Adeptus Health Reports Second Quarter 2015 Results And Raises Full Year Guidance

Systemwide Revenue Increased 136%

Net Operating Revenue Increased 103%

Adjusted EBITDA Increased 286%

Jul 23, 2015, 07:00 ET from Adeptus Health Inc.

LEWISVILLE, Texas, July 23, 2015 /PRNewswire/ -- Adeptus Health Inc. (NYSE: ADPT) ("ADPT" or the "Company"), the largest operator of freestanding emergency rooms in the U.S., announced its results for the second quarter ended June 30, 2015. All comparisons included in this release are for the same period in the prior year, unless otherwise noted.

Second Quarter 2015 Highlights:

  • Systemwide net patient services revenue was $104.5 million versus $44.2 million in prior year, an increase of 136%;
  • Net operating revenue was $89.6 million versus $44.2 million in prior year, an increase of 103%;
  • Adjusted EBITDA was $22.9 million versus $5.9 million in prior year, an increase of 286%;
  • Adjusted earnings per share was $0.44 and GAAP earnings per share was $0.97
  • Net income attributable to Adeptus Health Inc. was $10.6 million;
  • Cash flow from operating activities was $13.0 million versus $0.3 million in prior year; and
  • The Company opened six freestanding facilities during the second quarter 2015.

2015 Guidance

Based on our strong performance in the second quarter of 2015 and continued full year growth plans including 24 freestanding facilities and two new hospitals, we are again raising guidance.  We expect to generate systemwide net patient services revenue, which includes revenue from our unconsolidated joint ventures, of $400.0 million to $405.0 million for the full year 2015.  We expect Adjusted EBITDA of $69.0 million to $71.0 million and Adjusted earnings per share of $1.10 to $1.15 for the full year 2015. 

Results of Operations for the Second Quarter 2015

Thomas S. Hall, Chairman and CEO, stated, "We are pleased with the second quarter results, which reflect our continued strong growth momentum. During the quarter, we opened six additional freestanding emergency rooms, entered into a new partnership with University of Colorado Health and grew our existing partnership with Dignity Health in Arizona. As we continue to execute on our strategic plan, both through expanding our network of freestanding emergency rooms and forging partnerships with leading healthcare providers, we are helping to transform the delivery of emergency care in the U.S."

So far this year, ADPT has opened 15 new facilities, including 12 freestanding emergency facilities in Texas and Colorado, and its first hospital and two freestanding emergency facilities in Arizona with partner, Dignity Health. In July, as part of its partnership with University of Colorado Health, its 13 freestanding emergency rooms in Colorado were rebranded as UC Health Emergency Room and construction began on two hospitals.

For the second quarter of 2015, ADPT generated total net operating revenue of $89.6 million, an increase of 103%. Net operating revenue excludes revenue from 13 facilities in Colorado and the Arizona hospital and its freestanding facility, which are accounted for as equity method investments. The increase was primarily attributable to the impact of patient volumes from the expansion of the number of freestanding facilities from 38 to 68 and annual gross charge increases.

Adjusted EBITDA increased 286% to $22.9 million. This increase was primarily attributable to a $45.4 million increase in net operating revenue, partially offset by increases in salaries, wages and benefits and other costs related to our growth initiatives. See "Non-GAAP Financial Measures Description and Reconciliation" and "Reconciliation of Adjusted EBITDA to Net Income (Loss)" below for further information related to Adjusted EBITDA and its reconciliation to net income (loss).

ADPT generated net income of $27.7 million for the quarter, of which $10.6 million was attributable to Adeptus Health Inc., compared to a net loss of $9.4 million from the prior year, of which $2.0 million was attributable to Adeptus Health Inc. The increase in net income was due to an increase of $45.4 million in net operating revenue, coupled with a gain recognized on the contribution and change of control of previously owned freestanding facilities to the joint venture with University of Colorado Health.  This increase was partially offset by increases in salaries, wages and benefits and other costs related to our growth initiatives and an increase in depreciation and amortization expense.

