Operator of freestanding emergency rooms in the U.S., Adeptus Health Inc. (ADPT) announced fourth-quarter 2014 adjusted earnings per share ("EPS") of 8 cents, which missed the Zacks Consensus Estimate by a couple of cents. However, adjusted EPS was higher than a penny earned in the prior-year quarter.
Quarter in Detail
Total net operating revenue of $70.1 million surged more than 100% year over year and was in line with the Zacks Consensus Estimate.
The huge upside can be primarily attributed to higher pension volumes resulting from the increase in the number of freestanding facilities. The number of freestanding facilities went up from 26 in the year-ago quarter to 55 in the reported quarter. For the fourth quarter, number of patient visits increased 91.1% year over year to 47,643.
Operating expenses spiked over 100% in the quarter to $69.3 million, on the back of higher salaries, wages and benefits.
Adjusted EBITDA margin contracted 500 basis points (bps) from the year-ago quarter.
Partnership and New Hospitals
In partnership with Dignity Health, which came into effect in Dec 2014, Adeptus Health started the Dignity Health Arizona General Hospital. Subsequently, the facility initiated its training and certification phase of operation and received the CMS certification on Jan 30, 2015.
In addition, Adeptus Health began construction of its second hospital late last year. The hospital in Carrollton, TX, is scheduled to open in late 2015. Also, in Jan 2015, Adeptus Health opened four new First Choice Emergency Rooms.
Financial Position
As of Dec 31, 2014, total cash and restricted cash amounted to $6.8 million, compared to $20.1 million at the end of the previous quarter. The company had long-term debt of $106.8 million at the end of the fourth quarter, versus $100 million at the end of the last quarter. Adeptus Health has $84.2 million currently available under its existing credit facility.
Guidance
For 2015, Adeptus Health expects net revenue (includes revenue from the company’s joint venture) to lie in the range of $367–$377 million. Adjusted EBITDA is expected to in the band of $49–$53 million. The company plans to start two new hospitals and 24 freestanding facilities in the course of the year.
Our Take
Adeptus Health reported a not-so-impressive fourth quarter, wherein earnings fell short of expectations while revenues were merely in line. The improvement in top-line growth was largely offset by the huge increase in operating expenses.
We feel the joint venture with Dignity Health in Arizona holds important long-term prospects for the company, reflecting Adeptus Health’s focus on penetrating new markets.
We are also impressed with the fact that the company prioritizes increasing the number of freestanding facilities. This should continue to drive significant top-line growth.
However, surging operating expenses remain a major concern, which can offset the top-line growth and as a result, hamper the bottom line.
Zacks Rank
Currently, Adeptus Health has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader medical sector include ABIOMED (ABMD), Luminex (LMNX) and Inogen (INGN). While ABIOMED and Luminex sport a Zacks Rank #1 (Strong Buy), Inogen carries a Zacks Rank #2 (Buy).
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