Use these links to rapidly review the document
TABLE OF CONTENTS
TABLE OF CONTENTS
Table of Contents
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-205753
Table of Contents
The information in this preliminary prospectus supplement is not complete and may be changed. This
preliminary prospectus supplement and the accompanying prospectus are part of an effective registration statement filed with the Securities and Exchange Commission. This preliminary prospectus
supplement and the accompanying prospectus are not an offer to sell these securities and are not soliciting an offer to buy these securities in any jurisdiction where such offer or sale is not
permitted.
Subject to Completion, dated July 27, 2015
Prospectus Supplement to Prospectus dated July 20, 2015
2,750,000 Shares
Adeptus Health Inc.
Class A Common Stock
This is a public offering of shares of Class A common stock of Adeptus Health Inc.
We
are offering 1,906,229 shares of our Class A common stock and SCP III AIV THREE-FCER Conduit, L.P., or the selling stockholder, is offering 843,771 shares of our
Class A common stock. We intend to use the net proceeds from this offering received by us to purchase, for cash, 1,906,229 limited liability company units of Adeptus Health LLC, our
direct subsidiary, from certain of the unit holders of Adeptus Health LLC specified herein, including certain of our directors and executive officers. We will not receive any of the proceeds
from the sale of the shares being sold by the selling stockholder. The selling stockholder will receive all of the net proceeds from the sale of the shares of Class A common stock being sold by
it.
Our
Class A common stock is listed on the New York Stock Exchange, or the NYSE, under the symbol "ADPT." On July 24, 2015, the last reported sale price of our
Class A common stock on the NYSE was $108.90 per share.
We
are an "emerging growth company" as that term is defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, and, as such, have elected to comply
with certain reduced public company reporting requirements in this prospectus supplement, or documents incorporated by reference herein, and future filings. See "Summary—Implications of
Being an Emerging Growth Company."
Investing in our Class A common stock involves significant risks. See "Risk Factors" beginning on page S-22
of this prospectus supplement and in the documents incorporated by reference in this prospectus supplement and the accompanying prospectus, to read about factors you should consider before buying
shares of our Class A common stock.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities
or passed upon the adequacy or accuracy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.
|
|
|
|
|
|
|
|
|
|
| |
|
|
Per Share
|
|
Total
|
| |
Public offering price |
|
$ |
|
$ |
| |
Underwriting discount |
|
$ |
|
$ |
| |
Proceeds, before expenses, to Adeptus Health Inc. |
|
$ |
|
$ |
| |
Proceeds, before expenses, to the selling stockholder |
|
$ |
|
$ |
|
To
the extent that the underwriters sell more than 2,750,000 shares of our Class A common stock, the underwriters have the option to purchase up to an additional 412,500 shares
from us and the selling stockholder at the public offering price less the underwriting discount.
The
underwriters expect to deliver the shares of Class A common stock on or
about , 2015.
Joint Book-Running Managers
|
|
|
| Goldman, Sachs & Co. |
|
BofA Merrill Lynch |
Lead Manager
BMO Capital Markets
Co-Managers
|
|
|
|
|
| Evercore ISI |
|
Piper Jaffray |
|
Dougherty & Company |
The date of this prospectus supplement is , 2015.
Table of Contents
TABLE OF CONTENTS
Prospectus Supplement
Prospectus
S-i
Table of Contents
We
and the underwriters (and any of our or their affiliates) have not done anything that would permit this offering or possession or distribution of this prospectus supplement in any
jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who obtain this prospectus supplement must inform themselves about, and
observe any restrictions relating to, the offering of the shares of Class A common stock and the distribution of this prospectus supplement outside of the United States.
Unless
we state otherwise or the context otherwise requires, the terms "Adeptus Health," "Adeptus," "we," "us," "our" and the "Company" refer to Adeptus Health Inc. and its
consolidated subsidiaries after giving effect to the Reorganization Transactions completed in connection with our initial public offering, as described under the heading "Organizational Structure" and
elsewhere in this prospectus supplement; prior to the consummation of the Reorganization Transactions and the completion of our initial public offering, these terms refer to Adeptus Health LLC,
a Delaware limited liability company through which we are currently conducting our operations and its consolidated subsidiaries.
S-ii
Table of Contents
MARKET AND INDUSTRY DATA
This prospectus supplement and documents incorporated by reference herein include industry data and forecasts that we have prepared
based, in part, on information obtained from industry publications and surveys and internal company surveys. Third-party industry publications, surveys and forecasts generally state that the
information contained therein has been obtained from sources believed to be reliable, including the American College of Emergency Physicians, or ACEP, a professional organization of emergency medicine
physicians that publishes reports relating to emergency medical care, the American Hospital Association, or AHA, a national organization that represents, serves and advocates for nearly 5,000
hospitals, health systems, networks and other providers, and Press Ganey Associates, Inc., or Press Ganey, an independent healthcare advisory services and consulting organization. References to
the ACEP National Report Card may be sourced to the ACEP Annual National Report Card released in January 2014. References to AHA Annual Survey data may be sourced to the AHA Annual Survey of Hospitals
released in 2013.
The
statements regarding our market position in this prospectus supplement or documents incorporated by reference herein are based on information derived from market studies and research
reports cited above and elsewhere in this prospectus supplement or documents incorporated by reference herein. Although some of the companies that compete in our markets are publicly held as of the
date of this
prospectus supplement, some are not. Accordingly, only limited public information is available with respect to our relative market strength or competitive position. Unless we state otherwise, our
statements about our relative market strength and competitive position in this prospectus supplement or documents incorporated by reference herein are based on our management's beliefs, internal
studies and our management's knowledge of industry trends.
PRESENTATION OF CERTAIN FINANCIAL MEASURES
Certain financial measures presented in this prospectus supplement or documents incorporated by reference herein, such as Adjusted
EBITDA, are not recognized under accounting principles generally accepted in the United States, which we refer to as "GAAP." Adjusted EBITDA has been presented in this prospectus supplement or
documents incorporated by reference herein as a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We define Adjusted EBITDA 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 (as defined herein),
facility preopening expenses, management recruiting expenses, stock compensation expense, costs associated with our public offerings and other non-recurring costs and gains that we do not consider in
our evaluation of ongoing operating performance from period to period as discussed further below. Adjusted EBITDA is included in this prospectus supplement or documents incorporated by reference
herein because it is a key metric used by management to assess our financial performance. We use Adjusted EBITDA to supplement GAAP measures of performance in order to evaluate the effectiveness of
our business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures. Adjusted EBITDA is also frequently used by analysts,
investors and other interested parties to evaluate companies in our industry.
Adjusted
EBITDA is a non-GAAP measure of our financial performance and should not be considered as an alternative to net income (loss) as a measure of financial performance, or any other
performance measure derived in accordance with GAAP, nor should it be construed as an inference that our future results will be unaffected by unusual or other items. In evaluating Adjusted EBITDA, you
should be aware that in the future we will incur expenses that are the same as or similar to some of the adjustments in this presentation, such as preopening expenses, stock compensation expense and
other adjustments. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for management's discretionary use, as it does not reflect certain cash requirements such as tax
payments, debt service requirements, capital expenditures, facility openings and certain other cash costs
S-iii
Table of Contents
that
may recur in the future. Adjusted EBITDA contains certain other limitations, including the failure to reflect our cash expenditures, cash requirements for working capital needs and cash costs to
replace
assets being depreciated and amortized. Management compensates for these limitations by supplementally relying on our GAAP results in addition to using Adjusted EBITDA. Our presentation of Adjusted
EBITDA is not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus supplement, which describes the terms of the offering of shares of
Class A common stock and adds to and supplements information contained in the accompanying prospectus and the documents incorporated by reference therein. The second part is the accompanying
prospectus, which we refer to as the "accompanying prospectus." The accompanying prospectus contains a description of our capital stock and gives more general information, some of which may not apply
to the shares of Class A common stock offered hereby. The accompanying prospectus also incorporates by reference documents that are described under "Information Incorporated by Reference" in
that prospectus.
You
should rely only on the information contained or incorporated by reference in this prospectus supplement, in the accompanying prospectus or in any related free writing prospectus
filed by us with the Securities and Exchange Commission, or SEC. If information in this prospectus supplement is inconsistent with the accompanying prospectus, you should rely on this prospectus
supplement. Neither we, the selling stockholder nor the underwriters have authorized any other person to provide you with different information. If anyone provides you with different or inconsistent
information, you should not rely on it. You should not assume that the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus or in any such
free writing prospectus is accurate as of any date other than the respective dates set forth therein. Our business, financial condition, results of operations and prospects may have changed since
those dates.
Neither
we, the selling stockholder nor the underwriters are making an offer of any securities other than the registered securities to which this prospectus supplement and the
accompanying prospectus relate. We and the underwriters (and any of our or their affiliates) have not done anything that would permit this offering or possession or distribution of this prospectus
supplement and the accompanying prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who obtain this prospectus
supplement must inform themselves about, and observe any restrictions relating to, the offering of the shares of Class A common stock and the distribution of this prospectus supplement outside
of the United States.
We
are an "emerging growth company" as defined in Section 2(a)(19) of the Securities Act of 1933 and Section 3(a)(80) of the Securities Exchange Act of 1934, as amended, or
the Exchange Act. Pursuant to Section 102 of the Jumpstart Our Business Startups Act, or the JOBS Act, we have provided reduced executive compensation disclosure and have omitted a compensation
discussion and analysis from the documents incorporated by reference herein. We previously opted out of the extended transition period with respect to new or revised accounting standards and, as a
result, we comply with any such new or
revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to
opt out of the extended transition period for complying with new or revised accounting standards was irrevocable. We may avail ourselves of these provisions until December 31, 2015, after which
we will cease to be an emerging growth company.
