or $0.22 per diluted share, for the year ended December 31, 2021 as compared with $106.0 million, or $0.18 per diluted share, for 2020. Our 2021 results benefited from higher patient volumes including COVID-19 related cases.

​

Adjusted EBITDA for 2021 was a $145.2 million as compared with $114.9 million for 2020. Refer to Non-GAAP Financial Measures discussed below for a definition and reconciliation of Adjusted EBITDA.

​

A discussion of our segment results follows.

​

Hospital Division. Our revenue for 2021 totaled $331.5 million as compared to $274.0 million for 2020, an increase of 21% principally caused by higher patient volumes including COVID-19 related cases. The following table shows the number of patient visits during the periods:

​

​

Total patient visits increased 12% in 2021 as compared with 2020. Patient visits each year included significant volumes of COVID-19 related cases each year. The number and acuity of patient visits in the fall of 2021 increased significantly due to the emergence of the Omicron variant of the COVID-19 virus. These higher volumes began to subside in early-2022.

​

Collections during the years 2020 and 2021 benefited from provisions of the CARES Act which waived insurance copayments, coinsurance, and annual deductibles for laboratory tests and visits at an emergency department of a hospital to diagnose COVID-19. These provisions of the CARES Act expired on June 30, 2021. While these provisions were effective, we experienced higher levels of revenue due to a shift of payor mix.

The hospital division’s operating income was $179.3 million during 2021, up $21.7 million or almost 14% from $157.6 million reported for 2020. Our operating income for 2021 benefited from the higher revenues discussed above.

​

Real Estate Division. This division reports the operations of consolidated Real Estate Entities where we provide guarantees of their indebtedness or are co-borrowers.

​

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

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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.

​

Corporate and other costs. Corporate and other costs in 2021 included general and administrative expenses totaling $5.5 million as compared with $4.4 million for 2020. Acquisition costs totaled $3.6 million in 2021. These acquisition costs and higher levels of general and administrative expenses in 2021 were incurred as we prepared for our reverse business combination with Clinigence and added corporate staffing in preparation for our public listing.

​

Nonoperating items

​

Interest expense. Interest expense totaled $6.2 million in 2021 as compared with $6.4 million for 2020. This includes interest expense associated with the mortgage indebtedness of consolidated Real Estate Entities and interest expense on outstanding term notes and lines of credit for financing operating equipment and working capital needs.

​

Income tax expense. As discussed above, 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. Reported amounts for income tax expense in these periods were for Texas state tax obligations.

​

Liquidity and Capital Resources

​

As of December 31, 2022, we had $34.3 million of cash and equivalents, compared to $36.1 million of cash and equivalents at December 31, 2021.

​

Significant sources and uses of cash during 2022.

​

Sources of cash:

​

​

Uses of cash:

​

​

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.

​

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.

​

Indebtedness. The Company’s indebtedness at December 31, 2022 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. During the second quarter of 2022, we deconsolidated 17 Real Estate Entities after the third-party lenders released our guarantees of associated mortgage loans.

​

Certain outstanding debt arrangements require minimum debt service coverage ratios and other financial covenants. At December 31, 2022, we were not in compliance with the debt service coverage ratio for term loan with an outstanding balance of $1.0 million. This balance has been included in current liabilities. At December 31, 2022, we had remaining availability of $2.1 million under outstanding lines of credit.

​

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.

​

Nutex intends to use the ‎net proceeds from the future sale of its Common Stock for working capital and general corporate ‎purposes to support its growth.‎

​

Regular Purchases: At any time after the satisfaction of certain conditions including the effectiveness of a registration statement, the Company ‎has the right, but not the obligation, to require the Investor to purchase on any particular trading day (“Purchase Date”) up to:

​

The Investor’s committed obligation under each Regular Purchase shall not exceed $3,000,000. For Regular Purchases the purchase price shall be equal to 97% of the lesser of:

​

​

Accelerated Purchases: In addition to Regular Purchases and provided that the Company has directed a ‎Regular Purchase in full (as set forth above), the Company in its sole discretion may require the Investor on each Purchase Date to ‎purchase on the following business day (the “Accelerated Purchase Date”) up to the lesser of:

​

In each case, the purchase price shall be equal to 97% of the lesser of:

​

​

There is no upper limit to the price per share that the Investor may pay for future issuances of Common Stock under the Agreement, and the Investor has agreed not to cause or engage in any direct or indirect short ‎selling or hedging of our Common Stock. No warrants are being issued the Investor and the ‎Agreement does not contain any rights of first refusal, participation rights, penalties, or liquidated damages provisions ‎in favor of any party.

​

In connection with the execution of the Agreement, the Company issued ‎1,356,318‎ shares of Common Stock to the Investor as a commitment fee, in a private transaction exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

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​

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.‎‎

​

Off-Balance Sheet Arrangements

​

As of December 31, 2022, we had no material off-balance sheet arrangements.

