Nutex Well being: The Hype Is Over

The Funding Thesis

Nutex Well being Inc. (NASDAQ:NUTX) is an organization centered on healthcare in america. They set themselves aside by being a technology-enabled healthcare service. Of their enterprise, they’ve arrange two totally different divisions. The primary one is referred to as the Hospital division and the second is known as the Inhabitants Well being Administration division. They implement and function small micro hospitals or specialty hospitals. In complete, they’ve 21 services in 8 totally different states. The second division within the firm is extra niched in direction of working supplier networks like personal physicians.

I haven’t got religion that Nutex Well being will be capable of maintain because the state of affairs is correct now. With lowering revenues and quickly rising liabilities, I feel share dilution will proceed to occur. Due to all this stuff, I’m retaining a promote ranking for the corporate, and it’ll keep that method till any significant turnaround occurs.

Final Earnings Report Highlights

Within the latest earnings report, Nutex Well being offered traders with some well-needed perception into the quarter’s efficiency. The corporate had revenues are available at $28 million. The highest line got here in a lot decrease than beforehand anticipated, because the administration had anticipated to gather accounts receivable. This made the quarter’s income $29 million decrease than beforehand estimated. To me, it is a giant miss and one thing that should not occur, because it would not enhance investor confidence, as an alternative the exact opposite.

Wanting on the backside line, the corporate had a internet lack of $422 million, weighed down by an impairment cost of $408 million as the corporate carried out a one-time non-cash goodwill cost to assist cut back the quantity they’d on the books.

One other vital factor that occurred within the quarter was an 11% lower in complete affected person visits in comparison with the yr earlier than. For my part, it appears every part is transferring within the mistaken route proper now.

Regardless of the present points, the administration has remained assured they’ll be capable of open 20 new services by the top of 2024, which might drastically assist enhance the revenues for the corporate.

Sector Outlook

Nutex Well being is working within the healthcare know-how trade. An trade which is poised for lots of development forward in line with most researchers. Between 2022 and 2027 the trade is predicted to grow around 19.8% yearly. That may put the market at a valuation of $974 billion.

An increasing number of firms are shifting in direction of providing e-prescribing, telehealth, and mHealth. These are the tailwinds that may make the market develop so quickly. Folks wish to attain healthcare companies from the consolation of their very own properties as an alternative of getting to make a visit someplace to get what they want. What Nutex might want to prioritize is the capitalizing of this massive sum of money flowing into the trade and getting their piece of the pie. Opening an increasing number of services and sustaining a superb revenue margin on them might be key in my view.

Rivals

The area that Nutex operates in is kind of new, and there are continuously new firms coming into it hoping to journey the wave of development that’s forecasted. Some firms that provide an analogous product to Nutex could be American Effectively (AMWL), MultiPlan Company, (MPLN), and Phreesia, Inc. (PHR).

Out of those firms, it appears Nutex has the very best street forward as they’ve managed to determine services already and have to give attention to profitability proper now. However apart from rising sooner than its rivals, the corporate will even want to ensure they hold a superb steadiness sheet within the meantime. This can assist fund any ventures they could tackle and likewise hold traders excited by them with out the concern of shedding what they put in.

The Steadiness Sheet

Wanting on the balance sheet, there are some positives and a few negatives which are noticeable. Firstly, the corporate holds round $36 million in money proper now, which has stayed kind of the identical since final yr. The very best half is that, proper now, the corporate can repay all of its debt in the event that they wished to, which is just below $29 million in complete. I feel this offers the corporate a number of flexibility to tackle extra debt and additional finance their potential growth.

Property have been rising YoY, a lot because of a $16 million improve in goodwill but additionally $20 million extra in intangible belongings. What may be extra worrying is that the liabilities the corporate has are rising a lot sooner, at 50% YoY. The reason is nearly $150 million extra in financing lease liabilities.

Wanting on the money from working actions, Nutex has achieved $46 million thus far. This cash will more than likely go in direction of the brand new services they hope to open up till 2024.

All in all, I feel there are some points that the administration should handle when it comes to the steadiness sheet. I feel the excessive amount of money is an enormous constructive, but when leases get out of hand, it could pressure the corporate to dilute shares to lift capital. In any other case, I feel they may danger having a much less helpful place.

Valuing The Firm

Proper now, I do not see a future the place Nutex Well being is working. The loss within the final quarter has me very anxious concerning the administration’s means to function the corporate. Not simply the big impairment cost of goodwill, that one I kind of disregard. The factor that makes me have such a bearish sentiment about Nutex Well being Inc. is the lower in affected person visits by 11%. That is a excessive quantity, and I do not suppose it is about seasonality. As a substitute, it appears this firm had a Covid-19 fluke and made a bunch of cash from it and now cannot sustain the momentum.

Within the final earnings report, the administration did record some priorities for the corporate, however I’m nonetheless not satisfied. Given the lower in revenues and the excessive improve in liabilities, I’ll hold the corporate at a promote ranking. I feel there are lots higher alternatives on the market within the healthcare area. An funding into Nutex will include a number of dangers to it.

Conclusion

Nutex Well being Inc. noticed good revenues in each 2020 and 2021, but it surely has failed within the final yr to maintain up any of that momentum. As a substitute, they’ve had low revenues and proceed to lose cash every quarter.

The most important concern for me is the decrease quantity of affected person visits Nutex Well being Inc. has had. Seemingly from a decrease unfold of Covid-19, which gave the corporate a number of work.

The Nutex Well being liabilities are rising very quick YoY as financing leases are getting greater and larger. Given all the problems I’ve with Nutex Well being Inc., I’ll keep put with my promote ranking for them.