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Adeptus Health Reports Third Quarter 2015 Results And Raises Full Year Guidance Systemwide Revenue Increased 89% Net Operating Revenue Increased 53% Adjusted EBITDA Increased 166%

Adeptus Health, Inc.

LEWISVILLE, Texas, Oct. 22, 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 third quarter ended September 30, 2015. All comparisons included in this release are for the same period in the prior year, unless otherwise noted.

Third Quarter 2015 Highlights:

  • Systemwide net patient services revenue was $109.0 million versus $57.6 million in prior year, an increase of 89%;
  • Net operating revenue was $88.2 million versus $57.6 million in prior year, an increase of 53%;
  • Adjusted EBITDA was $18.6 million versus $7.0 million in prior year, an increase of 166%;
  • Net income attributable to Adeptus Health Inc. was $0.7 million;
  • Cash flow provided by operating activities was $4.0 million versus a usage of $14.1 million in prior year; and
  • The Company opened six freestanding facilities during the third quarter 2015.

2015 Guidance

Based on our strong performance in the third quarter of 2015 and continued full year growth plans including 24 freestanding facilities and two new hospitals, we are raising our annual guidance. We expect systemwide net patient services revenue, which includes revenue from our unconsolidated joint ventures, of $405.0 million to $410.0 million for the full year 2015. We expect Adjusted EBITDA of $73.0 million to $75.0 million and Adjusted earnings per share of $1.20 to $1.25 for the full year 2015.

Results of Operations for the Third Quarter 2015

Thomas S. Hall, Chairman and CEO, stated, "We are pleased with the third quarter results and the progress we are making in executing our strategy. During the quarter, we opened six additional freestanding emergency rooms, announced entry into our fourth state through a new partnership with Ochsner Health System in Louisiana, and prepared to open our second hospital. As we continued to deliver on our growth plan, we further strengthened our financial position by closing on a new $175 million senior credit facility, which will both lower our borrowing costs and enhance our flexibility in funding our growth going forward. We are especially proud of the role we, and our partners, are playing in expanding access to the highest quality emergency care in more and more communities.

So far this year, ADPT has opened 22 new facilities, including 12 freestanding emergency facilities in Texas, five freestanding emergency facilities in Colorado, which are part of our partnership with University of Colorado Health and our first hospital, and four freestanding emergency facilities in Arizona with partner, Dignity Health. ADPT will open its second hospital in Dallas-Fort Worth in Q4 2015. Additionally, construction has begun on two hospitals in Colorado and one in Houston, Texas.

For the third quarter of 2015, ADPT generated total net operating revenue of $88.2 million, an increase of 53%. Net operating revenue excludes revenue from 14 facilities in Colorado, eight of which were consolidated in the prior year, and the Arizona hospital and its three freestanding facilities, 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 consolidated freestanding facilities from 43 to 57 and annual gross charge increases, offset by the deconsolidation of our Colorado locations due to the UCHealth joint venture.

Adjusted EBITDA increased 166% to $18.6 million. This increase was primarily attributable to a $30.6 million increase in net operating revenue and a $4.5 million increase in equity in earnings of unconsolidated joint ventures, 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 $1.5 million for the quarter, of which $0.7 million was attributable to Adeptus Health Inc., compared to a net loss of $3.6 million from the prior year, of which $1.6 million was attributable to Adeptus Health Inc. The increase in net income was due to an increase of $30.6 million in net operating revenue and a $4.5 million increase in equity in earnings of unconsolidated joint ventures. 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 $0.31 per share and GAAP earnings per share was $0.05 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 20,767,707 common shares at September 30, 2015. Adjustments for the quarter include $5.1 million of preopening costs associated with new facility openings, $0.8 million of stock compensation expense, $1.1 million related to public offerings of our Class A common stock and $0.7 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 third quarter of 2015, ADPT generated systemwide net patient services revenue of $109.0 million, an increase of 89%. The increase was primarily attributable to the impact of increased patient volumes from the expansion of the number of freestanding facilities from 51 to 74, 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 September 30, 2015, 14 freestanding facilities associated with our joint venture with University of Colorado Health and our Arizona hospital and its three 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 third quarter, the Company had cash of $46.3 million and $9.5 million available under its revolving credit facility. Net cash flow from operations was $4.0 million for the third quarter. At September 30, 2015, the Company had total long-term debt and capital lease obligations of $158.7 million and debt net of cash of $112.4 million.

In October 2015, the Company closed on a new $175.0 million senior credit facility. The new senior credit facility includes a $50.0 million revolver and a $125.0 million term loan. As a result of this new facility our interest rate has been reduced to LIBOR plus 3.75% from LIBOR plus 7.5%. The proceeds from the new credit facility along with a portion of existing cash were used to pay off the previous credit facility.

Market Outlook

We are maintaining the growth of our freestanding emergency room network at an expected rate of opening 24 new...


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