​

Non-GAAP Financial Measures

​

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.

​

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. 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.

​

​

​

Significant Accounting Policies

​

Revenue recognition.

​

Hospital division – 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). The Company’s performance obligations are to provide emergency health care services primarily on an outpatient basis. Net patient service revenues are recorded at the amount that reflects the consideration to which the Company expects to be entitled in exchange 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.

​

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

​

The transaction price is determined based on gross charges for services provided, reduced by contractual adjustments provided to third-party payors, discounts and implicit e concessions provided primarily to uninsured patients in accordance with the Company’s

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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. 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.

​

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.

​

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.

​

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.

​

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. 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.

​

Software licenses are provided as SaaS-based subscriptions that grants access to proprietary online databases and data management solutions. Training and consulting are project based and billable to customers on a monthly-basis or task-basis. Revenue from training and consulting are generally recognized upon delivery of training or completion of the consulting project. The duration of training and consulting projects are typically a few weeks or months and last no longer than 12 months.

​

SaaS-based subscriptions are generally marketed under multi-year agreements with annual, semi-annual, quarterly, or month-to-month renewals and revenue is recognized ratably over the renewal period with the unearned amounts received recorded as deferred revenue. For multiple-element arrangements accounted for in accordance with specific software accounting guidance, multiple deliverables are segregated into units of accounting which are delivered items that have value to a customer on a standalone basis.

​

Cash payments for SaaS-based subscriptions received in advance of the satisfaction of our performance obligations as deferred revenue and recognized as revenue over the period in which the performance obligations are satisfied. The Company completes its contractual performance obligations through providing its customers access to specified data through subscriptions for a service period, and training on consulting associated with the subscriptions. We primarily invoice our customers on a monthly basis and do not provide any refunds, rights of return, or warranties.

​

Construction in Progress. The Company regularly is in the process of constructing new facilities. Generally, our ER Entities 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.‎

​

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

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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.

​

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. As discussed in Item 8, “Financial Statements – Note 20 – Quarterly Financial Data, we made a retrospective adjustment to reduce the amount of goodwill impairment expense from the $408.5 million previously recognized in our quarterly report on Form 10-Q for the period ended September 30, 2022 to $398.1 million.

​

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.

ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The
following management’s discussion and analysis should be read in conjunction with the audited consolidated financial statements
and the notes thereto included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on
Form 10-K.

In
this section, “we,” “our,” “ours” and “us” refer to Clinigence Holdings Inc.(“Clinigence”)
and its consolidated subsidiaries and affiliated entities, as appropriate, including its consolidated variable interest entities (“VIEs”).

Overview

The
Company, together with our recent acquisitions of AHP Health Management Services, Inc. (“AHP”), Accountable Healthcare America,
Inc. (“AHA”) and Procare Health Inc. (‘Procare”) is a technology-enabled, risk-bearing population health management
company that manages provider networks.

Headquartered
in Fort Lauderdale, Florida, our subsidiaries include management services organizations (“MSOs”), affiliated independent
practice associations (“IPAs”), and a healthcare information technology company providing a cloud-based platform that enables
healthcare organizations to provide value-based care and population health management (PHM).

2021
Highlights

Merger
with AHP Health Management Services Inc.

On
February 25, 2021, we entered into an agreement and plan of merger (the “AHP Merger Agreement”) with AHP Health Management
Services, Inc., a California corporation (“AHP”), AHP Acquisition Corp., a Delaware corporation, a wholly owned subsidiary
of Clinigence Holdings, Inc. (“Merger Sub”), and Robert Chan (the “Shareholders’ Representative”). The
transactions contemplated by the AHP Merger Agreement were consummated on February 26, 2021 (the “AHP Closing”).

The
AHP Merger Agreement provided for the merger of Merger Sub with and into AHP, hereafter referred
to as the “AHP Acquisition.” As a result of the Acquisition, Merger Sub ceased to exist, and AHP became the surviving
corporation and a direct wholly owned subsidiary of Clinigence, and the former stockholders of AHP (the “AHP Stockholders”)
have a direct equity ownership in Clinigence. Merger Sub was renamed AHP Health Management Services, Inc. Merger Sub was originally incorporated
in Delaware, on January 26, 2021, and had no operating activity prior to the reported transaction.

AHP
is a privately held company with controlling interest in its’ affiliate Associated Hispanic Physicians of Southern California IPA,
a California Medical corporation, (“AHISP). A key term of the AHP Merger Agreement is that at Closing, AHP Management Inc entered
into a Management Services Agreement with AHISP (the “Management Services Agreement”) making AHISP a Variable Interest Entity
(VIE) of AHP.

California
is a corporate practice of medicine state, and we operate by maintaining a long-term MSA with ASHISP. Under the MSA, our wholly owned
AHP subsidiary is contracted to provide non-medical management and administrative services such as financial and risk management as well
as information systems, marketing and administrative support to the AHISP. The MSA has an initial term of 20 years and is generally not
terminable by AHISP except in the case of bankruptcy, gross negligence, fraud, or other illegal acts by AHP.

