NUTEX HEALTH, INC. – 10-Q – Management’s Discussion and Analysis of Financial Condition and Results of Operations – InsuranceNewsNet

The following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the unaudited
consolidated financial statements and the notes thereto included in Part I, Item
1, "Financial Statements" of this Quarterly Report on Form 10-Q.

                                Explanatory Note

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 is
accounted for as a reverse acquisition under U.S. GAAP. Therefore, Nutex Health
Holdco LLC is 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.

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.

Overview

Nutex Health Inc. is a physician-led, technology-enabled healthcare services
company with 21 hospital facilities in eight states (hospital division), and a
primary care-centric, risk-bearing population health management division. Our
hospital division implements and operates different 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.

We employ approximately 1,500 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.

Basis of presentation. The merger of Nutex Health Holdco LLC and Clinigence was
accounted for as a reverse business combination with Nutex Health Holdco LLC as
the accounting acquirer in accordance with ASC 805, Business Combinations, and
Clinigence as the accounting acquiree. Our financial statements presented for
periods prior to April 1, 2022, the date of the merger 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
including Clinigence.

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.

The hospital division includes our healthcare billing and collections company
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 consolidated Real Estate Entities have mortgage loans
payable to third parties which are collateralized by the land and buildings. The
Real Estate Entities are consolidated by the Company as VIEs because they do not
have sufficient equity at risk and our hospital entities are guarantors of their
outstanding mortgage loans. We have been working with the third-party lenders to
remove our guarantees of their outstanding mortgage loans. As these guarantees
are released, the associated Real Estate Entity no longer qualifies as a VIE and
is deconsolidated.

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.

The Population Health Management Division includes our management services
healthcare information technology organizations and company providing a
cloud-based platform for healthcare organizations. Additionally, AHP IPA, a
a physician-affiliated entity that is not owned by us is consolidated since we are
the primary beneficiary of their transactions under our management services
contracts with them.

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).

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

                           Three months ended June 30            Six months ended June 30
                             2022                2021             2022               2021
Insurance                        92 %                 97 %            92 %                96 %
Self pay                          8 %                  2 %             8 %                 3 %
Workers compensation              0 %                  1 %             0 %                 1 %
Medicare/Medicaid                 0 %                  0 %             0 %                 0 %
Total                           100 %                100 %           100 %               100 %

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 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 received based on
gross capitation revenues of the IPAs or physician groups we manage.

Our growth plans. 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 identify new market areas for hospitals based on the area's need for access
to emergency health services and growth expectations. We identify and partner
with local physicians who will operate and manage the new location. When
developing new hospitals, we have a turn-key process for location selection,
real estate acquisition, design, ?and development of the facility to staffing,
training and operations. We extend our existing comprehensive suite of
?centralized services to operating hospitals, including executive management,
billing, collections, recruiting ?and marketing.

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COVID-19 Pandemic

A novel strain of coronavirus causing the disease known as COVID-19 was first
identified in December 2019, and has 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.

As a provider of healthcare services, we have been 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 has resulted in general inflationary pressures and has resulted in
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 have also experienced a
delay in billing and collection of patient claims during this period.

The COVID-19 pandemic has 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.

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.

Overview of legislative developments

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.

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.

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.

law without surprise

The No Surprises Act ("NSA") was enacted on December 27, 2020 to address
"surprise medical bills", and took effect on January 1, 2022. 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. ?

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. ?

Qualifying Payment Amount. The "qualifying payment amount" 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 item[s] 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.?

HHS Interim Final Rule. As required by the NSA, the United States Department of
Health and Human ?Services ("HHS") has established an independent dispute
resolution (IDR) process under which a certified IDR ?entity determines the
ultimate amount of payment. On September 30, 2021, the HHS issued an interim
final rule. ?The rule effectively creates a rebuttable presumption that the
amount closest to the qualifying payment amount is ?the proper payment amount.
While the NSA instructs arbitrators to consider both the qualifying payment
amount and the ?other factors enumerated in the NSA, the HHS interim final rule
requires arbitrators to "select the offer closest to the ??[qualifying payment
amount]" and deviate from that amount only if credible information clearly
demonstrates that ?the qualifying payment amount is different from the
appropriate out-of-network rate.?