Certain
monetary amounts, percentages and other figures included in this prospectus supplement or documents incorporated by reference herein have been subject to rounding adjustments.
Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the
S-iv
Table of Contents
figures
that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede
them.
Unless
we state otherwise or the context otherwise requires, the terms "Adeptus Health," "Adeptus," "we," "us," "our" and the "Company" refer to Adeptus Health Inc. and its
consolidated subsidiaries after giving effect to the Reorganization Transactions completed in connection with our initial public offering, as described under the heading "Organizational Structure" and
elsewhere in this prospectus supplement; prior to the consummation of the Reorganization Transactions and the completion of our initial public offering, these terms refer to Adeptus Health LLC,
a Delaware limited liability company through which we are currently conducting our operations, and its consolidated subsidiaries.
S-v
Table of Contents
SUMMARY
This summary highlights selected information contained elsewhere in this prospectus supplement or documents
incorporated by reference herein, but it does not contain all of the information that you should consider before deciding to invest in our Class A common stock. You should read this entire
prospectus supplement carefully, including the matters discussed under the headings "Risk
Factors," "Organizational Structure," "Unaudited Pro Forma Financial Information," and the detailed information that is incorporated in this prospectus supplement by reference to our Annual Report on
Form 10-K for the fiscal year ended December 31, 2014 (including, without limitation, matters discussed under the headings "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and in our consolidated financial statements and related notes), and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
(including, without limitation, matters discussed under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in our unaudited condensed consolidated
financial statements and related notes). In this prospectus supplement, our "Annual Report" refers to our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 that we
filed with the SEC on February 27, 2015 and our "Quarterly Report" refers to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 that we filed with the SEC on
May 1, 2015, each of which is incorporated by reference herein. See "Incorporation by Reference." Some of the statements in this prospectus supplement or documents incorporated by reference
herein constitute forward-looking statements. For more information, see "Special Note Regarding Forward-Looking Statements."
Company Overview
We are a patient-centered healthcare organization providing emergency medical care through the largest network of independent
freestanding emergency rooms in the United States and partnerships with leading healthcare systems. We have experienced rapid growth in recent periods, growing from 14 freestanding facilities at the
end of 2012 to 26 freestanding facilities at the end of 2013, and to 68 freestanding facilities as of June 30, 2015. We currently own and/or operate facilities located in the:
(i) Houston, Dallas/Fort Worth, San Antonio and Austin, Texas markets; (ii) Colorado Springs and Denver, Colorado markets; and (iii) Phoenix, Arizona market, which includes a full
service, licensed general hospital. Each facility opened in 2014 and 2015 was newly constructed.
Since
our founding in 2002, our mission has been to address the need within our local communities for immediate and convenient access to quality emergency care in a patient-friendly,
cost-effective setting. We believe we are transforming the emergency care experience with a differentiated and convenient care delivery model which improves access, reduces wait times and provides
high-quality clinical and diagnostic services on-site. Our facilities are fully licensed and provide comprehensive emergency care with an acuity mix that we believe is comparable to hospital-based
emergency rooms.
Emergency
care is a significantly underserved market in the United States today and the current system is overburdened.
- •
- Demand has grown dramatically, with emergency room visits increasing 47.1%, from 90.8 million in 1992 to
133.6 million in 2013, while the number of emergency room departments decreased by 11.8% over the same period, from approximately 5,035 in 1992 to approximately 4,440 in 2013, according to the
American Hospital Association, or AHA.
- •
- In their 2014 National Report Card on America's emergency care environment, the American College of Emergency Physicians, or ACEP,
assigned an overall grade of "D–" for the category of access to emergency care, reflecting too few emergency departments to meet the needs of a growing, aging population and the
projected increase in the number of insured individuals as a result of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of
2010, or the PPACA.
S-1
Table of Contents
We
believe freestanding emergency rooms are an essential part of the solution, providing access to quality care and offering a significantly improved patient experience relative to
traditional hospital emergency departments.
What We Do and Why We Are Different
We focus on providing emergency care through our freestanding emergency rooms with the goal of improving the quality of care and
enhancing the overall experience for patients and physicians. We have developed an innovative facility design and infrastructure specifically tailored to the emergency care delivery system that
combines staff, equipment and physical
layout to deliver high-quality, cost-effective and coordinated patient-focused care. This approach limits the need to move patients and provides ease of access to all necessary medical services we
provide, allowing us to enhance the overall experience of the patient. Our facility design also allows physicians and nursing staff to provide all levels of care required for our patients during their
visit. Our philosophy is to center care around the patient, rather than expect the patient to adapt to our facilities and staff. We believe our focused approach increases patient, physician and staff
satisfaction. Innovative characteristics of our emergency facilities include:
- •
- 24/7 Emergency
Care. Freestanding emergency room facilities, which typically range from approximately 6,000 to 7,000 square feet and are located in a
convenient, local community setting and open 24 hours a day, seven days a week with on-site emergency staff, including a physician, at all times;
- •
- Board-Certified
Physicians. Staffed with experienced healthcare professionals capable of handling all emergency issues. As of December 31, 2014,
we contracted with approximately 434 Board-certified physicians with an average of 15 years of medical experience who have treated more than 400,000 patients at our facilities;
- •
- Streamlined. Streamlined check-in process designed to have patients seen by a
physician within minutes;
- •
- Focused
Capability. Typically six to nine emergency exam rooms, which include two high-acuity suites, one child-friendly pediatric room and a
specialized obstetrics/gynecology room;
- •
- Coordinated
Care. Centralized nurses' station that serves as a command center to coordinate care;
- •
- Full Radiology
Suite. In-house diagnostic imaging technology, including CT scanners, digital x-rays and ultrasounds, with final reads from on-call
radiologists; and
- •
- On-Site
Laboratory. On-site laboratories, which provide results within approximately 20 minutes, and are certified by the Clinical Laboratory
Improvements Amendments, or CLIA, and accredited by the Commission on Office Laboratories Accreditation, or COLA.
We
operate at the higher end of the acuity and emergency care spectrum. Our capabilities and offerings differ from other care models as outlined below:
Spectrum of Primary and Emergency Care Services
Market Opportunity
Freestanding emergency rooms remain the least penetrated alternate site provider segment in the U.S. healthcare sector. As of 2012,
there were approximately 400 freestanding emergency rooms in the United States as compared to approximately 1,400 retail clinics, 6,000 ambulatory surgery centers and 9,300 urgent care centers. We
believe this represents a significant opportunity to deliver quality care in the freestanding emergency room setting and transform this underpenetrated market. We have
S-2
Table of Contents
developed
a highly scalable business model for establishing new freestanding emergency rooms that include attractive unit economics, sophisticated data analytics to support our site-selection process,
proven real estate development practices and innovative marketing programs. Using this model, we have grown to become more than three times the size of our next largest independent freestanding
emergency room competitor and are expanding rapidly. We seek to transform the emergency care delivery model by offering high-quality, efficient and consumer-oriented healthcare in our local
communities.
In
their 2014 National Report Card on America's emergency care environment, ACEP assigned an overall grade of "D–" for the category of access to emergency care,
reflecting too few emergency departments to meet the needs of a growing, aging population and the projected increase in the number of insured individuals as a result of the PPACA. We believe
freestanding emergency rooms are an essential part of the solution.
We
also believe that we offer a dramatically improved patient experience relative to traditional hospital emergency departments by significantly reducing wait times and providing rapid
access to Board-certified physicians on-site. We also provide convenient access to critical, high-acuity care as compared with urgent care centers and are open 24 hours a day, seven days a
week. Based on patient feedback collected by Press Ganey, First Choice Emergency Room received the prestigious Guardian of Excellence Award in 2013 and 2014 for exceeding the 95th percentile in
patient satisfaction nationwide.
Our Value Proposition
Value Proposition for Patients
As healthcare has evolved, the consumer has taken greater control of healthcare expenditures and demands more convenient access to
healthcare, better value and an improved overall patient experience. Our philosophy is to center care around the patient, rather than expect the patient to adapt to our facilities and staff. We offer
patients an attractive value proposition:
- •
- Access to
Care. Our facilities are located in a convenient, local community setting and are open 24 hours a day, seven days a week with
on-site emergency staff, including a Board-certified physician at all times.
- •
- Immediate
Care. A streamlined check-in process designed to have patients seen by a physician within minutes.
- •
- Physician
Focus. Our physicians are focused on the patient, spending more time on patient care than on administrative tasks, providing
high-quality service, prompt diagnoses and the appropriate medical treatment.
- •
- Technology. Facilities equipped with full radiology suites, including CT scanners,
digital x-rays and ultrasounds, as well as on-site laboratories certified by CLIA and accredited by COLA that provide test results within approximately 20 minutes.
- •
- Superior
Experience. An overall enhanced patient experience.
As
a result, based on patient feedback collected by Press Ganey, First Choice Emergency Room received the prestigious Guardian of Excellence Award in 2013 and 2014 for exceeding the
95th percentile in patient satisfaction nationwide.
Value Proposition for Communities
Community providers, including physician's offices and hospital emergency rooms, serve a critical and valuable purpose in delivering
healthcare. However, the shortage of emergency rooms makes it increasingly challenging to meet the rising demand for emergency care. This has led to an overburdened emergency room network that is
often poorly aligned with care consumption trends.
We
seek to transform the emergency delivery model and fill a public need by offering high-quality, efficient and consumer oriented healthcare in our local communities. We offer
communities an attractive value proposition:
S-3
Table of Contents
- •
- Access to
Care. Facilities located in convenient, local community settings. Approximately 60% of each facility's patients come from a three-mile
radius, with approximately 80% coming from a five-mile radius.