Through
the MSA, we have exclusive authority over all non-medical decisions related to the ongoing business operations of AHISP. Consequently,
the Company consolidates the revenue and expenses of AHISP as their primary beneficiary from the date of execution of the MSA.

The
AHP Merger Agreement and Management Services Agreement was disclosed on the Company’s current report on Form 8-K filed on March
2, 2021.

Merger
with Accountable Healthcare America, Inc.

On
February 25, 2021, we entered into an agreement and plan of merger with Accountable Healthcare America, Inc., a Delaware corporation
(“AHA”), and AHA Acquisition Corp., a Delaware corporation, a wholly owned subsidiary of Parent (“Merger Sub entered
into an agreement and plan of merger (the “AHA Merger Agreement”). The transactions contemplated by the AHA Merger Agreement
were consummated on February 26, 2021 (the “AHA Closing”).

The
AHA Merger Agreement provided for the merger of Merger Sub with and into AHA, hereafter referred
to as the “AHA Acquisition.” As a result of the Acquisition, Merger Sub ceased to exist, and AHA became the surviving
corporation and a direct wholly owned subsidiary of Clinigence, and the former stockholders of AHA (the “AHA Stockholders”)
have a direct equity ownership in Clinigence. Merger Sub was renamed Accountable Healthcare America, Inc. Merger Sub was originally incorporated
in Delaware, on January 2, 2020, and had no operating activity prior to the reported transaction.

The
AHA Merger Agreement was disclosed on the Company’s current report on Form 8-K filed on March 2, 2021.

At
the AHP Closing and the AHA Closing, hereafter collectively referred to as the “Closing”, all of the outstanding shares of
AHP common stock (the “AHP Shares”) were converted solely into the right to receive a number of shares of Clinigence common
stock (the “Company Shares”) such that the holders of outstanding equity of AHP immediately prior to the Closing own 45%,
on a fully-diluted basis, of the outstanding equity of Clinigence immediately following the Closing, and all of the outstanding shares
of AHA common stock (the “AHA Shares”) were converted solely into the right to receive a number of the Company Shares such
that the holders of outstanding equity of AHA immediately prior to the Closing own 35%, on a fully-diluted basis, of the outstanding
equity of Clinigence immediately following the Closing, and holders of outstanding equity of Clinigence immediately prior to the Closing
own 20%, on a fully-diluted basis, of the outstanding equity of Clinigence. Additionally, the Company’s AHA Series E Preferred
Stock investment was surrendered as part of the Acquisition of 100% of AHA.

The
preliminary accounting for our merger with AHP and AHA was disclosed on the Company’s current report on Form 8-K/A filed on May
21, 2021.

Acquisition
of Procare Health Inc.

On
October 15, 2021, we entered into an agreement and plan of merger (the “Procare Merger Agreement”) with Clinigence Procare
Health Inc, a Delaware corporation (“Merger Sub”), Procare Health, Inc., a California corporation (“Procare”),
Anh Nguyen (“Majority Stockholder”), and Tram Nguyen (“Minority Stockholder” and together with Majority Stockholder,
the “Stockholders”).

The
Procare Merger Agreement provided for the merger of Merger Sub with and into Procare, hereafter
referred to as the “Acquisition.” As a result of the Acquisition, Merger Sub ceased to exist, and Procare became the
surviving corporation and a direct wholly owned subsidiary of Clinigence, and the former stockholders of Procare, the Stockholders, have
a direct equity ownership in Clinigence.

Under
the terms of the stock purchase agreement, the shares of Procare’s common stock issued and outstanding immediately prior to the
Effective Time (other than Cancelled Shares) will be converted into the right to receive by the Stockholders an aggregate of 759,036
(the “Exchange Ratio”) shares of Parent’s common stock (“Stock Consideration”). Twenty Five percent of
the Stock Consideration shall be held back and shall be released to Parent or Stockholders, as the case may be, in accordance with the
procedures set forth in Section 3.2 the Merger Agreement. In the event that EBITDA is equal to or exceeds $316,265 (the “Minimum
EBITDA Amount”) for the Fiscal Year ended December 31, 2021, Stockholders shall be entitled to receive fifty percent (50%) of the
Holdback Shares. If the EBITDA for such period is less than $316,265, that portion of the Holdback Shares shall be released to the Parent.
In addition, if the EBITDA for the Procare for the period ended December 31, 2022, equals or exceeds the Minimum EBITDA Amount, the remaining
fifty percent (50%) of the Holdback Shares shall be released to the Stockholders. In the event that the Minimum EBITDA Amount is not
achieved for such period, that portion of the Holdback Shares shall be returned to the Parent.

