Cardiff Lexington Corporation (CDIX) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for participating in today's conference call to discuss Cardiff Lexington's financial results for the second quarter ended June 30, 2026. [Operator Instructions] And as a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Walter Frank of IMS Investor Relations. Sir, please go ahead.

Thank you, operator. I would like to welcome everybody to the call. Hosting the call today are Cardiff Lexington's CEO, Alex Cunningham; and CFO, Matt Shafer. I would like to take a moment to read the safe harbor statement. This conference call contains forward-looking statements as defined within Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements and terms such as anticipate, expect, intend, may, will, should or other comparable terms involve risks and uncertainties because they relate to events and depend on circumstances that will occur in the future. Those statements include statements regarding the intent, belief or current expectations of Cardiff Lexington and members of its management as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those described in Cardiff Lexington's periodic reports filed with the SEC, and that actual results may differ materially from those contemplated by such forward-looking statements. Except as required by federal securities law, Cardiff Lexington undertakes no obligation to update or revise forward-looking statements to reflect changed conditions. I would now like to turn the call over to the CEO of Cardiff Lexington, Alex Cunningham.

Thanks, Walter. Good morning, and thank you for joining our conference call today to discuss our second quarter 2026 results. I will start by providing an overview of our performance and strategy, which will focus more on year-to-date progress before turning the call over to Matt Shafer, our Chief Financial Officer, for a deeper dive into our financial results in the second quarter. We will then open the call for a brief Q&A. The first half of 2026 is summarized by continued execution of our long-term strategy to establish Nova Ortho and Spine as a leading health care network and provide best-in-class care to a severely underserved patient population. On the operational front, we announced our 12th Nova Ortho and Spine location with the addition of privileges at Southeastern Surgery Center in Tallahassee, Florida. As the capital city of Florida, Tallahassee represents a strategic metropolitan location with high patient volume and visibility that aligns perfectly with our long-term growth strategy and enhances our ability to provide leading medical care. We also announced a new location in Stuart, Florida, which allows us to tap into the healthy demand that we're seeing from Florida's Treasure Coast, which maintains one of Florida's highest concentrations of residents aged 55 and older, a demographic frequently requiring orthopedic, spine, pain management and mobility-related health care services. We also continue to strengthen our team of leading doctors, nurses and health care operators who are the backbone of the services we provide. While we executed well, the first half of the year was not without its challenges. Revenue decreased from last year, primarily related to fewer billed surgical procedures as well as lower implicit realization rates on patient case claim settlements. Despite this, our gross margins remained healthy at 57% for the year-to-date, and our non-GAAP adjusted EBITDA was a relatively small loss, reflecting the resilience of our business model. Demand is very strong, and we are in a very attractive market. That said, working capital constraints have impacted our ability to go out and take advantage of the many opportunities that we're seeing in the market. A top priority remains reducing our cost of capital to support our growth. We are well positioned with strong brand recognition in the markets that we currently serve, and we're committed to the continued execution of our long-term strategy, providing the best care available to our patients across our expanding network of Nova Ortho and Spine locations. With that, I'll now hand the call over to our Chief Financial Officer, Matt Shafer, to take a deeper dive into our financial results for the second quarter. Matt?

Thank you, Alex, and good morning, everyone. Thank you for joining us today. Turning to Slide 4. Total revenue for the second quarter of 2026 was $2.2 million compared with revenue of $2.8 million in the same quarter last year. As Alex touched on briefly, the decline in revenue this quarter was primarily related to a lower implicit realization rate on patient case claim settlements in the quarter compared with the first quarter of 2025. Cost of sales was $977,000 in the second quarter of 2026 compared with approximately $1.1 million in the second quarter of 2025. Gross profit in the second quarter of 2026 was $1.2 million, or 54.7% of sales compared to $1.7 million, or 60.8% of sales in the second quarter of 2025. Total operating expenses increased to $1.7 million compared with $1.1 million in the second quarter of 2025. The increase is primarily related to increased share-based compensation in the quarter. Selling, general and administrative expenses for the second quarter were $1.4 million, or 63% of revenue compared with $987,000, or 35.4% of revenue in the second quarter of 2025. Loss from continuing operations was $545,000 in the second quarter of 2026 compared with income from continuing operations of $610,000 in the second quarter of 2025. Shifting now to our profitability metrics. Net loss in the second quarter of 2026 totaled $2.5 million compared with a net loss of $1.2 million in the second quarter of 2025. Included in net loss in the second quarter of 2026 was interest expense of $2.1 million compared with interest expense of $1.9 million in the second quarter of 2025, which, as Alex alluded to and explained last quarter, is a result of the higher cost financing structures that we've used to fund our business as we continue to explore opportunities to increase our working capital. On a non-GAAP basis, we recognized adjusted EBITDA loss, which excludes interest expense, of $177,000 in the second quarter of 2026 compared with adjusted EBITDA of $708,000 in the second quarter of 2025. A detailed reconciliation of adjusted EBITDA to net income is provided in the press release issued earlier today. Moving now to the balance sheet. Our total assets as of June 30, 2026, were $30.7 million compared to $29.1 million at December 31, 2025. Current assets as of June 30, 2026, included $218,000 in cash and $23.7 million of net accounts receivable, while current assets at December 31, 2025, included $319,000 of cash and $22.1 million of net accounts receivable. Total liabilities as of June 30, 2026, were $27.1 million compared to $26 million at December 31, 2025. With that, I will now turn the call back over to Alex.

Thanks, Matt. We remain confident that we're fulfilling a critical health care need in a highly attractive geographic market, and we see this as a strong opportunity for continued growth. Over the last several years, we've proven that our model can deliver high returns on invested capital, and enhanced access to working capital will provide us with the flexibility to pursue the many opportunities available to us in this exciting market. Looking ahead, patient volume is increasing, and our focus remains on debt restructure and working capital, returning our business to historical levels of performance while driving long-term sustained value for our shareholders. Operator, at this time, you can open the lines for questions and answers.

[Operator Instructions] Our first question is coming from Andrea Grieco with Stewart Capital.

First, what was the realization rate on claims settlements this quarter? And how does that compare to last year?