- •
- 24/7. Access to Board-certified physicians at all times, including outside normal
business hours.
- •
- Partnership. Key partner for health systems seeking to enhance their local community
presence through direct admissions relationships and new innovative partnerships.
- •
- Care
Continuum. Connectivity across the patient-care continuum from patient referrals to post-emergency care.
Value Proposition for Physicians
The evolving healthcare delivery environment, reflected by significant regulatory changes, increasing administrative burdens, shifting
competitive provider landscape and a transition to new reimbursement models, is increasing pressure on physicians. We offer an attractive working environment:
- •
- Team-Based
Care. Team-based environment, supported by dedicated staff.
- •
- Patient
Centric. Our model allows physicians to spend more time with each patient, which enables them to focus their attention on the patient in
order to deliver high-quality care.
- •
- Dedicated
Support. Rapid delivery of lab and diagnostic results through on-site capabilities.
- •
- Physician
Friendly. Scheduling flexibility and a well-defined compensation program. Payment of malpractice insurance coverage premiums for
physicians practicing at our facilities.
Value Proposition for Payors
We believe that our emergency room facilities reduce overall costs for payors by reducing unnecessary tests and patient admittances.
According to the National Hospital Ambulatory Medical Care Survey, the national average emergency room inpatient admittance rate was approximately 11.9% in 2011, while our average inpatient admittance
rate was approximately 3.8% for the year ended December 31, 2014. We believe our facilities provide comprehensive emergency care with an acuity mix that is comparable to hospital-based
emergency rooms.
Value Proposition for Hospitals
We have an attractive business model that provides communities direct access to emergency care, helping to relieve the overburdened
hospital emergency room system. Our facilities provide high-quality emergency care for a wide variety of conditions, including heart attacks, severe abdominal pain and respiratory distress similar to
the care provided in traditional hospital emergency rooms. When hospital-based services such as surgery or cardiac catheterization are needed, patients are stabilized at our facilities before being
transferred to nearby hospitals via ambulance. Transfer agreements are in place with local hospitals that often facilitate direct admission.
Recent Initiatives and Outlook
Following an investment in 2011 by Sterling Partners, which we refer to as our Sponsor, we embarked on a number of growth initiatives.
These included the hiring of a number of senior officers, including our CEO Tom Hall, as part of our efforts to enhance and expand our management team, developing the necessary clinical and
operational infrastructure to position us for future growth and entering new geographic markets such as Colorado. We are also building strategic alliances with leading health systems. In October 2014,
we entered into a joint venture with Dignity Health to support the
S-4
Table of Contents
growing
demand for access to quality medical care in Arizona. As described below, this partnership has started with Dignity Health Arizona General Hospital, a full-service healthcare hospital facility
in the Phoenix market, and includes plans for additional access to emergency medical care in Phoenix. In April 2015, we announced a new joint venture with University of Colorado Health to improve
access to high-quality and convenient emergency medical care in Colorado. We have also entered into alliances with affiliates of Hospital Corporation of America, or HCA, in the North Texas and Houston
areas to enhance the continuum of care for our patients by streamlining clinical protocols for transfers to hospitals and providing direct access to approximately 5,500 physicians and 12 hospitals in
North Texas and approximately 3,300 physicians and 9 hospitals in the Houston area, for follow-up care. In addition, we have a relationship with an affiliate of Concentra Medical Centers, or
Concentra, urgent care clinics in the Dallas/Fort Worth market, whereby we are able to refer workers' compensation patients to Concentra when follow-up, non-emergent, care is needed.
Our
commitment to delivering superior patient care in the local community setting, identifying and retaining outstanding healthcare professionals, and investing in systems and processes
to drive results, coupled with strong industry trends and sophisticated real estate development and marketing, has enabled us to build a track record of growth. We expect to grow our facility base at
a rate of more than 20 facilities annually over the next several years, targeting communities within mid-sized and large metropolitan markets currently underserved by emergency departments. We believe
we have the
opportunity to substantially grow our footprint to more than 100 facilities over the next two years in both existing and new markets. We have a robust pipeline of more than 50 sites under development
in our existing and additional new markets, including opening a full-service general hospital in Texas in 2015. To support this growth and development, we have made significant investments in our
professional and real estate development staff, as well as in sales and marketing initiatives. Our consolidated total net patient service revenue increased from $102.9 million in 2013 to
$210.7 million in 2014, representing approximately 104.8% annual growth.
S-5
Table of Contents
Recent Developments
Financial Performance for the Quarter Ended June 30, 2015
On July 23, 2015, we issued a press release announcing our second quarter results, as set forth below:
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30, |
|
(dollars in thousands, except per share data)
|
|
2015 |
|
2014 |
|
Statement of Operations Data: |
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
Patient service revenue |
|
$ |
104,363 |
|
$ |
51,946 |
|
Provision for bad debt |
|
|
(17,514 |
) |
|
(7,708 |
) |
|
|
|
|
|
|
|
|
|
Net patient service revenue |
|
|
86,849 |
|
|
44,238 |
|
Management and contract service revenue |
|
|
2,738 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total net operating revenue |
|
$ |
89,587 |
|
$ |
44,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of joint ventures |
|
|
3,621 |
|
|
— |
|
Consolidated Balance Sheet Data: |
|
|
|
|
|
|
|
Cash |
|
$ |
46,129 |
|
$ |
44,876 |
|
Total assets |
|
|
395,297 |
|
|
277,601 |
|
Total debt and capital lease obligations |
|
|
159,023 |
|
|
110,935 |
|
Shareholders' equity |
|
$ |
126,636 |
|
$ |
107,152 |
|
Other Financial Data: |
|
|
|
|
|
|
|
Adjusted EBITDA(1) |
|
$ |
22,940 |
|
$ |
5,943 |
|
Systemwide net patient service revenue(2) |
|
|
104,508 |
|
|
44,238 |
|
Systemwide same-store revenue(3) |
|
$ |
46,231 |
|
$ |
38,262 |
|
Other Operational Data: |
|
|
|
|
|
|
|
Number of systemwide facilities |
|
|
69 |
|
|
38 |
|
- (1)
- We
define Adjusted EBITDA 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 preopening expenses, management recruiting expenses, stock compensation expense, costs associated with our public offerings
and other non-recurring costs and gains. Adjusted EBITDA is included or incorporated by reference herein because it is a key metric used by management to assess our financial performance. We use
Adjusted EBITDA to supplement GAAP measures of performance in order to evaluate the effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of
other peer companies using similar measures. Adjusted EBITDA is also frequently used by analysts, investors and other interested parties to evaluate companies in our industry.
Adjusted
EBITDA is a non-GAAP measure of our financial performance and should not be considered as an alternative to net income (loss) as a measure of financial performance, or any other performance
measure derived in accordance with GAAP, nor should it be construed as an inference that our future results will be unaffected by unusual or other items. In evaluating Adjusted EBITDA, you should be
aware that in the future we will incur expenses that are the same as or similar to some of the adjustments in this presentation, such as preopening expenses, stock compensation expense, and other
adjustments. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for management's discretionary use, as it does not reflect certain cash requirements such as tax payments,
debt service requirements, capital expenditures, facility openings and certain other cash costs that may recur in the future. Adjusted
S-6
Table of Contents
EBITDA
contains certain other limitations, including the failure to reflect our cash expenditures, cash requirements for working capital needs and cash costs to replace assets being depreciated and
amortized. Management compensates for these limitations by supplementally relying on our GAAP results in addition to using Adjusted EBITDA. Our presentation of Adjusted EBITDA is not necessarily
comparable to other similarly titled captions of other companies due to different methods of calculation.
The following table sets forth a reconciliation of our Adjusted EBITDA to net income (loss) using data derived from our consolidated financial statements for the periods indicated:
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30, |
|
(dollars in thousands)
|
|
2015 |
|
2014 |
|
Net (loss) income |
|
$ |
27,674 |
|
$ |
(9,429 |
) |
Depreciation and amortization |
|
|
4,929 |
|
|
3,393 |
|
Interest expense(a) |
|
|
3,898 |
|
|
4,319 |
|
Provision for income taxes |
|
|
6,328 |
|
|
38 |
|
Gain on contribution to joint venture(b) |
|
|
(24,250 |
) |
|
— |
|
Advisory Services Agreement fees and expenses(c) |
|
|
— |
|
|
155 |
|
Preopening expenses(d) |
|
|
1,991 |
|
|
1,600 |
|
Management recruiting expenses(e) |
|
|
185 |
|
|
56 |
|
Stock compensation expense(f) |
|
|
608 |
|
|
179 |
|
Public offering costs(g) |
|
|
993 |
|
|
4,998 |
|
Other(h) |
|
|
584 |
|
|
634 |
|
|
|
|
|
|
|
|
|
|
Total adjustments |
|
|
(4,734 |
) |
|
15,372 |
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
22,940 |
|
$ |
5,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (a)
- Consists
of interest expense and fees of $3.9 million and $4.3 million for the three months ended June 30, 2015 and 2014, respectively.
- (b)
- Gain
recognized on the contribution and change of control of previously owned freestanding facilities to the joint venture with UCHealth.
- (c)
- Consists
of management fees and expenses paid to a significant shareholder under our Advisory Services Agreement. The Advisory Services Agreement was
terminated in connection with the consummation of our initial public offering in June 2014.
- (d)
- Includes
labor, marketing costs and occupancy costs prior to opening a facility and the equity in loss of our unconsolidated joint venture in 2014.
- (e)
- Third-party
costs and fees involved in recruiting our management team.