The HHS interim final rule is currently subject to several legal challenges, and
it is difficult to predict the outcome of efforts to challenge or modify the
rule. The legal challenges take issue with the rule's requirement that
independent dispute resolution entities presume the qualifying payment
amount-the insurer or plan's median in-network rate-is the appropriate
out-of-network payment amount. A court decision has only been reached in one of
the eight cases pending as of June 2022.

In Texas Medical Association and Adam Corley v. United States Department of
Health and ?Human Services, Case No. 6:21-cv-425-JDK (E.D. Tex.), the United
States District Court on February 23, 2022 held ?that the HHS rule conflicts
with the unambiguous terms of the NSA and vacated the applicable provisions of
the ?rule which require arbitrators to presume the correctness of the qualifying
payment amount and then imposing a ?heightened burden on the remaining statutory
factors to overcome that presumption.?

?HHS initially appealed the court ruling, but asked the court to
hold the call? Pending publication of the final rule later this summer.

Since the NSA and the associated HHS interim final rule became effective on
January 1, 2022, we have experienced a significant decline in collections of
patient claims for emergency services. We are working within the established
processes for IDR under the interim final rule and have only had limited success
at achieving collections higher than the established qualifying payment amount.

There can be no assurance that third-party payers will not attempt to sue
reduce the rates they pay for our services.

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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.

                                       Three months ended June 30             Six months ended June 30
                                         2022               2021              2022               2021
Revenues
Hospital division                   $  51,604,679      $ 62,814,672      $ 130,731,921      $ 150,157,914
Population health management
division                                6,443,254                -           6,443,254                 -
Total revenue                          58,047,933        62,814,672        137,175,175        150,157,914
Segment operating income:
Hospital division                       5,249,528        29,137,332         39,647,506         83,787,175
Population health management
division                                 (257,002 )              -            (257,002 )               -

Total segment operating income 4,992,526 29,137,332 39,390,504 83,787,175
Businesses and others

                     6,371,003         1,533,002         11,530,008          3,522,040
Interest expense                        3,849,629         1,504,933          5,705,603          2,991,090
Other expense (income)                 (1,403,222 )      (4,060,149 )          977,323         (3,921,356 )
Income before taxes                    (3,824,884 )      30,159,546         21,177,570         81,195,401
Income tax expense                     19,653,286           481,501         19,829,609            638,354
Net income (loss)                     (23,478,170 )      29,678,045        

1,347,961 80,557,047

Less: net income (loss)
attributable to noncontrolling
interests                              (4,082,418 )       2,618,644           (786,589 )       15,735,510
Net income (loss) attributable
to Nutex Health Inc.                $ (19,395,752 )    $ 27,059,401      $   2,134,550      $  64,821,537
Adjusted EBITDA                     $   9,354,218      $ 30,014,704      $ 

33,617,452 $69,748,692

Three months completed June 30, 2022 Compared to the three months ended June 30, 2021

We reported a net loss attributable to Nutex Health Inc. of $19.4 million, or a
loss of $0.03 per diluted share, for the three months ended June 30, 2022 as
compared with net income attributable to Nutex Health Inc. of $27.0 million, or
$0.05 per diluted share, for same period of 2021. Our 2022 results were
principally affected by:

• Lower Lower amounts of revenue caused by legislative changes reducing our

charges for patient services at median rates in the network;

• Start-up costs associated with five new facilities opened since April 2021

which are experiencing favorable market acceptance but are not yet fully achieving

equilibrium profitability;

• Significant non-cash tax expense totaling $18.4 millionnet, for the

one-time change in our tax status and release of acquired assessment

Clinigence allowance; and

• Incidental costs related to the Clinigence merger operation and

higher levels of general and administrative expenses related to our operations

as a public company.

• Higher overall cost of employees and independent contractors.

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Adjusted EBITDA for the three months ended June 30, 2022 totaled $9.4 million as
compared to $30.0 million for he comparable period of 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 the three months ended June 30, 2022 totaled
$51.6 million as compared to $62.8 million for the same period of 2021, a
decrease of 18%. We have experienced a significant decline in collections of
patient claims for emergency services as a result of the median of the
contracted rates that are offered within the same insurance market, as mandated
by the NSA. This decrease was partially offset by an increase in the number of
patient visits in the 2022 period as compared with the 2021 period.