The
Procare Merger Agreement was disclosed on the Company’s current report on Form 8-K filed on October 22, 2021, and the preliminary
accounting for our merger with Procare was disclosed on the Company’s current report on Form 8-K/A filed on December 15, 2021.

Recent
Developments

Reverse
Merger with Nutex

On
November 23, 2021, we entered into an Agreement and Plan of Merger (the “Nutex Merger Agreement”) among the Company, Nutex
Acquisition LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“Merger Subsidiary”), Nutex
Health Holdco LLC, a Delaware limited liability company (“Nutex”), Micro Hospital Holding LLC, a Texas limited liability
company (“MHH”) (solely for the purposes of certain Sections), Nutex Health LLC (solely for the purposes of certain Sections)
and Thomas Vo, M.D., not individually but in his capacity as the representative of the equityholders of Nutex (the “Nutex Representative”).

Under
the terms of the Nutex Merger Agreement, Merger Subsidiary will merge with and into Nutex, with Nutex becoming a wholly-owned subsidiary
of the Company (the “Nutex Merger”).

In
connection with the Nutex Merger Agreement, Nutex has entered into certain Contribution Agreements with holders of equity interests (“Nutex
Owners”) of subsidiaries and affiliates of Nutex and MHH (the “Nutex Subsidiaries”) pursuant to which such Nutex Owners
have agreed to contribute certain equity interests in the Nutex Subsidiaries to Nutex in exchange for specified equity interests in Nutex
(collectively, the “Contribution Transaction”).

Pursuant
to the Nutex Merger Agreement, each unit representing an equity interest in Nutex issued and outstanding immediately prior to the effective
time of the Merger but after the Contribution Transaction (collectively, the “Nutex Membership Interests”) shall be converted
into the right to receive 3.571428575 (the “Exchange Ratio”) shares of common stock (“Company Common Stock”)
of the Company, par value $0.001 per share. The Exchange Ratio may be adjusted proportionally upward based on potential pre-Closing redemptions
of Nutex Membership Interests taking into account any new debt incurred by Nutex to finance such redemptions.

The
aggregate number of Nutex Membership Interests outstanding immediately prior to the Effective Time of the Merger will be equal to the
aggregate EBITDA of Nutex and the contributing percentages of the Nutex Subsidiaries for the trailing 12-month period ended September
30, 2021 (“TTM EBITDA”). The aggregate number of shares of Company Common Stock to be issued in the Merger will be equal
to (a) ten times TTM EBITDA (minus the aggregate debt of the Nutex Subsidiaries and Nutex facilities outstanding as of Closing, including
any new debt incurred to finance the redemptions of Nutex Membership Interests divided by (b) $2.80 (the “Merger Consideration”).

The aggregate number of Nutex Membership Interests
outstanding immediately prior to the Effective Time of the Merger will be equal to (a) with respect to ramping and mature hospitals the
aggregate EBITDA of Nutex based on the contributed percentages of such hospitals for the trailing 12-month period ended September 30,
2021 (“TTM EBITDA”) and (b) with respect to under construction hospitals, the aggregate capital contribution amounts received
from the contributing owners of the under construction hospitals The aggregate number of shares of Company Common Stock to be issued
in the Merger will be equal to (x) with respect to the ramping and mature hospitals, (i) ten times TTM EBITDA (minus (A) the aggregate
debt of the Nutex Subsidiaries and Nutex facilities outstanding as of Closing, ‎excluding guarantees of mortgage debt of the noncontrolled
real estate entities and finance lease obligations ‎reported as indebtedness under GAAP but including any new debt incurred to finance
any redemptions of Nutex Membership Interests, plus (B) up to $10,000,000 of cash held by the Nutex Subsidiaries at Closing ) divided
by (ii) $2.80 plus (y) with respect to the Under Construction Hospitals, (a) the aggregate capital contribution amounts received from
the contributing owners of the Under Construction Hospitals divided by (b) $2.80 (collectively the “Merger Consideration”).
The Merger Consideration shall be increased by such number of shares of Company Common Stock as is equal to the number of shares of Company
Common Stock as may be issued by Clinigence to a certain consultant as required under the Merger Agreement. In addition, under the terms
of the Contribution Agreements owners of the under construction hospitals and ramping hospitals may be entitled to additional shares
of Company Common Stock in the future.

The
transaction was approved by the Board of Directors of the Company. Consummation of the Merger is subject to various closing conditions,
including, among other things, listing of the Company Common Stock on the Nasdaq Capital
Market.

Key
Financial Measures and Indicators

Operating
Revenues

Our
revenue primarily consists of capitation revenue and SaaS subscription services. The form of billing and related risk of collection for
such services may vary by type of revenue and the customer.

Operating
Expenses

Our
largest expense is the patient care cost paid to contracted physicians, and the cost of providing management and administrative support
services to our affiliated physician groups. These services include providing utilization and case management, physician practice billing,
revenue cycle services, physician practice management, administrative oversight, coding services, and other consulting services.