- (f)
- Stock
compensation expense associated with grants of management incentive units.
- (g)
- Consists
of $1.0 million of costs incurred in conjunction with our secondary public offering in May 2015 for the three months ended June 30,
2015 and costs incurred in conjunction with our initial public offering, including $2.4 million in bonuses for certain members of management, $2.3 million in costs related to the
termination of our Advisory Services Agreement and $0.5 million of other offering costs for the three months ended June 30, 2014.
- (h)
- For
the three months ended June 30, 2015, we incurred costs to develop long-term strategic goals and objectives totaling $0.6 million. For the
three months ended June 30, 2014, we incurred terminated real-estate development costs totaling $0.2 million, costs to develop
S-7
Table of Contents
long-term
strategic goals and objectives totaling $0.3 million and board fees and travel expenses paid to members of the board of directors totaling approximately $0.1 million.
- (2)
- Systemwide
net patient service revenue includes revenue from our unconsolidated facilities as if they were consolidated. Systemwide net patient service
revenue is a non-GAAP measure of our financial performance and should not be considered as an alternative to net patient service revenue as a measure of financial performance, or any other performance
measure derived in accordance with GAAP. We believe the presentation of systemwide net patient service revenue provides supplemental information regarding our financial performance as it includes
revenue earned by all of our affiliated facilities, regardless of consolidation.
The
following table sets forth a reconciliation of our systemwide net patient service revenue to net patient service revenue for the periods indicated.
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30, |
|
|
|
2015 |
|
2014 |
|
Net patient service revenue |
|
$ |
86,849 |
|
$ |
44,238 |
|
Unconsolidated joint ventures |
|
|
17,659 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Systemwide net patient service revenue |
|
$ |
104,508 |
|
$ |
44,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (3)
- We
begin including revenue for a new facility as systemwide same-store revenue from the first day of the 16th full fiscal month following the
facility's opening, which is when we believe same store comparison becomes meaningful. When a facility is relocated, we continue to include revenue from that facility in same store revenue. Same store
revenue allows us to evaluate how our facility base is performing by measuring the change in period over period net revenue in facilities that have been open for 15 months or more. Various
factors affect same store revenue, including outbreaks of illnesses, changes in marketing and competition.
The
financial data presented above is preliminary, based upon our estimates and is subject to revision based upon our financial closing procedures and the completion of our financial
statements. Our actual results may be materially different from our estimate. In addition, these estimated results are not necessarily indicative of our results for any future period.
Initial Public Offering
On June 30, 2014, we completed our initial public offering of 5,321,414 shares of our Class A common stock at a price to
the public of $22.00 per share and received net proceeds of approximately $96.2 million, after deducting underwriting discounts and commissions and offering expenses. We used the net proceeds
from the initial public offering to purchase limited liability company units of Adeptus Health LLC, or LLC Units, from Adeptus Health LLC. Adeptus Health LLC used the
proceeds it received as a result of our purchase of LLC Units to cause First Choice ER, LLC to reduce outstanding borrowings under its senior secured credit facility, to make a
$2.0 million one-time payment to an affiliate of our Sponsor in connection with the termination of an advisory services agreement and for general corporate purposes. An additional 313,586
shares were also sold by an affiliate of our Sponsor.
Secondary Offering
On May 11, 2015, we completed a public offering of 1,572,296 shares of our Class A common stock at a price to the public
of $63.75 per share and received net proceeds of approximately $94.5 million, after deducting underwriting discounts and commissions and offering expenses. We used the net proceeds from the
offering to purchase, for cash, 1,572,296 LLC Units from certain of Post-IPO
S-8
Table of Contents
Unit
Holders, as defined under the heading "Organizational Structure." An additional 842,704 shares were also sold by an affiliate of our Sponsor.
Additional Master Funding and Development Agreements
In July 2014, we entered into a second Master Funding and Development Agreement, or the Second MPT Agreement, with an affiliate of
Medical Properties Trust, or MPT, to fund future facilities. In April 2015, we entered into an amendment to the Second MPT Agreement, or the Amended MPT Agreement. The Amended MPT Agreement allows for
a maximum aggregate funding of $250.0 million. The Second and Amended MPT Agreements are separate from and in addition to our initial Master Funding and Development Agreement, or the Initial
MPT Agreement. All other material terms in these agreements remain consistent with our Initial MPT Agreement. We refer to these agreements collectively as the MPT Agreements. As of June 30,
2015, $228.5 million remained available under the MPT Agreements.
Joint Venture with Dignity Health
On October 22, 2014, we announced our expansion into Arizona through a joint venture with Dignity Health, one of the nation's
largest health systems. The new partnership has started with Dignity Health Arizona General Hospital, a full-service healthcare hospital facility in Phoenix, Arizona, and includes plans for additional
access to emergency medical care in Phoenix. This facility began its training and certification phase of operation in December 2014 and received its CMS certification from the Joint Commission on
January 30, 2015. Department of Health and Human Services' Centers for Medicare and Medicaid Services, or CMS, certification allows us to receive reimbursement for services provided to Medicare
and Medicaid patients of the hospital. Dignity Health Arizona General Hospital is a full-service healthcare hospital facility, licensed by the state as a general hospital. Spanning 39,000 square feet,
the hospital has 16 inpatient rooms, two operating rooms for inpatient and outpatient surgical procedures, an emergency department, a high-complexity laboratory and a full radiology suite. Patients
have full access to the Dignity Health area facilities and physicians, and the hospital provides Phoenix-area residents with 24/7 access to emergency medical care.
Joint Venture with University of Colorado Health
On April 21, 2015, we announced a new partnership with University of Colorado Health, or UCHealth, to improve access to
high-quality and convenient emergency medical care in Colorado. Under the partnership, UCHealth will hold a majority stake in our freestanding emergency rooms throughout Colorado Springs, northern
Colorado and the Denver metro area. All 12 Colorado First Choice Emergency Room locations, which have since been rebranded as UCHealth emergency rooms, and two more under construction, were included
in the partnership. The partnership will also include hospital locations planned for Colorado Springs and Denver.
Competitive Strengths
We believe the following strengths differentiate us from our competitors and will enable us to capitalize on favorable industry
dynamics:
Leader in the Rapidly Expanding Freestanding Emergency Room Market
We operate the largest freestanding emergency room provider in the United States with 68 facilities as of June 30, 2015, of
which 29 were opened in 2014 and 13 in 2015. We are more than three times the size of our next largest independent freestanding emergency room competitor. We believe our innovative facility model
enables us to offer our customers comprehensive emergency services with individualized attention and local convenience. We believe that our scale and scope, when combined
S-9
Table of Contents
with
our comprehensive service offerings and tailored best practices, differentiate us from our local and regional competitors. Given our market positions in the highly fragmented and rapidly
expanding markets in which we provide our services, we believe there continue to be opportunities to build more facilities in existing and new markets as well as develop new alliances with health
systems seeking to enhance their local community presence. This will result in further expanding our leadership in the freestanding emergency room market.
Superior Patient Experience
We strive to consistently offer a superior patient experience through both our medical staff and facility capabilities. Our emergency
rooms are staffed with Board-certified physicians and emergency-trained registered nurses capable of handling all emergency room issues with a physician on-site at all times. Each of our facilities is
equipped with a full radiology suite, including CT scanners, digital x-ray and ultrasound, as well as on-site laboratories certified by CLIA and accredited by COLA. Our patients are typically
face-to-face with a medical professional within minutes
of arrival, and our patient satisfaction ratings exceed the vast majority of hospital emergency rooms nationally. Based on patient feedback collected by Press Ganey, we exceeded the
95th percentile in the nation for patient satisfaction and received the Guardian of Excellence Award in 2013 and 2014, the highest award bestowed by the organization.
Scalable Service Model Well-Positioned for Growth
We maintain the highest standards of clinical excellence, led by our 434 contracted Board-certified physicians who have an average of
15 years of medical experience. We have standardized, highly scalable clinical and operational infrastructure that we believe will support significant continued growth. Our highly trained staff
is complemented by our managed care contracting and revenue cycle management expertise. Moreover, our innovative sales and marketing programs combine active outreach and awareness campaigns with
patient-centric marketing programs in order to most effectively reach our target populations. We endeavor to continue to develop multiple sites because we believe regional density creates value
through leverage in managed care contracting and greater brand awareness.
Distinctive Real Estate Development Strategy Supports Attractive Unit Growth and Economics
We have built an internal team with significant experience in multi-unit retail expansion strategy and execution. As a result, our
approach to real estate planning is highly consumer-centric with a discipline traditionally utilized by sophisticated retail businesses. Our proprietary site selection model is a key to the success of
our business, allowing us to identify and fill critical voids in community healthcare delivery systems. When combined with our scalable operating structure and attractive new-facility model, our real
estate development strategy allows us to maximize performance and quickly grow our facility base. Our seasoned real estate planning and development team follows a proven and disciplined strategy that
leverages advanced data analytics to identify opportunities to provide underserved communities with high-quality emergency care.
This
development model has also proven commercially successful in highly competitive markets and is currently supporting growth outside of our home state of Texas. Our sophisticated
selection guidelines and scalable procedures allow us to open a new facility within 14 to 21 months of site selection, enabling us to quickly capitalize on emerging opportunities. We have
experienced rapid growth in recent periods, growing from 14 facilities at the end of 2012 to 26 facilities at the end of 2013, and to 68 facilities as of June 30, 2015. We have a robust
pipeline under development designed to support the addition of approximately 11 facilities during the remainder of 2015.