The following table shows the number of patient visits during the periods:

                      Three months ended June 30
                        2022               2021
Patient visits:
Hospital                 33,175              28,470


Total patient visits increased 17% during the three months ended June 30, 2022
as compared with the same period of 2021. We opened three facilities between
April and August of 2021. In 2022, we opened two additional facilities in
February. Having these facilities operational during the entirety of the 2022
period contributed substantially to the increased number of patient visits. That
said, we have noted a reduction in the severity of these cases which has
resulted in lower claims amounts and net revenue. We are not able to estimate
the number or severity of future patient visits.

The hospital division's operating income was $5.2 million during the three
months ended June 30, 2022, down 82% from $29.1 million during the same period
of 2021. Our operating income for the second quarter of 2022 was adversely
affected by the reduction in net revenue discussed above. As mentioned above, we
have opened five new facilities since April 2021. Start-up costs for these
facilities 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 break-even profitability within 12 to
15 months. In this time, we also made staffing additions to manage higher
volumes of medical claims billing and collection administration.

Population Health Management Division. We started the population health
management division in April 2022 upon completion of the merger with Clinigence.
Our total revenue for the three months ended June 30, 2022 was $6.4 million
consisting of capitation revenue of $5.2 million, management fees of $1.0
million and SaaS revenue of $290 thousand. Capitation revenue is recognized by
our consolidated VIE, AHP IPA. 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. Instead, we earn management fees for our
services to them which are reported as revenue.

The population health management division incurred an operating loss of $0.3
million during the three months ended June 30, 2022. Strategically, we are
focused on 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. We have been working with the third-party lenders to remove our
guarantees of the outstanding mortgage loans of consolidated Real Estate
Entities. As these guarantees are released, the associated Real Estate Entity no
longer qualifies as a VIE and is deconsolidated. In the second quarter of 2022,
we deconsolidated 17 Real Estate Entities.

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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To June 30, 2022three Real Estate Entities continue to be consolidated in our
Financial state. We expect the hospitals we open in the future to be
leased to new Real Estate Entities which may be owned in whole or in part by
related parties. Third-party lenders to these entities may require that we
provide a guarantee or become co-borrowers in the context of mortgage debt
funding for such facilities. In such cases, we may need to
consolidate these new real estate entities in our financial statements as VIE.

Corporate and other expenses. Total corporate costs in the three months ended
June 30, 2022 were $6.4 million including general and administrative expenses of
$2.5 million and acquisition-related costs associated with the merger with
Clinigence totaling $3.9 million. Our corporate costs for the three months ended
June 30, 2021 totaled $1.5 million and consisted of general and administrative
expenses. 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 we prepared for our
public listing, 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
expect to 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.

Nonoperating items

Interest expense. Interest expense totaled $3.9 million in the three months
ended June 30, 2022 as compared with $1.5 million for the same period of 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,
and the accretion costs related to the conversion of notes from 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 from
the Clinigence transaction.

Other expense (income). Other expense for the three months ended June 30, 2021
includes $4 million for the forgiveness of SBA Paycheck Protection Program loans
we obtained. These loans were fully forgiven by the SBA after the Company met
the program requirements for expenditure of the loan proceeds. We do not expect
other expense (income) to be significant in future periods.

Income tax expense. Income tax provisions for interim quarterly periods are
generally based on an estimated annual effective income tax rate calculated
separately from the effect of significant, infrequent or unusual items related
specifically to interim periods. The income tax impact of discrete items are
recognized in the period these occur.

In periods before the 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 will be included in its future consolidated corporate tax
filings. We recognized a non-cash charge of $20.8 million to income tax expense
during the three months ended June 30, 2022 for the change in tax status of

Nutex Health Holdco LLC.

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At the time of our merger with Clinigence, Clinigence had a full valuation
allowance against its deferred tax assets. During the three months ended June
30, 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.