Results
of operation

Our
consolidated operating results for the year ended December 31, 2021, as compared to the year ended December 31, 2020 were as
follows:

Revenue

The
increase was primarily attributable to the AHP acquisition.

Our
total revenue in 2021 was $18.8 million, as compared to $1.5 million in 2020. The increase was primarily attributable to the following:

(i)
an increase of $16.6 million in capitation revenue due to the acquisition of AHP Health Management Services, Inc. which was acquired
as of February 21, 2021.

(ii)
a decrease of $67,854 in SaaS revenue due to a decrease in the number customers subscribing to the technology platform.

(iii)
an increase of $519,489 in management services fees due to the acquisitions of AHP health Management Services, Inc. which was acquired
as of February 21, 2021 and Procare Health Inc which was acquired as of October 1, 2021.

Cost
of Services

Expenses
related to cost of services for the year ended December 31, 2021, were $14.6 million, as compared to $909,780 for the same year ended
December 31, 2020. The overall increase was primarily due to the AHP acquisition.

Research
and Development

Research
and Development expense for year ended December 31, 2021, was $285,880 compared to $557,257 for year ended December 31, 2020. The decrease
was primarily attributable to the reduction of research and development personnel for our Clinigence Health subsidiary.

Sales
and Marketing

Sales
and Marketing expense for the year ended December 31, 2021, was $24,449, compared to $166,759 for the year ended December 31, 2020. The
decrease was primarily attributable to the reduction of sales and marketing personnel for our Clinigence Health subsidiary.

General
and Administrative Expenses

General
and administrative expenses for year ended December 31, 2021, were $12.1 million, as compared to $3.25 million for year ended December
31, 2020. The increase was primarily attributable to the AHP, AHA, Procare acquisitions and pending Nutex merger transactional costs
as well as to stock-based compensation expenses.

Gain
on Sale of Assets

For
the year ended December 31, 2020, the Company recorded a gain on the sale of intellectual property of $8,395,702 pursuant to the AHP
IP purchase agreement in 2020 with our subsidiary Clinigence Health Inc.

Gain
on Lease Termination

For
the year ended December 31, 2020, the Company recorded a gain on the termination of the operating lease of $25,174 for the termination
of the Atlanta, Georgia office lease for our Clinigence Health subsidiary.

Loss
on Sale of Fixed Assets

For
the year ended December 31, 2020, the Company recorded a loss on the sale of fixed assets of $54,819 resulting from the termination of
the Atlanta, Georgia office lease for our Clinigence Health subsidiary.

Amortization

Amortization
expense for the year ended December 31, 2021, was $677,168 as compared to $222,032 for the year ended December 31, 2020. This amount
includes the amortization of intangible assets acquired from AHP and AHA.

Loss
on extinguishment of debt

For
the year ended December 31, 2020, we reported, a non-recurring loss on extinguishment of debt for related party convertible debt conversions
of $167,797, which represents the write off of debt discount of the debt assumed by AHA in the IP purchase agreement.

Income
from forgiveness of debt

For
the year ended December 31, 2021, we had income from forgiveness of debt for the forgiveness of Paycheck Protection Plan (PPP) Loans
of $461,125 and $175,682 for our subsidiaries CHI and AHA, respectively.

Impairment
of Series E investment

Pursuant
to the AHA IP purchase agreement in 2020 with our subsidiary CHI, we recorded a Series E Preferred Stock investment in AHA at $6,402,278
based on 1,252,892 shares outstanding at a fair value of $5.11 per share based on an appraised valuation of the AHA Series E Preferred
Stock. As of December 31, 2020, we determined that the fair value of the AHA Series E Preferred Stock fell below its’ carrying
value based on an independent valuation report and wrote off the investment in AHA. The Preferred Stock was surrendered pursuant to the
AHA Merger Agreement.

Interest
Income

Interest
income for the year ended December 31, 2021, was $917 as compared to $1,030 for the year ended December 31, 2020. Interest income reflects
interest earned on cash held in deposit accounts.

Interest
Expense

Interest
expense for the year ended December 31, 2021, was $6.8 million as compared to $335,450 for the year ended December 31, 2020. Interest
expense was primarily for accretion of debt of $6,011,071 combined with $784,012 interest incurred on convertible debt related to the
acquisition of AHA.

Income
Tax Benefit

For
the year ended December 31, 2021, income tax benefit was recorded for the valuation allowance against the deferred tax liability
of $984,810 recorded on the intangible assets acquired from AHA and Procare.

Net
Income (Loss) Attributable to Noncontrolling Interests

Net
income attributable to noncontrolling interests was $891 for the year ended December 31, 2021, from our noncontrolling interest in the
AHP VIE.

LIQUIDITY
AND CAPITAL RESOURCES

General

We
had cash of $15,314,328 for the year ended December 31, 2021, compared to $26,931 as of December 31, 2020, an increase of $15,287,397.

