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Adeptus Health Reports First Quarter 2016 Results

LEWISVILLE, Texas, April 20, 2016 /PRNewswire/ -- Adeptus Health Inc. ADPT, +0.81% ("ADPT" or the "Company"), the largest operator of freestanding emergency rooms in the U.S., announced its results for the first quarter ended March 31, 2016. All comparisons included in this release are for the same period in the prior year, unless otherwise noted. See "Non-GAAP Financial Measures Description and Reconciliation" for further information related to Systemwide Revenue, Adjusted EBITDA and Adjusted earnings per share.

First Quarter 2016 Highlights:

  • Systemwide net patient services revenue was $140.4 million versus $84.0 million in prior year, an increase of 67%;
  • Net operating revenue was $112.8 million versus $81.5 million in prior year, an increase of 38%;
  • Adjusted EBITDA was $21.7 million versus $13.3 million in prior year, an increase of 64%;
  • Adjusted earnings per share was $0.47 and GAAP earnings per share was $0.32;
  • Cash flow used in operating activities was $7.4 million versus $12.0 million in prior year;
  • Net income attributable to Adeptus Health Inc. was $4.5 million versus $0.6 million in prior year;
  • Same store revenue increased 12% and same store volumes increased 15% versus prior year, and;
  • The Company opened seven freestanding facilities during the first quarter 2016.

2016 Guidance

We continue to expect systemwide net patient services revenue, which includes revenue from our unconsolidated joint ventures, of $635.0 million to $665.0 million for the full year 2016. We expect Adjusted EBITDA of $108.0 million to 113.0 million and Adjusted earnings per share of $2.50 to $2.60 for the full year 2016.

Results of Operations for the First Quarter 2016

Thomas S. Hall, Chairman and CEO, stated, "We are pleased with our first quarter results, which were in line with our expectations and demonstrate continued progress in executing on our growth plans. This quarter, we opened seven new facilities, bringing our total to 90, and achieved substantial growth in both revenue and patient volumes. With our Dallas hospital open and all of our Dallas-Fort Worth area freestanding ERs able to accept all insurance as a result, we saw significant same store volume and revenue growth, reinforcing the need for greater access to emergency medical care. Earlier this month, Fortune Magazine recognized Adeptus Health as one of the Top 20 Best Workplaces in Health Care in America. We are pleased with this acknowledgement as we continue to deliver the highest quality of care that has earned us the Press Ganey Guardian of Excellence Award in patient satisfaction for three consecutive years."

During the first quarter, ADPT opened seven new freestanding emergency facilities, including four freestanding emergency facilities in Texas, one freestanding emergency facility in Colorado, which is part of our partnership with UCHealth, and two freestanding emergency facilities in Arizona with partner, Dignity Health. Additionally, construction continues to progress on two hospitals in Colorado, one in Louisiana and one in Houston, Texas.

For the first quarter of 2016, ADPT generated total net operating revenue of $112.8 million, an increase of 38%. Net operating revenue excludes revenue from 16 facilities in Colorado, 12 of which were consolidated in the prior year, and the Arizona hospital and its six freestanding facilities, which are accounted for as equity method investments. The increase was primarily attributable to the impact of patient volumes from both existing and new consolidated freestanding facilities and annual gross charge increases, offset by the deconsolidation of our Colorado locations due to the UCHealth joint venture.

ADPT generated net income of $7.9 million for the quarter, of which $4.5 million was attributable to Adeptus Health Inc., compared to net income of $1.6 million from the prior year, of which net income of $0.6 million was attributable to Adeptus Health Inc. The increase in net income was due to an increase of $31.3 million in net operating revenue, a $3.2 million increase in equity in earnings of unconsolidated joint ventures and a $1.4 million decrease in interest expense. This increase was partially offset by increases in salaries, wages and benefits and other costs related to our growth initiatives and the impact of taxes on higher earnings.

Adjusted EBITDA increased 64% to $21.7 million. This increase was primarily attributable to a $31.3 million increase in net operating revenue and a $3.2 million increase in equity in earnings of unconsolidated joint ventures. See "Non-GAAP Financial Measures Description and Reconciliation" and "Reconciliation of Adjusted EBITDA to Net Income" below for further information related to Adjusted EBITDA and its reconciliation to net income.

Adjusted earnings per share was $0.47 per share and GAAP earnings per share was $0.32 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 20,883,876 common shares at March 31, 2016. Adjustments for the quarter include $1.9 million of preopening costs associated with new facility openings, $1.1 million of stock compensation expense and $1.1 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.

Systemwide Financial Results

For the first quarter of 2016, ADPT generated systemwide net patient services revenue of $140.4 million, an increase of 67%. Additionally, same store revenue increased 12% and same store volumes increased 15% versus prior year. The increase in systemwide net patient services revenue was primarily attributable to the impact of increased patient volumes from the expansion of the number of freestanding facilities from 62 to 88, annual gross charge increases, the opening of a hospital in Texas and continued growth of our hospital and its hospital outpatient departments in Arizona.

As of March 31, 2016, 16 freestanding facilities associated with our joint venture with UCHealth and our Arizona hospital and its six freestanding facilities 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 first quarter, the Company had cash of $3.7 million and $39.8 million available under its revolving credit facility. Net cash flow used in operations was $7.4 million for the first quarter compared to $12.0 million net cash flow used in operations in the prior year. At March 31, 2016, the Company had total long-term debt and capital lease obligations of $123.1 million and...


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