S-10
Table of Contents
Ability to Attract and Retain High-Quality Physicians and Clinicians
Through our differentiated recruiting and development programs, we are able to identify and target high-quality physicians and
clinicians to optimally match the needs of our facilities. Each of our facilities is staffed with Board-certified physicians, who have an average of
15 years of medical experience. Compared to a traditional hospital setting, our physicians have a significantly reduced administrative workload, which allows them to spend more time focusing on
patient care. Additionally, we offer our physicians extensive flexibility in managing their work schedules. Due to our customized staffing model, physicians can schedule their own work hours, practice
at multiple sites, and take advantage of a wide variety of career development opportunities, including maintaining their own practice or affiliations with other healthcare facilities or hospitals.
Consequently, our facilities offer a positive work environment that leads to high retention rates and strong customer and provider relationships. We believe these programs will allow us to continue to
effectively recruit physicians and clinicians to support our robust pipeline of new facilities.
Management Team with Significant Public Company Experience
We have an experienced management team that leverages expertise across the healthcare, retail and hospitality sectors. The members of
our executive management team with healthcare backgrounds have an average of 11 years of experience in that industry and have proven and extensive knowledge of healthcare operations and
facility expansion. Additionally, our management has significant experience with high-growth, multi-state customer-focused operations through involvement in the retail and hospitality sectors. The
three most senior members of the executive team have substantial experience in leading publicly traded companies. Over their respective tenures, members of our team have been instrumental in
establishing a successful, scalable operating model, consistently generating strong financial results and developing an effective site selection and build out process. They have also developed proven
recruiting and staffing capabilities to identify, hire and retain high quality physicians. We believe the breadth of management's background and the depth of its expertise will continue to drive our
dynamic growth and continued success.
Growth Strategies
We believe we have significant growth potential in both new and existing markets because of our leading market position in the
freestanding emergency room sector, high-quality care delivery, strong unit economics, disciplined development strategy and significant management experience. We plan to pursue the following growth
strategies:
Grow our Presence in Existing Markets
We believe there is a significant opportunity to expand in our existing markets, which include: Dallas/Fort Worth, Houston, San Antonio
and Austin, Texas; Colorado Springs and Denver, Colorado; and Phoenix, Arizona. Our scale, scope and leading market position, combined with our sophisticated, proven site selection and development
processes provide us with competitive advantages to continue to expand our facility base in these markets. We endeavor to continue to develop multiple sites because we believe regional density creates
value through leverage in managed care contracting and greater brand awareness. We anticipate that as we further build our brand and increase the visibility of our facilities in our existing markets
these efforts will increase patient awareness, and drive patient volume and same-store growth.
Build Strategic Alliances with Leading Health Systems
Development of our existing and new health system alliances is an important part of our continued growth. We expect to be a key partner
for health systems seeking to enhance their local community
S-11
Table of Contents
presence
through direct admissions relationships and new innovative partnerships. Our alliance with HCA in North Texas provides an example of one such innovative partnership, giving our patients
direct access to HCA's approximately 5,500 physicians and 12 hospitals in North Texas and approximately 3,300 physicians and 9 hospitals in the Houston area. In addition, we have a relationship with
the Concentra urgent care clinics in the Dallas/Fort Worth market, whereby we are able to refer workers' compensation patients to Concentra when follow-up, non-emergent, care is needed. We also
recently
expanded into Arizona through a joint venture with Dignity Health, one of the nation's largest health systems, with the opening of a full-service healthcare hospital facility and includes plans for
additional access to emergency medical care in the Phoenix area through freestanding emergency departments of the hospital. To improve access to high-quality and convenient emergency medical care in
the northern Colorado and Denver metro area, we recently partnered with UCHealth. We believe our ability to alleviate hospital emergency room over-crowding, while providing a new access point to
patients, enhances our value proposition as a partner of choice for health systems.
Pursue a Disciplined Development Strategy in New States and Markets
We intend to continue expanding our facility base through new facility openings in new states and markets by leveraging our core
capabilities in site selection, development and efficient facility openings. We view expansion as a core competency and see a significant opportunity to replicate the regional platform model
established in Texas in new geographic markets. We entered the Colorado market in 2013, where we now have 13 facilities as part of our partnership with UCHealth, and the Arizona market in 2015,
through our partnership with Dignity Health, with a full-service general hospital in the Phoenix area that has 16 inpatient rooms, two operating rooms, a nine-room emergency department, a
high-complexity laboratory and a full radiology suite. We have experienced rapid growth in recent periods, growing from 14 facilities at the end of 2012 to 26 facilities at the end of 2013, and to 68
facilities as of June 30, 2015. We have a robust pipeline under development designed to support the addition of approximately 11 facilities during the remainder of 2015. As we expand into new
markets, particularly in states with complex regulatory requirements, we believe there is a potential to implement different operating models, such as innovative hospital partnership models, including
a hospital hub and freestanding emergency room satellite model.
Risks Related to Our Business and Industry, Healthcare Regulation and Organizational Structure
An investment in our Class A common stock involves a high degree of risk. See "Risk Factors" in this prospectus supplement and
"Risk Factors" in our Annual Report. Some of the more significant challenges and risks related to our business include the following:
- •
- We may not be able to successfully implement our growth strategy on a timely basis or at all, which could harm our growth and results
of operations;
- •
- Our expansion into new markets presents increased risks and may require us to develop new business models;
- •
- Our long-term success is highly dependent on our ability to successfully identify and secure appropriate sites for our facilities and
develop and expand our operations in existing and new markets;
- •
- We conduct business in a heavily regulated industry and, if we fail to comply with these laws and government regulations, we could
incur penalties or be required to make significant changes to our operations;
- •
- Compliance with a number of additional federal and state regulatory schemes as a result of our recent enrollment of our Arizona
general hospital to participate in the federal Medicare program and the Arizona Medicaid program;
S-12
Table of Contents
- •
- Our current facilities are subject to state statutes and regulations that govern our operations, and the failure to comply with these
laws and regulations can result in civil or criminal sanctions;
- •
- State law regulation of construction or expansion of emergency rooms could prevent us from developing additional freestanding
emergency rooms or other facilities; and
- •
- Recent healthcare reform legislation and other changes in the healthcare industry and in healthcare spending could adversely affect
our business model, financial condition or results of operations.
Our History and Sponsor
First Choice ER, LLC was founded in Texas by Dr. Jacob J. Novak in 2002, when he recognized the need for convenient
access to high-quality emergency care in a patient-friendly, community-based manner, and as an alternative to traditional hospital-based emergency care. The community's response to our initial
facility in Flower Mound, Texas was so positive that we began looking for opportunities to expand. In 2003, Richard Covert joined the company and eventually became its Chief Executive Officer.
Mr. Covert was instrumental in securing legislation to license and regulate freestanding emergency rooms in the state of Texas. Mr. Covert helped expand the company to 12 facilities in
three Texas markets. In 2007, we received the Gold Seal of Approval from The Joint Commission on Accreditation of Healthcare Organizations, or the Joint Commission. In 2011, funds affiliated with
Sterling Partners acquired a 75% share in First Choice ER, LLC. In 2013, Adeptus Health LLC was created as a holding company to own and operate First Choice Emergency Rooms. Adeptus
Health Inc. was incorporated as a Delaware corporation on March 7, 2014 for the purpose of becoming our new parent company in connection with the Reorganization Transactions described
under the heading "Organizational Structure" and elsewhere in this prospectus supplement or in documents incorporated by reference herein.
Corporate Information
Adeptus Health Inc. is organized under the laws of the State of Delaware.
Our
principal executive offices are located at 2941 Lake Vista Drive, Lewisville, Texas 75067 and our telephone number is (972) 899-6666. Our website is www.adhc.com. Information contained on our
website or that can be accessed through our website is not incorporated by reference herein. Information on our website does not constitute part of this prospectus supplement.
Implications of Being an Emerging Growth Company
We are an "emerging growth company" as defined in the JOBS Act. For so long as we remain an emerging growth company, we are permitted,
and intend, to rely on exemptions from specified disclosure requirements that are applicable to other public companies that are not emerging growth companies. These
include:
- •
- being permitted to provide only two years of audited financial statements, with correspondingly reduced "Management's Discussion and
Analysis of Financial Condition and Results of Operations" disclosure included in this prospectus supplement or in documents incorporated by reference herein;
- •
- not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial
reporting;
- •
- not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding
mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements;
S-13
Table of Contents
- •
- reduced disclosure obligations regarding executive compensation; and
- •
- exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any
golden parachute payments not previously approved.
We
may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of some reduced reporting burdens in this prospectus supplement or in documents
incorporated by reference herein. Accordingly, the information contained or incorporated by reference herein may differ from the information provided by other public companies. We may avail ourselves
of these provisions until December 31, 2015, after which we will cease to be an emerging growth company.
The
JOBS Act permits emerging growth companies to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We
previously opted out of this provision. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting
standards was irrevocable.