Adjusted earnings per share was $0.44 per share and GAAP earnings per share was $0.97 per share for the quarter. Adjusted earnings per share is calculated using a weighted average of both Class A and Class B common shares outstanding, which was an aggregate of 20,766,094 common shares at June 30, 2015. Adjustments for the quarter include a $24.3 million gain recognized on the contribution of existing freestanding facilities to the joint venture with University of Colorado Health, $2.0 million of preopening costs associated with new facility openings, $0.6 million of stock compensation expense, $1.0 million related to public offerings of our Class A common stock and $0.8 million of other costs associated with our growth initiatives and an adjustment for taxes in order to establish a normalized tax rate of 35% for comparability purposes. See "Non-GAAP Financial Measures Description and Reconciliation" and "Earnings Per Share Reconciliation" below for further information related to Adjusted earnings per share and its reconciliation to net income (loss).

Systemwide Financial Results

For the second quarter of 2015, ADPT generated systemwide net patient services revenue of $104.5 million, an increase of 136%. The increase was primarily attributable to the impact of increased patient volumes from the expansion of the number of freestanding facilities from 38 to 68, annual gross charge increases and the opening of the Dignity Health Arizona General Hospital, a full service general hospital located in Laveen, Arizona.

As of June 30, 2015, 13 freestanding facilities associated with our joint venture with University of Colorado Health and our Arizona hospital and its freestanding facility associated with our joint venture with Dignity Health were accounted for using the equity method. For consolidated subsidiaries, the Company's financial statements reflect 100% of the revenues and expenses for these subsidiaries, after elimination of intercompany transactions and accounts. For our unconsolidated joint ventures, consolidated statements of operations reflect those earnings in two line items:

  • Equity in earnings of unconsolidated joint ventures, which represents our share of the net income or loss of each equity method joint venture based on our ownership percentage; and
  • Management and contract services revenues, which represent the Company's combined income from management and contract services that are earned from managing the day-to-day operations and providing contract staffing of the facility.

As a result of this accounting treatment in our reported results, management supplementally focuses on non-GAAP systemwide metrics to analyze the results of operations. These systemwide metrics include systemwide net patient services revenue. Systemwide metrics treat our unconsolidated facilities as if they were consolidated. While the revenues earned at the unconsolidated facilities are not recorded in our consolidated financial statements, management believes systemwide net patient services revenue growth is important to understand the Company's financial performance because it is used to interpret the sources of our growth and provide a growth metric incorporating the revenues earned by all affiliated facilities, regardless of the accounting treatment. As we execute on our strategy of partnering with health systems, management expects the number of our facilities accounted for under the equity method to increase relative to the total number of affiliated facilities.

Liquidity

At the end of the second quarter, the Company had cash of $46.1 million and $9.5 million available under its revolving credit facility.  Net cash flow from operations was $13.0 million for the second quarter.  Prior to the expiration of the delayed draw component of its credit facility, the Company borrowed an additional $30.0 million in the second quarter.  At June 30, 2015, the Company had total long-term debt and capital lease obligations of $159.0 million and debt net of cash of $112.9 million.

Market Outlook

We are maintaining the growth of our freestanding emergency room network at an expected rate of opening 24 new sites per year, including both owned and joint venture facilities. Our second hospital, located in Carrollton, Texas, a Dallas-Ft Worth suburb, remains on schedule to open later this year. 

ADPT's growth is addressing the shortage of quality emergency medical care in the U.S. As the most recent American College of Emergency Physicians (ACEP) survey highlights, emergency visits are on the rise. Respondents noted that this rise is combined in part with an increase in the acuity of patients' injuries and/or illnesses. Again, this underscores the growing need for additional access points to high quality, 24/7 emergency care. Our facilities offer just that with convenient neighborhood locations.

"Our network of freestanding emergency rooms and partnerships with leading healthcare systems, such as Dignity Health and UC Health, provides us with flexibility in addressing the unmet need for expanded access to emergency medical care. We are continuously talking to other healthcare systems around the country about how we can help them bring improved access to the highest quality emergency care to the communities they serve," added Hall.

Conference Call

A live audio webcast to present the second quarter results will take place today at 11:00am (Eastern Time), hosted by Thomas S. Hall, Chairman and CEO and Timothy Fielding, CFO.