Each of the discrete items above are one-time, non-cash items. Excluding the
discrete items above, our effective tax rate for the three months ended June 30,
2022 was 25.2%. The primary difference from the federal statutory rate of 21% is
related to state taxes, income of noncontrolling interests in flow-through
entities and permanent differences for non-deductible expenses.

Semester completed June 30, 2022 Compared to the half-year ended June 30, 2021

We reported net income attributable to Nutex Health Inc. of $2.1 million, or
$0.00 per diluted share, for the six months ended June 30, 2022 as compared with
$64.7 million, or $0.11 per diluted share, for same period of 2021. The special
items affecting revenue and our costs and expenses discussed above impacted the
2022 reporting period as well.

Adjusted EBITDA for the six months ended June 30, 2022 totaled $33.6 million as
compared with $69.7 million for the same period of 2021 with the special items
affecting revenue and start-up costs causing the decline during the 2022 period.

A discussion of our segment results is included below.

Hospital Division. Revenue totaling $130.7 million for the six months ended June
30, 2022 decreased 13% from $150.2 million for the same period of 2021. As
noted, our revenue has been adversely impacted in the 2022 period as a result of
the NSA. This decrease was partially offset by an increase in the number of
patient visits in the 2022 period.

The following table shows the number of patient visits during the periods:

                     Six months ended June 30
                       2022             2021
Patient visits:
Hospital                84,931          74,554


Total patient visits during the six months ended June 30, 2022 increased 14% as
compared with the same period of 2021. Five newly opened facilities, most opened
in 2021 periods after June, contributed substantially to the increased number of
patient visits in 2022.

As noted, we have seen a reduction in the severity of these cases, which has
resulting in lower claims and net revenues. We are unable to estimate the
the number or severity of future patient visits.

Typically, we experience some seasonality in the number of patient visits and
revenue during the year usually corresponding with the late-fall and winter
months when flu and other seasonal infirmities peak. As an emergency care
provider, we are not able to predict the number of patient visits or the
severity of patient healthcare needs. We operate our facilities 24 hours daily
in order to be responsive to our communities' needs.

The hospital division's segment operating income was $39.6 million during the
six months ended June 30, 2022, down 53% from the same period of 2021. Our
operating income for the second quarter of 2022 was adversely affected by the
reduction in net revenue discussed above. As mentioned above, we opened five new
facilities since April 2021. Start-up costs at newly facilities often exceed our
revenue at these facilities for the first 12 to 15 months after their opening.
In addition, in late-2021 and through the second quarter of 2022, we made
several staffing additions to manage higher volumes of medical claims billing
and collection administration.

Population Health Management Division. Total revenue and segment operating loss
for the three and six months ended June 30, 2022 were the same amounts since the
Clinigence merger was completed on April 1, 2022.

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Real Estate Division. This division reports the operations of consolidated Real
Estate Entities which are partially owned by related parties. As noted, we have
no equity interest in these entities but consolidate these as VIEs when Nutex is
a co-borrower or provides a guarantee of the Real Estate Entities mortgage
indebtedness. In the second quarter of 2022, we deconsolidated 17 Real Estate
Entities.

Revenue and operating expenses for the real estate division are not significant
since finance lease income is recognized outside of segment operating income as
other income by the Real Estate Entities. Such amounts are generally eliminated
in the consolidation of these entities into our financial statements.

Corporate and other expenses. Total corporate costs in the six months ended June
30, 2022 were $11.5 million including general and administrative expenses of
$7.6 million and acquisition-related costs associated with the merger with
Clinigence totaling $3.9 million. Corporate costs for the six months ended June
30, 2021 totaled $3.5 and consisted of general and administrative expenses. In
the 2022 period, we incurred higher levels of professional fees as we prepared
for our public listing, made staffing additions commensurate with our
operational growth and made key additions to our executive management team.

Non-operating items

Interest expense. Interest expense for the six months ended June 30, 2022
totaled $5.7 million as compared with $3.0 million for the same period of 2021.
This increase in interest expense was principally a result of higher mortgage
indebtedness of consolidated Real Estate Entities, interest expense on
outstanding term notes and lines of credit for financing operating equipment,
accretion costs related to the conversion of notes payable from the Clinigence
transaction and working capital needs. 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 the elimination of the accretion costs related to the conversion of
notes payable from the Clinigence transaction.