S-14
Table of Contents
The Offering
|
|
|
Class A common stock offered by Adeptus Health Inc. |
|
1,906,229 shares. |
Class A common stock offered by the selling stockholder |
|
843,771 shares. |
Option to purchase additional shares of Class A common stock |
|
We and the selling stockholder have granted the underwriters an option for a period of 30 days from the date of this
prospectus supplement to purchase up to 412,500 additional shares of Class A common stock, of which 149,692 will be sold by the selling stockholder and 262,808 sold by the Company, with the proceeds used to purchase an equivalent number
of LLC Units from certain of our Post-IPO Unit Holders, as defined under the heading "Organizational Structure." |
Class A common stock outstanding after this offering |
|
13,469,298 shares (or 20,732,612 shares if the Post-IPO Unit Holders were to exchange all of their LLC Units and
Class B common stock for Class A common stock on a one-for-one basis). |
Class B common stock outstanding after giving effect to this offering |
|
7,263,314 shares. The shares of Class B common stock have no economic rights but entitle the holder to one vote per
share on matters presented to stockholders of Adeptus Health Inc. Shares of Class B common stock are generally not transferable other than in connection with an exchange of LLC Units for Class A common stock. |
Use of proceeds |
|
The net proceeds to us from this offering, after deducting estimated underwriting discounts and commissions, will be
approximately $197.2 million (or $224.4 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock), assuming an offering price per share of $108.90, which was the last reported sale
price of our Class A common stock on the NYSE on July 24, 2015. We estimate that our expenses from this offering will be approximately $0.9 million. |
|
|
We intend to use the proceeds received by us to purchase, for cash, 1,906,229 outstanding LLC Units (or 2,169,037
outstanding LLC Units if the underwriters exercise in full their option to purchase additional shares of Class A common stock) from certain of our Post-IPO Unit Holders at a purchase price per unit equal to the public offering price per
share of Class A common stock in this offering net of underwriting discounts and commissions. |
|
|
We will not receive any of the proceeds from the sale of shares of Class A common stock by the selling
stockholder. |
S-15
Table of Contents
|
|
|
|
|
If the underwriters exercise in full their option to purchase up to an aggregate of 412,500 additional shares of Class A common stock,
we intend to purchase, for cash, 262,808 outstanding LLC Units from certain of our Post-IPO Unit Holders at a purchase price per unit equal to the public offering price per share of Class A common stock in this offering net of underwriting
discounts and commissions. The remaining 149,692 shares of Class A common stock subject to the underwriters' option are expected to be Class A common stock to be held by the selling stockholder. We will not receive any of the proceeds from
the sale of shares of Class A common stock by the selling stockholder. |
Exchange rights of holders of Adeptus Health LLC units |
|
The amended and restated limited liability company agreement of Adeptus Health LLC, or the Amended and Restated Limited
Liability Company Agreement, gives the Post-IPO Unit Holders (subject to the terms of the Amended and Restated Limited Liability Company Agreement) the right to exchange their vested LLC Units (together with a corresponding number of shares of
our vested Class B common stock) for shares of our Class A common stock on a one-for-one basis. The Post-IPO Unit Holders will hold 7,263,314 LLC Units following this offering and the application of the net proceeds from this offering
as described under the heading "Use of Proceeds." |
Voting rights |
|
Each share of our Class A common stock entitles its holder to one vote on all matters to be voted on by stockholders
generally. |
|
|
Following this offering, the Post-IPO Unit Holders will continue to hold 7,263,314 shares of Class B common stock.
Shares of Class B common stock have no economic rights but entitle the holder to one vote per share on all matters to be voted on by stockholders generally. Following this offering, such Class B common stock will entitle the Post-IPO Unit
Holders to 35.0% of the voting power of our outstanding capital stock. |
|
|
Holders of our Class A common stock and Class B common stock vote together as a single class on all matters
presented to our stockholders for their vote or approval, except as otherwise required by applicable law. |
|
|
See "Description of Capital Stock—Common Stock" in the accompanying prospectus. |
Dividend policy |
|
We do not currently plan to pay a dividend on our Class A common stock. The declaration, amount and payment of any
future dividends on shares of Class A common stock will be at the sole discretion of our board of directors. |
S-16
Table of Contents
|
|
|
Risk factors |
|
You should read the "Risk Factors" section of this prospectus supplement and the "Risk Factors" section of our Annual Report for a
discussion of factors that you should consider carefully before deciding to invest in our Class A common stock. |
NYSE ticker symbol |
|
"ADPT." |
Certain Material United States Federal Income and Estate Tax Consequences to Non-U.S. Holders |
|
For a discussion of certain material U.S. federal income and estate tax consequences that may be relevant to certain
prospective stockholders who are not individual citizens or residents of the United States, see "Certain Material United States Federal Income and Estate Tax Consequences to Non-U.S. Holders." |
In
this prospectus supplement, unless otherwise indicated, the number of shares of Class A common stock outstanding and the other information based
thereon:
- •
- does not reflect any exercise by the underwriters of their option to purchase 412,500 additional shares of our Class A common
stock from us and the selling stockholder;
- •
- does not reflect 7,263,314 shares of Class A common stock issuable upon exchange of LLC Units (together with a
corresponding number of shares of Class B common stock) that will be held by the Post-IPO Unit Holders immediately following this offering; and
- •
- does not reflect 838,208 shares of Class A common stock that may be issued under our equity incentive plan as of
June 30, 2015.
S-17
Table of Contents
Summary Financial and Other Data
The following tables set forth the summary historical consolidated financial and other data and pro forma financial data for the
Company as of the dates and for the periods indicated. The summary consolidated statements of operations data presented below for the fiscal years ended December 31, 2014, 2013 and 2012 and the
consolidated balance sheet data presented
below as of December 31, 2014 and 2013 have been derived from our audited consolidated financial statements included in our Annual Report, which is incorporated by reference herein. The
consolidated balance sheet data as of December 31, 2012 has been derived from our audited consolidated financial statements not included or incorporated by reference in this prospectus
supplement. The summary condensed consolidated statements of operations data presented below for the three months ended March 31, 2015 and 2014 and the consolidated balance sheet data presented
below as of March 31, 2015 has been derived from our unaudited consolidated financial statements included in our Quarterly Report, which is incorporated by reference herein. The unaudited
financial data presented has been prepared on a basis consistent with our audited consolidated financial statements. In the opinion of management, such unaudited financial data reflects all
adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the results for those periods. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year or any future period.
The
summary unaudited pro forma financial information has been developed by application of pro forma adjustments to the historical consolidated financial statements incorporated by
reference herein. The summary unaudited pro forma financial information for the year ended December 31, 2014 and as of and for the three months ended March 31, 2015 gives effect to the
transactions described under the heading "Unaudited Pro Forma Financial Information" as if all such events had been completed as of January 1, 2014 with respect to the unaudited pro forma
consolidated statements of operations and as of March 31, 2015 with respect to the unaudited pro forma consolidated balance sheet. The unaudited pro forma adjustments are based upon available
information and certain assumptions we believe are reasonable under the circumstances. The summary unaudited pro forma financial information is presented for informational purposes only and is not
necessarily indicative of, and does not purport to represent, what our financial position or results of operations would actually have been had the transactions been consummated as of the dates
indicated. In addition, the summary unaudited pro forma financial information is not necessarily indicative of our future financial condition or results of operations.
You
should read the information contained in this table in conjunction with the matters discussed under the headings "Use of Proceeds," "Organizational Structure," "Unaudited Pro Forma
Financial Information," "Selected Historical Consolidated Financial Data" and "Capitalization" in this prospectus supplement, under the headings "Selected Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," as well as with our audited consolidated financial statements and related notes, in our Annual Report, and under the heading
"Management's Discussion
S-18
Table of Contents
and
Analysis of Financial Condition and Results of Operations," as well as with our unaudited condensed consolidated financial statements and related notes, in our Quarterly Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Pro
Forma Adeptus
Health Inc.