The audio webcast will be available by accessing:  https://www.webcaster4.com/Webcast/Page/1069/9380 

Following the call, an archived recording of the replay will also be available on the Adeptus Health Investor Relations page for 30 days:  http://ir.adeptushealth.com/events-and-presentations/events/default.aspx

About Adeptus Health Inc.

Adeptus Health (NYSE: ADPT) is a leading patient-centered healthcare organization expanding access to the highest quality emergency medical care through its network of freestanding emergency rooms and partnerships with premier healthcare providers.  In Texas, Adeptus Health owns and operates First Choice Emergency Room, the nation's largest and oldest network of independent freestanding emergency rooms. In Colorado, in partnership with University of Colorado Health, Adeptus Health operates UCHealth Emergency Rooms. In Arizona, with Dignity Health, the company owns and operates Dignity Health Arizona General Hospital and freestanding emergency rooms. All Adeptus Health freestanding facilities are fully equipped emergency rooms with a complete radiology suite of diagnostic technology (CT scanner, ultrasound, and digital X-ray), on-site laboratory, and staffed with board-certified physicians and emergency trained registered nurses. According to patient feedback collected by Press Ganey Associates Inc., Adeptus Health provides the highest quality emergency medical care and received the 2013 and 2014 Press Ganey Guardian of Excellence Award for exceeding the 95th percentile in patient satisfaction nationwide. For more information please visit us on the web at adhc.com.

Media Contact:

Jackie Zupsic

Hill & Knowlton Strategies

Jackie.Zupsic@hkstrategies.com 

Tel: (212) 885 – 0590

Investor Relations Contact:

Susan A. Noonan

S.A. Noonan Communications

susan@sanoonan.com 

Tel: (212) 966 – 3650

Forward-Looking Statements

Certain statements and information herein may be deemed to be "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Forward-looking statements may include, but are not limited to, statements relating to our guidance, objectives, plans and strategies, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future. Any forward-looking statements herein are made as of the date of this press release, and ADPT undertakes no duty to update or revise any such statements except as required by the federal securities laws. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. Important factors that could cause actual results, developments and business decisions to differ materially from forward-looking statements are described in ADPT's filings with the U.S. Securities and Exchange Commission ("SEC") from time to time and which are accessible on the SEC's website at www.sec.gov, including in the section entitled "Risk Factors" in the Company's Form 10-K for the fiscal year ended December 31, 2014. Among the factors that could cause future results to differ materially from those provided in this press release are: our ability to implement our growth strategy; our ability to maintain sufficient levels of cash flow to meet growth expectations; our ability to protect our brand; federal and state laws and regulations relating to our facilities, which could lead to the incurrence of significant penalties by us or require us to make significant changes to our operations; our ability to locate available facility sites on terms acceptable to us; competition from hospitals, clinics and other emergency care providers; our dependence on payments from third-party payors; our ability to source and procure new products and equipment to meet patient preferences; our reliance on Medical Properties Trust ("MPT") and the MPT Master Funding and Development Agreements; disruptions in the global financial markets leading to difficulty in borrowing sufficient amounts of capital to finance the carrying costs of inventory to pay for capital expenditures and operating costs; our ability or the ability of our healthcare system partners to negotiate favorable contracts or renew existing contracts with third-party payors on favorable terms; significant changes in our payor mix or case mix resulting from fluctuations in the types of cases treated at our facilities; significant changes in the rules, regulations and systems governing Medicare and Medicaid reimbursements; material changes in IRS revenue rulings, case law or the interpretation of such rulings; shortages of, or quality control issues with, emergency care-related products, equipment and medical supplies that could result in a disruption of our operations; the intense competition we face for patients, physician use of our facilities, strategic relationships and commercial payor contracts; the fact that we are subject to significant malpractice and related legal claims; the growth of patient receivables or the deterioration in the ability to collect on those accounts; the impact on us of PPACA, which represents a significant change to the healthcare industry; and ensuring our continued compliance with HIPAA, which could require us to expend significant resources and capital; and the factors discussed in the section entitled "Risk Factors" in the Company's Form 10-K for the fiscal year ended December 31, 2014.