We
generate cash primarily from capitations, risk pool settlements and incentives, fees for medical management services provided to our
physician groups, as well as FFS reimbursements and recurring SaaS Subscriptions.

Historically,
the Company’s has experienced significant losses and the major sources of cash have been comprised of proceeds from various public
and private offerings of its common stock, debt financings, and option and warrant exercises. During the year ended December 31, 2021,
the Company raised approximately $14.4 million in gross proceeds from various public and private offerings of its common stock. Although
the Company expects to have sufficient capital to fund its obligations, as they become due, in the ordinary course of business until
at least December 31, 2022, the actual amount of cash that it will need to operate is subject to many factors. During the year ended
December 31, 2022, the Company expects to collect the receivable of $1.3 million from the sale of its ACMG investment. The Company also
decreased its debt in 2021. With the funds raised and the other mitigating factors the Company believes that it has enough cash to fund
its operations for one year from the date of filing. Therefore, such conditions of substantial doubt as of December 31, 2021, have subsequently
been alleviated.

Cash
Flow Activity

Cash
used in operating activities for the year ended December 31, 2021, was $6,703,530 as compared to cash used in operating activities of
$1,475,075 for the year ended December 31, 2020. The increase in cash used in operating activities was primarily driven by our operating
revenues not being sufficient to cover our on-going obligations. Additional contributing factors include an increase in accounts receivable
of $74,880, an increase in account payable and accrued expenses of $1,365,554, a decrease in customer deposits of $36,691, an increase
in prepaid expenses of $161,155, income from forgiveness of debt of $633,125, deferred tax benefit of $984,810, amortization and depreciation
expense of $713,779, interest expense associated with debt discount of $6,011,071, increase in accrued interest of $197,033, an AHP purchase
price adjustment of $300,000, a settlement payment of $522,000 from ACMG , non-cash interest expense of $24,372, a decrease in deposits
and other assets of $410, a decrease in lease liability of $27,472, an increase in deferred revenue of $97,232 and stock-based compensation
expense of $4,026,884.

Cash
provided by investing activities for the year ended December 31, 2021, was $7,951,570, primarily due to $4,554,676 from the proceeds
of the sale of ACMG. $522,000 in a separation payment from the investment in ACMG and $3,884,583 of cash acquired in the acquisitions
of AHP and Procare, and preacquisition loan from subsidiary of $85,000, offset by $1,094,689 in AHP litigation settlement, compared to
cash used in investing activities of $60,900 for the year ended December 31, 2020.

Cash
provided by financing activities for the year ended December 31, 2021, was $14,039,357, primarily due to $14,323,439 in proceeds from
sale of common stock, $153,424 in proceeds from exercise of warrants, $178,842 in proceeds from exercise of options and $413,917 from
issuance of notes and convertible notes payable, offset by $16,765 in payments on notes payable and $1,013,500 in payments of financing
costs for capital raise.

CRITICAL
ACCOUNTING POLICIES AND ESTIMATES

Our
management’s discussion and analysis of our financial condition and results of operations are based on our financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation
of financial statements may require us to make estimates and assumptions that may affect the reported amounts of assets and liabilities
and the related disclosures at the date of the financial statements. We do not currently have any estimates or assumptions where the
nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain
matters or the susceptibility of such matters to change or the impact of the estimates and assumptions on financial condition or operating
performance is material, except as described below.

Principles
of Consolidation

The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Clinigence Health, Inc., Accountable
Healthcare America Inc., AHP Management Inc., and Procare Health, Inc. All intercompany accounts and transactions have been eliminated.

Use
of Estimates in the Preparation of Financial Statements

The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The
Company’s significant estimates used in these financial statements include, but are not limited to, accounts receivable reserves,
the valuation allowance related to the Company’s deferred tax assets, the recoverability and useful lives of long-lived assets,
debt conversion features, stock-based compensation, certain assumptions related to the valuation of the reserved shares and the assets
acquired and liabilities assumed related to the Company’s acquisitions. Certain of the Company’s estimates could be affected
by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external
factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates.

Fair
Value Measurements

We
adopted the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value as used in numerous
accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

The
estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these
instruments. The carrying amounts of our short- and long-term credit obligations approximate fair value because the effective yields
on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances of warrants
and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk. The Company’s investment
in AHA was valued at level 3 input.

ASC
820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement
date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

Level
1 – quoted prices in active markets for identical assets or liabilities

Level
2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level
3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

Convertible
Instruments

The
Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815, Derivatives and
Hedging Activities.

Applicable
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative
financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and
risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host
contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at
fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same
terms as the embedded derivative instrument would be considered a derivative instrument.

The
Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated
from their host instruments) as follows: The Company records, when necessary, discounts to convertible notes for the intrinsic value
of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at
the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements
are amortized over the term of the related debt to their stated date of redemption.

The
Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment
standards. The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at their then-current
fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities.