for the year
ended
December 31,
2014 |
|
|
|
|
|
Unaudited Pro
Forma Adeptus
Health Inc. as of
or for the three
months ended
March 31,
2015 |
|
|
|
Year ended
December 31, |
|
Three months
ended
March 31, |
|
(dollars in thousands, except per share data)
|
|
2014 |
|
2013 |
|
2012 |
|
2015 |
|
2014 |
|
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient service revenue |
|
$ |
243,298 |
|
$ |
114,960 |
|
$ |
80,977 |
|
$ |
243,298 |
|
$ |
95,902 |
|
$ |
44,529 |
|
$ |
95,902 |
|
Provision for bad debt |
|
|
(32,624 |
) |
|
(12,077 |
) |
|
(8,376 |
) |
|
(32,624 |
) |
|
(14,945 |
) |
|
(5,748 |
) |
|
(14,945 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net patient service revenue |
|
|
210,674 |
|
|
102,883 |
|
|
72,601 |
|
|
210,674 |
|
|
80,957 |
|
|
38,781 |
|
|
80,957 |
|
Management and contract services revenue |
|
|
20 |
|
|
— |
|
|
— |
|
|
20 |
|
|
496 |
|
|
— |
|
|
496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net operating revenue |
|
|
210,694 |
|
|
102,883 |
|
|
72,601 |
|
|
210,694 |
|
|
81,453 |
|
|
38,781 |
|
|
81,453 |
|
Equity in net loss of unconsolidated joint venture |
|
|
(900 |
) |
|
— |
|
|
— |
|
|
(900 |
) |
|
(694 |
) |
|
— |
|
|
(694 |
) |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
|
|
136,498 |
|
|
65,244 |
|
|
41,754 |
|
|
136,498 |
|
|
48,880 |
|
|
24,980 |
|
|
48,880 |
|
General and administrative |
|
|
37,604 |
|
|
17,436 |
|
|
12,805 |
|
|
39,447 |
|
|
10,464 |
|
|
6,220 |
|
|
10,464 |
|
Other operating expenses |
|
|
27,329 |
|
|
11,185 |
|
|
7,493 |
|
|
27,329 |
|
|
11,305 |
|
|
4,865 |
|
|
11,305 |
|
(Gain) loss from the disposal or impairment of assets |
|
|
(42 |
) |
|
207 |
|
|
652 |
|
|
(42 |
) |
|
— |
|
|
— |
|
|
— |
|
Depreciation and amortization |
|
|
15,037 |
|
|
7,920 |
|
|
4,640 |
|
|
15,037 |
|
|
4,756 |
|
|
3,057 |
|
|
4,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
216,426 |
|
|
101,992 |
|
|
67,344 |
|
|
218,269 |
|
|
75,405 |
|
|
39,122 |
|
|
75,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations |
|
|
(6,632 |
) |
|
891 |
|
|
5,257 |
|
|
(8,475 |
) |
|
5,354 |
|
|
(341 |
) |
|
5,354 |
|
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(11,966 |
) |
|
(2,827 |
) |
|
(1,056 |
) |
|
(11,966 |
) |
|
(3,274 |
) |
|
(2,206 |
) |
|
(3,274 |
) |
Change in fair market value of derivatives |
|
|
— |
|
|
112 |
|
|
(533 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Write-off of deferred loan costs |
|
|
— |
|
|
(440 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) |
|
|
(11,966 |
) |
|
(3,155 |
) |
|
(1,589 |
) |
|
(11,966 |
) |
|
(3,274 |
) |
|
(2,206 |
) |
|
(3,274 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before (benefit) provision for income taxes |
|
|
(18,598 |
) |
|
(2,264 |
) |
|
3,668 |
|
|
(20,441 |
) |
|
2,080 |
|
|
(2,547 |
) |
|
2,080 |
|
(Benefit) provision for income taxes |
|
|
(1,326 |
) |
|
720 |
|
|
467 |
|
|
(3,104 |
) |
|
478 |
|
|
220 |
|
|
625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(17,272 |
) |
|
(2,984 |
) |
|
3,201 |
|
|
(17,337 |
) |
|
1,602 |
|
|
(2,767 |
) |
|
1,455 |
|
Less: Net (loss) income attributable to non-controlling interest |
|
|
(13,921 |
) |
|
(2,984 |
) |
|
3,201 |
|
|
(7,237 |
) |
|
1,008 |
|
|
(2,767 |
) |
|
734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Adeptus Health Inc. |
|
$ |
(3,351 |
) |
$ |
— |
|
$ |
— |
|
$ |
(10,100 |
) |
$ |
594 |
|
$ |
— |
|
$ |
721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of Class A common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.34 |
) |
$ |
— |
|
$ |
— |
|
$ |
(0.76 |
) |
$ |
0.06 |
|
$ |
— |
|
$ |
0.05 |
|
Diluted |
|
$ |
(0.34 |
) |
$ |
— |
|
$ |
— |
|
$ |
(0.76 |
) |
$ |
0.06 |
|
$ |
— |
|
$ |
0.05 |
|
Weighted average shares of Class A common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
9,845,016 |
|
|
— |
|
|
— |
|
|
13,323,541 |
|
|
9,906,845 |
|
|
— |
|
|
13,385,370 |
|
Diluted |
|
|
9,845,016 |
|
|
— |
|
|
— |
|
|
13,323,541 |
|
|
9,906,845 |
|
|
— |
|
|
13,385,370 |
|
Consolidated Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
2,002 |
|
$ |
11,495 |
|
$ |
3,455 |
|
|
|
|
$ |
13,872 |
|
$ |
1,127 |
|
$ |
12,029 |
|
Total assets |
|
|
282,818 |
|
|
183,292 |
|
|
120,367 |
|
|
|
|
|
302,287 |
|
|
186,034 |
|
|
441,516 |
|
Total debt and capital lease obligations |
|
|
110,935 |
|
|
79,411 |
|
|
23,604 |
|
|
|
|
|
134,274 |
|
|
86,404 |
|
|
134,274 |
|
Shareholders'/Owners' equity |
|
$ |
99,880 |
|
$ |
78,651 |
|
$ |
82,734 |
|
|
|
|
$ |
102,017 |
|
$ |
75,543 |
|
$ |
114,342 |
|
Cash Flow Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(24,698 |
) |
$ |
6,872 |
|
$ |
11,408 |
|
|
|
|
$ |
(11,961 |
) |
$ |
(6,963 |
) |
|
|
|
Investing activities |
|
|
(49,448 |
) |
|
(44,647 |
) |
|
(15,537 |
) |
|
|
|
|
572 |
|
|
(10,181 |
) |
|
|
|
Financing activities |
|
$ |
64,653 |
|
$ |
45,815 |
|
$ |
2,820 |
|
|
|
|
$ |
23,259 |
|
$ |
6,776 |
|
|
|
|
Other Financial Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(1) |
|
$ |
28,200 |
|
$ |
16,010 |
|
$ |
13,689 |
|
|
|
|
$ |
13,263 |
|
$ |
5,092 |
|
|
|
|
Systemwide same-store revenue(2) |
|
|
85,629 |
|
|
70,641 |
|
|
64,506 |
|
|
|
|
|
17,957 |
|
|
19,167 |
|
|
|
|
Capital expenditures |
|
$ |
47,429 |
|
$ |
46,048 |
|
$ |
11,504 |
|
|
|
|
$ |
1,620 |
|
$ |
10,297 |
|
|
|
|
Other Operational Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient volume (number of patient visits) |
|
|
146,058 |
|
|
77,044 |
|
|
58,434 |
|
|
|
|
|
46,155 |
|
|
27,698 |
|
|
|
|
Number of facilities |
|
|
55 |
|
|
26 |
|
|
14 |
|
|
|
|
|
62 |
|
|
32 |
|
|
|
|
- (1)
- We
define Adjusted EBITDA 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 preopening expenses, management
S-19
Table of Contents
recruiting
expenses, stock compensation expense, costs associated with our public offerings and other non-recurring costs and gains. Adjusted EBITDA is included or incorporated by reference herein
because it is a key metric used by management to assess our financial performance. We use Adjusted EBITDA to supplement GAAP measures of performance in order to evaluate the effectiveness of our
business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures. Adjusted EBITDA is also frequently used by analysts,
investors and other interested parties to evaluate companies in our industry.
Adjusted
EBITDA is a non-GAAP measure of our financial performance and should not be considered as an alternative to net income (loss) as a measure of financial performance, or any other performance
measure derived in accordance with GAAP, nor should it be construed as an inference that our future results will be unaffected by unusual or other items. In evaluating Adjusted EBITDA, you should be
aware that in the future we will incur expenses that are the same as or similar to some of the adjustments in this presentation, such as preopening expenses, stock compensation expense, and other
adjustments. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for management's discretionary use, as it does not reflect certain cash requirements such as tax payments,
debt service requirements, capital expenditures, facility openings and certain other cash costs that may recur in the future. Adjusted EBITDA contains certain other limitations, including the failure
to reflect our cash expenditures, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized. Management compensates for these limitations by
supplementally relying on our GAAP results in addition to using Adjusted EBITDA. Our presentation of Adjusted EBITDA is not necessarily comparable to other similarly titled captions of other companies
due to different methods of calculation.
The
following table sets forth a reconciliation of our Adjusted EBITDA to net income (loss) using data derived from our consolidated financial statements for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
Year ended December 31, |
|
|
|
March 31,
2015 |
|
December 31,
2014 |
|
September 30,
2014 |
|
June 30,
2014 |
|
March 31,
2014 |
|
(dollars in thousands)
|
|
2014 |
|
2013 |
|
2012 |
|
Net (loss) income |
|
$ |
(17,272 |
) |
$ |
(2,984 |
) |
$ |
3,201 |
|
$ |
1,602 |
|
$ |
(1,477 |
) |
$ |
(3,598 |
) |
$ |
(9,429 |
) |
$ |
(2,767 |
) |
Depreciation and amortization |
|
|
15,037 |
|
|
7,920 |
|
|
4,640 |
|
|
4,756 |
|
|
4,663 |
|
|
3,924 |
|
|
3,393 |
|
|
3,057 |
|
Interest expense(a) |
|
|
11,966 |
|
|
3,155 |
|
|
1,589 |
|
|
3,274 |
|
|
2,806 |
|
|
2,635 |
|
|
4,319 |
|
|
2,206 |
|
(Benefit) provision for income taxes |
|
|
(1,326 |
) |
|
720 |
|
|
467 |
|
|
478 |
|
|
(1,468 |
) |
|
(116 |
) |
|
38 |
|
|
220 |
|
Advisory Services Agreement fees and expenses(b) |
|
|
293 |
|
|
559 |
|
|
553 |
|
|
— |
|
|
— |
|
|
— |
|
|
155 |
|
|
138 |
|
Preopening expenses(c) |
|
|
10,550 |
|
|
3,977 |
|
|
497 |
|
|
2,099 |
|
|
4,443 |
|
|
3,098 |
|
|
1,600 |
|
|
1,408 |
|
Management recruiting expenses(d) |
|
|
376 |
|
|
719 |
|
|
970 |
|
|
— |
|
|
220 |
|
|
— |
|
|
56 |
|
|
99 |
|
Stock compensation expense(e) |
|
|
1,015 |
|
|
586 |
|
|
253 |
|
|
549 |
|
|
319 |
|
|
357 |
|
|
179 |
|
|
159 |
|
Initial public offering costs(f) |
|
|
5,157 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
159 |
|
|
4,998 |
|
|
— |
|
Other(g) |
|
|
2,404 |
|
|
1,358 |
|
|
1,519 |
|
|
505 |
|
|
657 |
|
|
541 |
|
|
634 |
|
|
572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments |
|
|
45,472 |
|
|
18,994 |
|
|
10,488 |
|
|
11,661 |
|
|
11,640 |
|
|
10,598 |
|
|
15,372 |
|
|
7,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
28,200 |
|
$ |
16,010 |
|
$ |
13,689 |
|
$ |
13,263 |
|
$ |
10,163 |
|
$ |
7,000 |
|
$ |
5,943 |
|
$ |
5,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (a)
- Consists
of interest expense and fees of $11.9 million, $2.8 million, and $1.1 million for the years ended December 31, 2014,
2013 and 2012, and $3.3 million, $2.8 million, $2.6 million, $4.3 million and $2.2 million for the three months ended March 31, 2015, December 31,
2014, September 30, 2014, June 30, 2014 and March 31, 2014, respectively, a gain in fair market value of derivatives of $0.1 million for the year ended December 31,
2013, a loss in fair market value of derivatives of $0.5 million for the year ended December 31, 2012, and a write-off of deferred loan costs of $0.4 million for the year ended
December 31, 2013.