Non-GAAP Financial Measures Description and Reconciliation

This press release includes presentations of Adjusted EBITDA, which is defined as net income before interest, taxes, depreciation and amortization, further adjusted to eliminate the impact of certain additional items, including, advisory services paid to our Sponsor, facility pre-opening expenses, management recruiting expenses, stock compensation expense and other non-recurring costs or gains.

This press release also includes presentation of Adjusted earnings (loss) per share, which is defined as earnings (loss) per share related to the Company's overall operation, including controlling and non-controlling interests, as adjusted to exclude certain additional items, including, advisory services paid to our Sponsor, facility preopening expenses, management recruiting expenses, stock compensation expense and other non-recurring costs or gains and an adjustment for taxes in order to establish a normalized tax rate of 35% for comparability purposes, divided by the aggregate number of shares of Class A and Class B common stock outstanding as of the end of the period.

In addition, this press release presents systemwide metrics to analyze the results of operations. These systemwide metrics include systemwide net patient services revenue.  Systemwide metrics treat our unconsolidated facilities as if they were consolidated.

These non-GAAP financial measures, Adjusted EBITDA, Adjusted earnings (loss) per share and systemwide metrics, are commonly used by management and investors as performance measures. The Company's non-GAAP financial measures are not considered measures of financial performance under U.S. generally accepted accounting principles (GAAP), and the items excluded therefrom are significant components in understanding and assessing our financial performance. These non-GAAP financial measures should not be considered in isolation or as an alternative to GAAP measures such as net income, cash flows provided by or used in operating, investing or financing activities or other financial statement data presented in our consolidated financial statements as an indicator of financial performance. Reconciliations of non-GAAP financial measures are provided in this press release.  Since these non-GAAP financial measures are not measures determined in accordance with GAAP and are susceptible to varying calculations, these measures, as presented, may not be comparable to other similarly titled measures of other companies.

 

Adeptus Health Inc.

Condensed Consolidated Statements of Operations and Other Information

(unaudited; in thousands, except shares, per share data and other information)

Three months ended 

Six months ended

June 30,

June 30,

2015

2014

2015

2014

Patient service revenue

$ 104,363

$ 51,946

$ 200,265

$ 96,475

Provision for bad debt

(17,514)

(7,708)

(32,459)

(13,456)

Net patient service revenue

86,849

44,238

167,806

83,019

Management and contract services revenue

2,738

-

3,234

-

Total net operating revenue

89,587

44,238

171,040

83,019

Equity in earnings of unconsolidated joint ventures

3,621

-

2,927

-

Operating expenses:

Salaries, wages and benefits

51,124

29,478

100,004

54,458

General and administrative

11,370

11,302

21,834

17,522

Other operating expenses

12,541

5,137

23,846

10,002

Depreciation and amortization

4,523

3,393

9,279

6,450

Total operating expenses

79,558

49,310

154,963

88,432

Income (loss) from operations

13,650

(5,072)

19,004

(5,413)

Other income (expense):

Gain on contribution to joint venture

24,250

-

24,250

-

Interest expense

(3,898)

(4,319)

(7,172)

(6,525)

Total other income (expense)

20,352

(4,319)

17,078

(6,525)

Income (loss) before provision for income taxes

34,002

(9,391)

36,082

(11,938)

Provision for income taxes

6,328

38

6,806

170

Net income (loss)

27,674

(9,429)

29,276

(12,108)

Less: Net income (loss) attributable to the non-controlling interest

17,040

(7,413)

18,048

(10,092)

Net income (loss) attributable to Adeptus Health Inc. 