Variable
interest model

We
perform a primary beneficiary analysis on all our identified variable interest entities, which comprises a qualitative analysis based
on power and economics. We consolidate a VIE if both power and benefits belong to us – that is, we (i) have the power to direct
the activities of a VIE that most significantly influence the VIE’s economic performance (power), and (ii) have the obligation
to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE (benefits). We consolidate
VIEs whenever it is determined that we are the primary beneficiary.

Noncontrolling
Interests

We
consolidate variable interest entities (VIEs) in which the Company is the primary beneficiary. Noncontrolling interests represent the
amount of net income attributable to the VIEs and is disclosed in the consolidated statements of income.

Revenue
Recognition

Revenue
is generated by software licenses, training, and consulting. Software licenses are provided as SaaS-based subscriptions that grants access
to proprietary online databases and data management solutions. Training and consulting are project based and billable to customers on
a monthly-basis or task-basis.

Revenue
from training and consulting are generally recognized upon delivery of training or completion of the consulting project. The duration
of training and consulting projects are typically a few weeks or months and last no longer than 12 months.

SaaS-based
subscriptions are generally marketed under multi-year agreements with annual, semi-annual, quarterly, or month-to-month renewals and
revenue is recognized ratably over the renewal period with the unearned amounts received recorded as deferred revenue. For multiple-element
arrangements accounted for in accordance with specific software accounting guidance, multiple deliverables are segregated into units
of accounting which are delivered items that have value to a customer on a standalone basis.

On
January 1, 2019, the Company adopted the new revenue recognition standard Accounting Standards Update (“ASU”) 2014-09, “Revenue
from Contracts with Customers (Topic 606)”, using the modified retrospective method. The modified retrospective adoption used by
the Company did not result in a material cumulative effect adjustment to the opening balance of accumulated deficit. Revenue from substantially
all the Company’s contracts with customers continues to be recognized over time as performance obligations are satisfied.

The
Company provides its customers with software licensing, training, and consulting through SaaS-based subscriptions. This subscription
revenue represents revenue earned under contracts in which the Company bills and collects the charges for licensing and related services.
The Company determines the measurement of revenue and the timing of revenue recognition utilizing the following core principles:

1.
Identifying the contract with a customer;

2.
Identifying the performance obligations in the contract;

3.
Determining the transaction price;

4.
Allocating the transaction price to the performance obligations in the contract; and

5.
Recognizing revenue when (or as) the Company satisfies its performance obligations.

Revenues
from subscriptions are deferred and recorded as deferred revenue when cash payments are received in advance of the satisfaction of the
Company’s performance obligations and recognized over the period in which the performance obligations are satisfied. The Company
completes its contractual performance obligations through providing its customers access to specified data through subscriptions for
a service period, and training on consulting associated with the subscriptions. The Company primarily invoices its customers on a monthly
basis and does not provide any refunds, rights of return, or warranties to its customers.

AHA’s
performance obligation is to manage ACO participants who provide healthcare services to CMS’s members for the purpose of generating
shared savings. If achieved, the Company receives shared savings payments from CMS, which represents variable consideration. The shared
savings payments are recognized using the most likely methodology. However, as the Company does not have sufficient insight from CMS
into the financial performance of the shared risk pool because of unknown factors related to shifting patient count, risk adjustment
factors and benchmark adjustments, among other factors, an estimate cannot be developed. Therefore, these amounts are considered to be
fully constrained and only recorded in the months when such payments are known and/or received. The Company generally receives payment
within ten months after the fiscal year-end.

AHP
negotiates fixed per-member, per-month (PMPM) rates (Capitation) with third-party insurers for a fixed period of time. The Independent
Physicians Association (“IPA”) recognizes capitation payments received in advance from third-party insurers as revenue on
a monthly basis without regard to the frequency, extent, or nature of the medical services actually furnished.

Procare’s
revenue is generated primarily through management fees that are received based on Gross Capitation Revenues of the IPA/Physician Groups.
Revenue is paid monthly and is a flat fixed rate determined by the agreement. In addition to Management Fees, there is revenue generated
through consultant services that are charged as a flat fixed rate and represent a small portion of the total revenue.

Cost
of Sales

Our
costs of sales primarily consist of cloud computing and storage costs, datasets, contracted and internal labor costs and contracted medical
provider services.

Advertising
Costs

We
expense advertising costs as incurred. Advertising costs of $24,449 and $41,418 were charged to operations for the years ended December
31, 2021, and 2020, respectively.

Cash
and Cash Equivalents

Cash
and cash equivalents are comprised of cash and highly liquid investments with original maturities of 90 days or less at the date of purchase.
We do not have any cash equivalents as of December 31, 2021, and 2020. We are exposed to credit risk in the event of default by the financial
institutions or the issuers of these investments to the extent the amounts on deposit or invested are in excess of amounts that are insured.