Other expense (income). Other expense for the six months ended June 30, 2021
include $4 million for the forgiveness of SBA Paycheck Protection Program loans
we obtained.

Income tax expense. As discussed above, our tax status was changed as a result
of the merger with Clinigence. Previously, 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. We
recognized a non-cash charge of $20.8 million to income tax expense during the
six months ended June 30, 2022 for this change in tax status. Secondly, we
recorded an offsetting non-cash benefit during the six months ended June 30,
2022 of $2.4 million to income tax expense to remove the acquired valuation
allowance Clinigence had against its deferred tax assets.

Each of the discrete items above are one-time, non-cash items. Our effective tax
rate for the six months ended June 30, 2022, excluding the discrete items above,
was 25.2%. The primary difference from the federal statutory rate of 21% is
related to state taxes, income of noncontrolling interests in flow-through
entities and permanent differences for non-deductible expenses.

Cash and capital resources

From June 30, 2022we have had $47.6 million cash and cash equivalents, compared to
$36.1 million cash and cash equivalents December 31, 2021.

Significant sources and uses of cash in the first six months of 2022.

Sources of cash:

• Cash provided by operating activities was $53.4 millionwho understood $33.6 million

the main components of our working capital (customers, inventory,

payables and expenses).

• Clinigence balance sheet at the date of merger included $12.7 million cash.

• We received net proceeds of $3.0 million from borrowings under notes payable

and lines of credit.

• We received net proceeds of $4.7 million of the exercise of ordinary shares

warrants and options.

• We made distributions to our owners related to pre-merger operations

with Clinigence and to minority shareholders totaling $47.8 million.

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Uses of cash:

• Capital expenditures have been $16.6 million.

• The cash associated with the 17 deconsolidated Real Estate Entities totals $2.4

   million.

Future sources and uses of cash. Our operating activities are financed with cash
on hand which is generated from revenues. Many of our hospital facilities are
leased from Real Estate Entities. These leases are presented in our consolidated
balance sheets when the associated Real Estate Entity is not consolidated. If
the Real Estate Entity is consolidated, the lease is not presented. Instead, in
these instances, the facility and any associated debt owed by the Real Estate
Entity is presented. 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 Real Estate 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 June 30, 2022 is presented in the article
I, “Financial statements – Note 8 – Debt” and our lease obligations are
presented in Section I, “Financial Statements – Note 9 – Leases”.

Off-balance sheet arrangements

From June 30, 2022we had no significant 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, depreciation and amortization, further adjusted
for stock-based compensation and any acquisition related costs. 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.

                                       Three months ended June 30            Six months ended June 30
                                         2022               2021              2022              2021
Reconciliation of Net income
(loss) attributable to Nutex
Health Inc. to Adjusted EBITDA:
Net income (loss) attributable
to Nutex Health Inc.                $ (19,395,752 )    $ 27,059,401      $  2,134,550      $ 64,821,537
Depreciation and amortization           3,132,485         2,223,461         5,529,346         4,001,640
Interest expense, net                   3,849,629         1,504,933         5,705,603         2,991,090
Income tax expense                     19,653,286           481,501        19,829,609           638,354
Allocation to noncontrolling
interests                              (1,825,262 )      (1,254,592 )      (3,521,488 )      (2,703,929 )
EBITDA                                  5,414,386        30,014,704        29,677,620        69,748,692
Stock-based compensation expense           54,166                -         

   54,166                -
Acquisition costs                       3,885,666                -          3,885,666                -
Adjusted EBITDA                     $   9,354,218      $ 30,014,704      $ 33,617,452      $ 69,748,692


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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 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. 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.

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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.

Division of Population Health Management – The Division of Population Health Management
the division recognizes revenues for capitation and management fees for services to
APNs and physician groups and for licensing, training and consulting
tied to our proprietary cloud-based technology.

Capitation revenue consists primarily of capitated fees for medical services
provided by physician-owned entities we consolidate as VIEs. Capitated
arrangements 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 received 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.?

Recent accounting statements. There are no new accounting statements
likely to have a significant impact on the consolidated financial statements
statements.

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