$ 10,634

$ (2,016)

$ 11,228

$ (2,016)

Net income (loss) per share of Class A common stock:

Basic

$ 0.97

$ (0.21)

$ 1.08

$ (0.21)

Diluted

$ 0.97

$ (0.21)

$ 1.08

$ (0.21)

Weighted average shares of Class A common stock:

Basic

10,953,138

9,809,160

10,432,882

9,809,160

Diluted

10,953,138

9,809,160

10,432,882

9,809,160

Other information

Number of systemwide facilities, including one hospital

69

38

69

38

 

Adeptus Health Inc. Reconciliation of Adjusted EBITDA to Net Income (Loss) (unaudited; in thousands)

Three months ended 

Six months ended

June 30,

June 30,

2015

2014

2015

2014

Net income (loss)

$ 27,674

$ (9,429)

$ 29,276

$ (12,108)

Depreciation and amortization

4,929

3,393

9,685

6,450

Interest expense

3,898

4,319

7,172

6,525

Provision for income taxes

6,328

38

6,806

170

Gain on contribution to joint venture

(24,250)

-

(24,250)

-

Advisory Services Arrangement fees and expenses

-

155

-

293

Preopening expenses

1,991

1,600

4,089

3,008

Management recruiting expenses

185

56

185

156

Stock compensation expense

608

179

1,157

338

Public offering expenses

993

4,998

993

4,998

Other

584

634

1,090

1,206

Total adjustments

(4,734)

15,372

6,927

23,144

Adjusted EBITDA

$ 22,940

$ 5,943

$ 36,203

$ 11,036

 

Earnings Per Share Reconciliation (unaudited; in thousands, except shares, per share data and other information)

Three months ended 

Six months ended

June 30,

June 30,

June 30,

June 30,

2015

2014

2015

2014

Weighted average common shares outstanding

       Class A common shares

10,953,138

9,809,160

10,432,882

9,809,160

       Class B common shares

9,812,956

10,741,839

10,294,067

10,741,839

Total Class A and B common shares

20,766,094

20,550,999

20,726,949

20,550,999

Net income (loss) attributable to Adeptus Health Inc.

$ 10,634

$ (2,016)

$ 11,228

$ (2,016)

Net income (loss) attributable to non-controlling interest

17,040

(7,413)

18,048

(10,092)

Total net income

27,674

(9,429)

29,276

(12,108)

Adjustments:

  Gain on contribution to joint venture

(24,250)

-

(24,250)

-

  Preopening expenses

1,991

1,600

4,089

3,008

  Stock compensation expense

608

179

1,157

338

  Public offering costs

993

4,998

993

4,998

  Other

769

845

1,275

1,655

  Total adjustments

(19,889)

7,622

(16,736)

9,999

  Tax impact of adjustments (1)

6,961

(2,668)

5,858

(3,500)

  Tax adjustment resulting from applying effective tax rate (2)

(5,573)

3,325

(5,823)

4,348

Adjusted net income (loss)

9,173

(1,150)

12,575

(1,261)

Adjusted net income (loss) per share

$ 0.44

$ (0.06)

$ 0.61

$ (0.06)

(1) Reflects the removal of the tax benefit associated with the adjustments

(2) Represents adjusting to a normalized effective tax rate of 35%

 

Systemwide Net Patient Services Revenue (unaudited; in thousands)

Three months ended 

Six months ended

June 30,

June 30,

2015

2014

2015

2014

Net Patient Services Revenue:

Consolidated facilities

$

86,849

$

44,238

$

167,806

$

83,019

Unconsolidated joint ventures

17,659

20,662

Systemwide net patient services revenue

$

104,508

$

44,238

$

188,468

$

83,019

 

Adeptus Health Inc. Condensed Consolidated Balance Sheets (in thousands)

June 30,

December 31,

2015

2014

ASSETS

(unaudited)

(audited)

Current assets

 Cash

$ 46,129

$ 2,002

 Restricted cash

7,804

4,795

 Accounts receivable, less allowance for doubtful accounts of $34,892 and $13,068, respectively

