MPLN - Nutex Health: The Hype Is Over

Summary

• Nutex Health Inc. had a fluke in 2020 and 2021 with good revenue streams but has failed to capitalize on it.
• With lower patient visits, Nutex Health has started digging into earnings, and the company keeps on losing money quarter-over-quarter.
• The Nutex Health balance sheet has some red flags, like the liabilities growing at a rapid 50% YoY.

The Investment Thesis

Nutex Health Inc. ( NUTX ) is a company focused on healthcare in the United States. They set themselves apart by being a technology-enabled healthcare service. In their business, they have set up two different divisions. The first one is called the Hospital division and the second is called the Population Health Management division. They implement and operate small micro hospitals or specialty hospitals. In total, they have 21 facilities in 8 different states. The second division in the company is more niched towards operating provider networks like private physicians.

I don't have faith that Nutex Health will be able to sustain as the situation is right now. With decreasing revenues and rapidly growing liabilities, I think share dilution will continue to happen. Because of all these things, I am keeping a sell rating for the company, and it will stay that way until any meaningful turnaround happens.

Last Earnings Report Highlights

In the latest earnings report , Nutex Health provided investors with some well-needed insight into the quarter's performance. The company had revenues come in at $28 million. The top line came in much lower than previously expected, as the management had expected to collect accounts receivable. This made the quarter's revenue $29 million lower than previously estimated. To me, this is a large miss and something that shouldn't happen, as it doesn't boost investor confidence, instead the complete opposite.

Looking at the bottom line, the company had a net loss of $422 million, weighed down by an impairment charge of $408 million as the company performed a one-time non-cash goodwill charge to help reduce the amount they had on the books.

Another significant thing that happened in the quarter was an 11% decrease in total patient visits compared to the year before. In my opinion, it seems everything is moving in the wrong direction right now.

Despite the current issues, the management has remained confident they will be able to open 20 new facilities by the end of 2024, which would greatly help boost the revenues for the company.

Sector Outlook

Nutex Health is operating in the healthcare technology industry. An industry which is poised for a lot of growth ahead according to most researchers. Between 2022 and 2027 the industry is expected to grow around 19.8% annually. That would put the market at a valuation of $974 billion.

More and more companies are shifting towards offering e-prescribing, telehealth, and mHealth. These are the tailwinds that will make the market grow so rapidly. People want to reach healthcare services from the comfort of their own homes instead of having to make a trip somewhere to get what they need. What Nutex will need to prioritize is the capitalizing of this large amount of money flowing into the industry and getting their piece of the pie. Opening more and more facilities and maintaining a good profit margin on them will be key in my opinion.

Competitors

The space that Nutex operates in is quite new, and there are constantly new companies entering it hoping to ride the wave of growth that is forecasted. Some companies that offer a similar product to Nutex would be American Well ( AMWL ), MultiPlan Corporation, ( MPLN ), and Phreesia, Inc. ( PHR ).

Out of these companies, it seems Nutex has the best road ahead as they have managed to establish facilities already and need to focus on profitability right now. But besides growing faster than its competitors, the company will also need to make sure they keep a good balance sheet in the meantime. This will help fund any ventures they might take on and also keep investors interested in them without the fear of losing what they put in.

The Balance Sheet

Looking at the balance sheet , there are some positives and some negatives that are noticeable. Firstly, the company holds around $36 million in cash right now, which has stayed more or less the same since last year. The best part is that, right now, the company can pay off all of its debt if they wanted to, which is just under $29 million in total. I think this gives the company a lot of flexibility to take on more debt and further finance their potential expansion.

Assets have been increasing YoY, much thanks to a $16 million increase in goodwill but also $20 million more in intangible assets. What might be more worrying is that the liabilities the company has are growing much faster, at 50% YoY. The reason being almost $150 million more in financing lease liabilities.

Looking at the cash from operating activities, Nutex has achieved $46 million so far. This money will most likely go towards the new facilities they hope to open up until 2024.

All in all, I think there are some issues that the management will have to address in terms of the balance sheet. I think the high amount of cash is a big positive, but if leases get out of hand, it would force the company to dilute shares to raise capital. Otherwise, I think they could risk having a less beneficial position.

Valuing The Company

Right now, I don't see a future where Nutex Health is operating. The loss in the last quarter has me very worried about the management's ability to operate the company. Not just the large impairment charge of goodwill, that one I sort of disregard. The thing that makes me have such a bearish sentiment about Nutex Health Inc. is the decrease in patient visits by 11%. That's a high amount, and I don't think it's about seasonality. Instead, it seems this company had a Covid-19 fluke and made a bunch of money from it and now can't keep up the momentum.

In the last earnings report, the management did list some priorities for the company, but I am still not convinced. Given the decrease in revenues and the high increase in liabilities, I will keep the company at a sell rating. I think there are a lot better opportunities out there in the healthcare space. An investment into Nutex will come with a lot of risks to it.

Conclusion

Nutex Health Inc. saw good revenues in both 2020 and 2021, but it has failed in the last year to keep up any of that momentum. Instead, they have had low revenues and continue to lose money each quarter.

The biggest concern for me is the lower amount of patient visits Nutex Health Inc. has had. Likely from a lower spread of Covid-19, which gave the company a lot of work.

The Nutex Health liabilities are growing very fast YoY as financing leases are getting bigger and bigger. Given all the issues I have with Nutex Health Inc., I will stay put with my sell rating for them.

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