Accounts
Receivable

The
Company analyzes the collectability of accounts receivable from continuing operations each accounting period and adjusts its allowance
for doubtful accounts accordingly. A considerable amount of judgment is required in assessing the realization of accounts receivables,
including the creditworthiness of each customer, current and historical collection history and the related aging of past due balances.
The Company evaluates specific accounts when it becomes aware of information indicating that a customer may not be able to meet its financial
obligations due to deterioration of its financial condition, lower credit ratings, bankruptcy or other factors affecting the ability
to render payment. As of December 31, 2021, no customers represented more than 10% of total accounts receivable.

Inventory

Inventory
consisting of finished products is stated at the lower of cost or net realizable value.

Property
and equipment and depreciation

Property
and equipment are stated at cost. Maintenance and repairs are charged to expense when incurred. When property and equipment are retired
or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any gain or loss
is credited or charged to income. Depreciation for both financial reporting and income tax purposes is computed using combinations of
the straight line and accelerated methods over the estimated lives of the respective assets as follows:

Business
Combinations

We
use the acquisition method of accounting for all business combinations, which requires assets and liabilities of the acquiree to be recorded
at fair value, to measure the fair value of the consideration transferred, including contingent consideration, to be determined on the
acquisition date, and to account for acquisition related costs separately from the business combination.

Amortization

Intangible
assets are amortized using the straight-line method over the estimated lives of the respective assets as follows:

Goodwill

Goodwill
represents the net identifiable assets acquired and the liabilities assumed of Procare, AHA and AHP and the fair market value of the
common shares issued by the Company for the acquisition of Procare, AHA and AHP. In accordance with ASC Topic No. 350 “Intangibles
– Goodwill and Other”), the goodwill is not being amortized, but instead will be subject to an annual assessment of impairment
by applying a fair-value based test and will be reviewed more frequently if current events and circumstances indicate a possible impairment.
An impairment loss is charged to expense in the period identified. If indicators of impairment are present and future cash flows are
not expected to be sufficient to recover the asset’s carrying amount, an impairment loss is charged to expense in the period identified.
No impairment was recorded during the year ended December 31, 2021.

Long-Lived Assets

We
assess the valuation of components of our property and equipment and other long-lived assets whenever events or circumstances dictate
that the carrying value might not be recoverable. We base our evaluation on indicators such as the nature of the assets, the future economic
benefit of the assets, any historical or future profitability measurements and other external market conditions or factors that may be
present. If such factors indicate that the carrying amount of an asset or asset group may not be recoverable, we determine whether an
impairment has occurred by analyzing an estimate of undiscounted future cash flows at the lowest level for which identifiable cash flows
exist. If the estimate of undiscounted cash flows during the estimated useful life of the asset is less than the carrying value of the
asset, we recognize a loss for the difference between the carrying value of the asset and its estimated fair value, generally measured
by the present value of the estimated cash flows.

Deferred
Revenue

Deposits
from customers are not recognized as revenues, but as liabilities, until the following conditions are met: revenues are realized when
cash or claims to cash (receivable) are received in exchange for goods or services or when assets received in such exchange are readily
convertible to cash or claim to cash or when such goods/services are transferred. When such income item is earned, the related revenue
item is recognized, and the deferred revenue is reduced. To the extent revenues are generated from our support and maintenance services,
we recognize such revenues when services are completed and billed. We received deposits from our various customers that have been recorded
as deferred revenue and presented as current liabilities in the amount of $173,919 and $76,687 as of December 31, 2021, and 2020, respectively.

Stock-Based
Compensation

We
account for our stock-based awards granted under our employee compensation plan in accordance with ASC Topic No. 718-20, Awards Classified
as Equity, which requires the measurement of compensation expense for all share-based compensation granted to employees and non-employee
directors at fair value on the date of grant and recognition of compensation expense over the related service period for awards expected
to vest.  We use the Black-Scholes option pricing model to estimate the fair value of its stock options and warrants. The Black-Scholes
option pricing model requires the input of highly subjective assumptions including the expected stock price volatility of the Company’s
common stock, the risk-free interest rate at the date of grant, the expected vesting term of the grant, expected dividends, and an assumption
related to forfeitures of such grants.  Changes in these subjective input assumptions can materially affect the fair value
estimate of the Company’s stock options and warrants.

Income
Taxes

We
account for income taxes using the asset and liability method in accordance with ASC Topic No. 740, Income Taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.

We
apply the provisions of ASC Topic No. 740 for the financial statement recognition, measurement and disclosure of uncertain tax positions
recognized in our financial statements. In accordance with this provision, tax positions must meet a more-likely-than-not recognition
threshold and measurement attribute for the financial statement recognition and measurement of a tax position.

Recent
Accounting Pronouncements

We
have reviewed other recent accounting pronouncements and concluded they are either not applicable to the business, or no material effect
is expected on the condensed consolidated financial statements as a result of future adoption.

OFF
BALANCE SHEET ARRANGEMENTS

We
have no off balance-sheet arrangements.