ADHS Monthly Report — February 2026

1. Executive Overview

This report presents the analytical review of the ADHS Corporate Operating Model for the month ended February 28, 2026. It covers consolidated financial performance across all 14 entities, data integrity assessment, month-over-month variance analysis (Feb-26 vs Jan-26), and location-level profitability.

ADHS generated $10.69M in consolidated net revenue in February 2026, a marginal 1.3% increase from January ($10.56M). However, operating income declined 67% to $124K (from $378K) as SGA expenses rose 3.8% to $10.57M. The system continues to report negative net income of ($3.53M), driven by $3.42M/month in interest expense, though this improved $257K from January largely due to lower interest charges.

Key Metrics at a Glance

Net Revenue

$10.69M

+1.3% MoM | FY25 avg: $13.1M/mo

Operating Income

$124K

-67.1% MoM | 1.2% margin

EBITDA

$338K

-42.9% MoM | 3.2% margin

Net Income

($3.53M)

Improved $257K from Jan

Revenue Composition

The revenue mix remains consistent with prior periods. Personal Injury (PI) net revenue of $5.71M (53.4% of total) is the primary revenue stream, collected at a 24.5% rate against $23.3M gross billed. Commercial Insurance (CI) net revenue of $3.14M (29.4%) reflects a 6.4% gross collection rate against $49.3M gross billed — well below the industry average gross collection rate of 30–40% reported by healthcare RCM benchmarking sources^[1][2]. Other revenue of $1.85M (17.3%) includes management fees, rental income, and miscellaneous items.

Profitability Dynamics

The consolidated system is operationally near-breakeven at the operating income line but structurally unprofitable at the net income line due to $3.42M/month in interest expense (primarily from Health System at $1.86M and Care Capital SPE at $1.45M). Depreciation and amortization add a further $214K/month. The interest burden represents 32.0% of net revenue, making sustained profitability unachievable without debt restructuring or significant revenue growth.

Revenue Concentration

River Oaks alone generates 50.4% of consolidated revenue ($5.39M) and effectively all operating profit ($1.62M, 30.1% margin). The next two revenue-generating entities — Cognizant Management ($1.43M) and ASPN ($1.32M) — together account for 25.8%. Advanced Dallas ($1.15M) and Houston East ($991K) are revenue-generating but operate at significant losses. Five entities generate zero revenue but incur combined SGA of $471K/month.

2. Period Comparison — FY2025 vs YTD 2026

Full-year 2025 produced $157.8M in revenue ($13.1M/month average), $15.8M in operating income ($1.3M/month), and $18.6M EBITDA. However, net income was ($20.1M) for the year, reflecting the structural interest burden.

The first two months of 2026 show $21.25M cumulative revenue ($10.63M/month average), running 18.8% below the FY2025 monthly run rate. YTD operating income is $502K and YTD net income is ($7.32M). If current trends continue, the annualized 2026 revenue projection would be approximately $127.6M, a 19.1% decline from FY2025.

The revenue softness is broad-based: both CI and PI gross billings are tracking below FY2025 levels, and collection rates remain compressed. The CI collection rate of 6.3–6.4% in Jan–Feb 2026 is below the FY2025 average of approximately 7.3%.

Net Revenue

$10.69M

MoM: +$132K (+1.3%)

Operating Income

$124K

MoM: -$254K (-67%)

EBITDA

$338K

Margin: 3.2% | -$254K MoM

Net Income

($3.53M)

+$257K improvement MoM

CI Collection Rate

6.4%

Industry avg: 30–40%

PI Collection Rate

24.5%

Industry avg: 30–40%

Operating Margin

1.2%

vs Jan: 3.6%

SGA / Revenue

98.8%

vs Jan: 96.4%

Revenue vs SGA — Monthly Trend (excl. Dec-25 anomaly)

Operating Income by Location — Feb 2026

3. Revenue & Collection Analysis

Consolidated gross billings in February totalled $72.6M ($49.3M CI + $23.3M PI), resulting in net collections of $10.69M — an overall 14.7% blended collection rate. CI collections remain the primary concern at just 6.4% of gross charges — dramatically below the U.S. mean gross collection rate of 30–40%^[1][2]. PI collections at 24.5% are also below this benchmark, though the gap is narrower. The typical contractual adjustment rate in healthcare is 60–70%^[3], implying providers generally collect 30–40% of billed charges.

Revenue Composition — Feb 2026

Collection Rates — Monthly Trend

Revenue by Location — Feb 2026 vs Jan 2026

EBITDA vs Net Income — Monthly Trend

4. SGA Expense Variance — Feb vs Jan 2026

Total SGA increased $386K (+3.8%) from $10.18M in January to $10.57M in February. The SGA-to-revenue ratio deteriorated from 96.4% to 98.8%, leaving minimal operating margin.

Unfavourable Drivers

Salaries +$704K (the increase is due to a $812,148 salaries accrual recorded in Dec-25 which reduced Jan-26 expense; payroll is normally recorded on a pay-period basis without accruals, making January artificially low), Benefits +$205K, Legal +$148K (from $5K to $153K — likely a one-time settlement or accrual), Insurance +$91K. These were partially offset by: Physician fees −$405K, Other Expense −$147K, Professional fees −$110K, Repairs −$76K.

SGA Line-Item Variance ($K) — Feb vs Jan 2026

SGA Composition — Jan vs Feb 2026 ($K)

5. Location-Level Performance

The table below summarizes all 14 ADHS entities ranked by operating income. Revenue-generating entities are evaluated on margin and collection efficiency; corporate/overhead entities are evaluated on cost containment.