46,338

37,422

 Other receivables and current assets

19,428

17,137

 Medical supplies inventory

3,607

4,287

Total current assets

123,306

65,643

 Property and equipment, net

74,525

93,892

 Investment in unconsolidated joint ventures

41,610

2,100

 Deposits

722

1,772

 Deferred tax asset

70,577

34,084

 Intangibles, net

19,125

20,015

 Goodwill

61,009

61,009

 Other long term assets

4,423

4,303

Total assets

$ 395,297

$ 282,818

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities

 Accounts payable and accrued expenses

$ 21,280

$ 25,420

 Accrued compensation

13,057

13,521

 Current maturities of long-term debt

3,759

1,816

 Current maturities of capital lease obligations

91

81

 Deferred rent

769

607

Total current liabilities

38,956

41,445

 Long-term debt, less current maturities

151,166

104,982

 Payable to related parties pursuant to tax receivable agreement

71,604

30,039

 Capital lease obligation, less current maturities

4,007

4,056

 Deferred rent

2,928

2,416

Total liabilities

268,661

182,938

Commitments and contingencies

Shareholders' equity

 Preferred stock, par value $0.01 per share; 10,000,000 shares authorized and zero shares issued and outstanding at June 30, 2015

-

-

 Class A common stock, par value $0.01 per share; 50,000,000 shares authorized, 11,563,069 and 9,845,016 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively

116

98

 Class B common stock, par value $0.01 per share; 20,000,000 shares authorized, 9,208,227 and 10,781,153 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively

92

108

 Additional paid in capital

51,698

51,238

 Accumulated other comprehensive loss

(91)

(74)

 Retained earnings (deficit)

4,912

(3,351)

 Non-controlling interest

69,909

51,861

Total shareholders' equity

126,636

99,880

Total liabilities and shareholders' equity

$ 395,297

$ 282,818

 

Adeptus Health Inc. Condensed Consolidated Statements of Cash Flows (unaudited; in thousands)

Three Months Ended

Six Months Ended

June 30,

June 30,

June 30,

June 30,

2015

2014

2015

2014

Cash flows from operating activities:

Net income (loss)

$ 27,674

$ (9,429)

$ 29,276

$ (12,108)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

     Loss from the disposal or impairment of assets

68

-

68

2

     Depreciation and amortization

4,523

3,393

9,279

6,450

     Deferred tax benefit

4,122

-

4,377

-

     Amortization of deferred loan costs

249

255

468

453

     Provision for bad debts

17,514

7,708

32,459

13,456

     Gain on contribution to unconsolidated joint ventures

(24,250)

-

(24,250)

-

     Equity in earnings of unconsolidated joint ventures

(3,621)

-

(2,927)

-

     Stock-based compensation

608

179

1,157

338

     Changes in operating assets and liabilities

        Restricted cash

64

(2,873)

(3,009)

(3,901)

        Accounts receivable

(14,475)

(12,393)

(41,375)

(20,443)

        Other receivables and current assets

(2,060)

2,667

(951)

1,334

        Medical supplies inventory

(34)

(584)

(160)

(1,006)

        Other long-term assets

(127)

13

(110)

28

        Accounts payable and accrued expenses

2,864

5,299

(4,140)

3,770

        Accrued compensation

(1,007)

5,517

(464)

3,820

        Deferred rent

924

500

1,377

1,096

    Net cash provided by (used in) operating activities

13,036

252

1,075

(6,711)

Cash flows from investing activities:

Deposits

310

(355)

985

(239)

Proceeds from the sale of property and equipment

10

2,003

1,527

2,003

Capital expenditures

(1,650)

(11,723)

(3,270)

(22,020)

          Net cash used in investing activities

(1,330)

(10,075)

(758)

(20,256)

Cash flows from financing activities:

Proceeds from initial public offering, net of underwriters fees and expenses

-

96,226

-

96,226

Proceeds from long-term borrowings

30,000

86,955

54,000

93,955

Payment of deferred loan costs

(415)

(553)

(495)

(591)

Payments on borrowings

(6,049)

(69,209)

(6,691)

(69,377)

Payments of capital lease obligations

(20)

(5)

(39)

(23)

Payment of dividends

-

(60,000)

-

(60,000)

Tax distribution to unit holders

(2,965)

(9)

(2,965)

(9)

Contribution from original owner

-

167

-

167

          Net cash provided by financing activities

20,551

53,572

43,810

60,348

Net increase in cash and cash equivalents

32,257

43,749

44,127

33,381

Cash, beginning of period

13,872

1,127

2,002

11,495

Cash, end of period

$ 46,129

$ 44,876

$ 46,129

$ 44,876

 

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SOURCE Adeptus Health Inc.