Operating Income — Jan vs Feb 2026 by Location

Location Highlights

River Oaks continues as the anchor, generating $5.39M revenue (+$77K MoM) with a healthy 30.1% operating margin. Op income improved $149K to $1.62M. This entity alone subsidizes the losses of all other locations.

ASPN is the second most profitable entity at $357K op income (27.0% margin), up $10K from January — consistent and well-managed.

Advanced Dallas (ADHC) widened its operating loss to ($1.03M) from ($862K) in January, driven by a $164K increase in operating expenses despite relatively flat revenue (-$16K). The SGA-to-revenue ratio is 189%, indicating that this location's cost base far exceeds its collections.

Houston East (ADHE) posted a modestly worse operating loss of ($417K) vs ($401K) in January. Revenue increased $33K to $991K but was offset by $49K higher expenses. The CI collection rate at 5.6% is the lowest among clinical entities.

Health System saw its operating loss widen significantly to ($326K) from ($203K) in January, a $123K deterioration. With zero revenue and $326K in corporate SGA, plus $1.86M interest expense, this entity requires attention.

Revenue Concentration Risk

River Oaks generates 50.4% of consolidated revenue and effectively 100%+ of operating profit. Advanced Dallas and Houston East together consume $1.4M/month in operating losses. Five corporate/overhead entities generate zero revenue but incur $471K/month in SGA and $3.3M/month in below-the-line charges (interest, depreciation).

6. Recommendations

Based on the analytical review of the February 2026 operating data, the following actions are recommended:

CI Collection Rate Improvement Program

At 6.4%, the CI gross collection rate is far below the U.S. mean of 30–40% (Nextech, 2026; MD Clarity). The industry-standard contractual adjustment rate of 60–70% (MD Clarity) implies typical providers collect 30–40% of billed charges. MGMA benchmarks indicate high-performing physician groups achieve net collection rates of 96–97%. Investigate denial patterns, coding accuracy, and payer mix by location. Prioritize River Oaks (8.3% rate on $19.7M gross) and Houston East (5.6% on $10.2M gross) for revenue cycle intervention — even a 2pp improvement would yield ~$1.2M/month additional revenue.

Advanced Dallas Cost Restructuring

ADHC operates at a 189% SGA-to-revenue ratio, consuming $1.03M/month in operating losses. Conduct a zero-based cost review targeting the $886K salaries, $311K management fees, and $290K rent line items. Evaluate whether the management fee and rent arrangements (intercompany with Cognizant and Walnut Hills) are at arm's length.

Debt Restructuring / Interest Reduction

The $3.42M/month interest burden (32% of revenue) makes net profitability structurally impossible at current revenue levels. The $511K MoM decrease from Jan ($3.93M) to Feb ($3.42M) is encouraging — investigate whether this reflects a partial refinancing and whether further reduction is achievable. Priority facilities: Health System ($1.86M/mo) and Care Capital SPE ($1.45M/mo).

Salaries & Wages Variance Clarification

The $704K MoM increase in salaries and wages is attributable to a $812,148 salaries accrual recorded in December 2025, which caused January 2026 expense to appear artificially low. ADHS does not normally record accruals for salaries — payroll is recorded on a pay-period basis. February 2026 reflects the normalized payroll run rate. No action required, but this should be noted when reviewing Jan-26 vs Feb-26 comparisons to avoid misinterpretation of the variance.

7. Conclusion

ADHS remains operationally near-breakeven at the operating income line, but structurally unprofitable due to the interest expense burden. February showed a mixed picture: revenue edged up 1.3% but operating income declined 67% as SGA costs increased. The consolidated system is heavily reliant on River Oaks for profitability, with Advanced Dallas and Houston East being the primary drags.

The most impactful near-term levers are: (1) improving the CI collection rate, which represents the single largest addressable revenue gap; (2) containing SGA at Advanced Dallas; and (3) pursuing debt restructuring for the Health System and Care Capital SPE facilities. The salaries variance is explained by the Dec-25 accrual reversal and does not represent a structural cost increase. Without progress on the key levers above, the annualized 2026 net loss trajectory of approximately ($42M) will persist.

Prepared for ADHS Management — Teakwood Global | Data source: ADHS Corporate Operating Model (Feb 2026)

References

[1] Nextech (2026). "Understanding Net & Gross Collection Rates in 2026." U.S. average gross collection rates reported at 40–50% nationally; net collection rate benchmark of 95%+. nextech.com

[2] Coronis Health. "Medical Billing Process: Gross vs. Net Collection Rate Explained." Industry-standard gross collection rates and the distinction between gross and net collection metrics. coronishealth.com

[3] MD Clarity. "Contractual Adjustment Rate — RCM Metrics." Industry benchmark for contractual adjustment rate of 60–70%, implying providers typically collect 30–40% of gross charges billed. mdclarity.com

[4] MGMA (2023). "Foundational Benchmarks and KPIs for Medical Practice Operations." Net collection rate benchmark of 96–97% for high-performing physician groups; adjusted FFS collection median of 93.98%. mgma.com

[5] HFMA. "7 KPIs Providers Should Be Tracking." Revenue cycle benchmarking standards including days in A/R, denial rates, and collection rates. hfma.org

[6] Medical Billers and Coders. "Benchmark Collection Rates for Large Practices." Top-tier large practices achieve net collection rates of 95–98%. medicalbillersandcoders.com

[7] Dexios Corp. "What Every Radiologist Should Know About Medical Billing." U.S. mean gross collection percentage for radiology/diagnostic imaging approximately 30–35%. dexioscorp.com

[8] Medical Economics. "Physician Collection Rates: What Percent, and How Much?" National averages and specialty-specific collection rate data. medicaleconomics.com

Advanced Diagnostics Healthcare System