- (b)
- Consists
of management fees and expenses paid to a significant shareholder under our Advisory Services Agreement. The Advisory Services Agreement was
terminated in connection with the consummation of our initial public offering in June 2014.
- (c)
- Includes
labor, marketing costs and occupancy costs prior to opening a facility and the equity in loss of our unconsolidated joint venture in 2014.
- (d)
- Third-party
costs and fees involved in recruiting our management team.
- (e)
- Stock
compensation expense associated with grants of management incentive units.
- (f)
- Consists
of costs incurred in conjunction with our initial public offering, including $2.4 million in bonuses for certain members of management,
$2.3 million in costs related to the termination of our Advisory Services Agreement and $0.5 million of other offering costs.
- (g)
- For
the year ended December 31, 2014, we incurred costs to develop long-term strategic goals and objectives totaling $1.7 million, real-estate
development costs associated with potential real estate projects that were terminated totaling $0.6 million and board fees and travel expenses paid to members of the board of directors totaling
$0.1 million. For the year ended December 31, 2013, we incurred costs to develop long-term strategic goals and objectives totaling approximately $0.5 million, real-estate
development costs associated with potential real estate projects that were terminated totaling $0.4 million, board fees and travel expenses paid to members of the board of directors totaling
$0.2 million and $0.25 million of termination costs paid to the former CEO. For the year ended December 31, 2012, we incurred terminated real-estate development costs totaling
$0.5 million, legal costs primarily associated with real estate development and litigation for violation of our trademark totaling $0.8 million and board fees and travel expenses paid to
members of the board of directors totaling approximately $0.2 million. For the three months ended March 31, 2015, we incurred terminated real-estate development costs totaling $32,000
and costs to develop long-term strategic goals and objectives totaling $0.5 million. For the three months ended
S-20
Table of Contents
December 31,
2014, we incurred terminated real-estate development costs totaling $43,000 and costs to develop long-term strategic goals and objectives totaling $0.6 million. For the
three months ended September 30, 2014, we incurred terminated real-estate development costs totaling $0.1 million and costs to develop long-term strategic goals and objectives totaling
$0.4 million. For the three months ended June 30, 2014, we incurred terminated real-estate development costs totaling $0.2 million, costs to develop long-term strategic goals and
objectives totaling $0.3 million and board fees and travel expenses paid to members of the board of directors totaling approximately $0.1 million. For the three months ended
March 31, 2014, we incurred terminated real-estate development costs totaling $0.2 million, costs to develop long-term strategic goals and objectives totaling $0.3 million and
board fees and travel expenses paid to members of the board of directors totaling approximately $60,000.
- (2)
- Systemwide
same-store revenue includes revenue from our unconsolidated facilities as if they were consolidated. Systemwide same-store revenue is a non-GAAP
measure of our financial performance and should not be considered as an alternative to same-store revenue as a measure of financial performance, or any other performance measure derived in accordance
with GAAP. We believe the presentation of systemwide same-store revenue provides supplemental information regarding our financial performance as it includes revenue earned by all of our affiliated
facilities, regardless of consolidation. There are no amounts attributable to unconsolidated joint ventures for the periods presented. We begin including revenue for a new facility as same store
revenue from the first day of the 16th full fiscal month following the facility's opening, which is when we believe same store comparison becomes meaningful. When a facility is relocated, we
continue to include revenue from that facility in same store revenue. Same store revenue allows us to evaluate how our facility base is performing by measuring the change in period over period net
revenue in facilities that have been open for 15 months or more. Various factors affect same store revenue, including outbreaks of illnesses, changes in marketing and competition.
S-21
Table of Contents
RISK FACTORS
An investment in our Class A common stock involves a high degree of risk. You should carefully consider
the risks described below and in the "Risk Factors" section of our Annual Report, together with the other information in this prospectus supplement or documents incorporated by reference herein,
before deciding whether to purchase our Class A common stock. If any of the risks described below or in the documents incorporated by reference herein actually occur, our business, financial
condition, results of operations or prospects could be materially adversely affected. In any such case, the trading price of our Class A common stock could decline and you could lose all or
part of your investment. The risks described below or in the documents incorporated by reference herein are not the only risks we face. Additional risks we are not presently aware of or that we
currently believe are immaterial could also materially adversely affect our business, financial condition, results of operations or prospects.
Risks Related to Our Business and Our Industry
We may not be able to successfully implement our growth strategy on a timely basis or at all, which
could harm our growth and results of operations.
Our growth depends on our ability to open profitable new facilities. Our growth strategy is to substantially grow the number of our
freestanding emergency care facilities in 2015 and beyond. Our ability to open profitable facilities depends on many factors, including our ability
to:
- •
- open facilities and achieve brand awareness in new markets;
- •
- access capital to fund construction costs and preopening expenses;
- •
- manage increases in costs, which could give rise to delays or cost overruns;
- •
- recruit and train physicians, nurses and technicians in our local markets;
- •
- obtain all required governmental licenses and permits, including state facility licenses, on a timely basis;
- •
- compete for appropriate sites in new markets, including against emergency care competitors and against traditional retailers; and
- •
- maintain adequate information systems and other operational system capabilities.
Delays
in the opening of new facilities, delays or costs resulting from a decrease in commercial development due to capital constraints, difficulties resulting from commercial,
residential and infrastructure development (or lack thereof) near our new facilities, difficulties in staffing and operating new locations or lack of acceptance in new market areas may negatively
impact our new facility growth and the costs or the profitability associated with new facilities. Further, additional federal or state legislative or regulatory restrictions or licensure requirements
could negatively impact our ability to operate both new and existing facilities.
Accordingly,
we may not be able to achieve our planned growth or, even if we are able to grow our facility base as planned, any new facilities may not be profitable or otherwise perform
as planned. In addition, to the extent we have misjudged the nature and extent of industry trends or our competition, we may have difficulty in achieving our strategic objectives. Failure to
successfully implement our growth strategy would likely have an adverse impact on the price of our Class A common stock.
Our expansion into new markets presents increased risks and may require us to develop new business
models.
Our continued growth and profitability depend on our ability to successfully realize our growth strategy by expanding the number of
facilities we operate in both new and existing markets. We cannot
S-22
Table of Contents
assure
you our efforts to expand into new markets, particularly in states where we do not currently operate, will succeed. In order to operate in new markets, we may need to modify our existing
business model and cost structure to comply with local regulatory or other requirements, which may expose us to new operational, regulatory or legal risks. In addition, expanding into new states,
including our joint ventures with Dignity Health and UCHealth and the opening of full-service general hospitals in Arizona and Texas (planned) in 2015, may subject us to unfamiliar or uncertain local
regulations that may adversely affect our operations, for example, by impacting our insurance reimbursement practices or our ability to operate facilities as licensed or unlicensed freestanding
emergency rooms or hospitals. See "—Risks Related to Healthcare Regulation." Facilities we open in new markets may also take longer to reach expected revenue and profit levels on a
consistent basis and may have higher construction, occupancy or operating costs than facilities we open in existing markets, thereby affecting our overall profitability. New markets may have
competitive conditions, consumer preferences and healthcare spending patterns that are more difficult to predict or satisfy than our existing markets.
We
may need to make greater investments than we originally planned in advertising and promotional activity in new markets to build brand awareness. We may find it more difficult in new
markets to hire, motivate and keep qualified physicians, nurses, technicians and other personnel. We may need to augment our labor model to meet regulatory requirements and the overall cost of labor
may be higher. As a result, these new facilities may be less successful and may not achieve target facility level profit margins at the same rate or at all. If any steps taken to expand our existing
business model into new markets are unsuccessful, we may not be able to achieve our growth strategy and our business, financial condition or results of operations could be adversely affected.
Our long-term success is highly dependent on our ability to successfully identify and secure
appropriate sites for our facilities and develop and expand our operations in existing and new markets.
One of the key means of achieving our growth strategy will be through opening new facilities and operating those facilities on a
profitable basis. We expect this to be the case for the foreseeable future. We identify target markets where we can enter or expand, taking into account numerous factors such as the location of our
current facilities, demographics, traffic patterns and other factors that support our site-selection process. As we operate more facilities, our rate of expansion relative to the size of our current
facility base will eventually decline. As of June 30, 2015, we had 68 freestanding facilities in operation. We have 16 locations currently under construction, including a regional hospital in
Texas and two regional hospitals in Colorado, and 4 locations in the building permit process. Based on our typical development timeline we believe that at least 11 of these facilities will be
completed and operational by December 31, 2015. We currently expect that 20 of the facilities will be funded by MPT under the MPT Agreements and the remaining facilities will be funded by other
third party capital funding sources. Even though our 2015 expansion strategy is under way, the number and timing of new facilities opened during any given period may be negatively impacted by a number
of factors including, without limitation:
- •
- the cost and availability of capital to fund construction costs and preopening expenses;
- •
- the identification and availability of attractive sites for new facilities and the ability to negotiate suitable lease terms;
- •
- anticipated commercial, residential and infrastructure development near our new facilities;
- •
- the proximity of potential sites to an existing facility;
- •
- construction delays or cost overruns that may increase project costs;
- •
- our ability to obtain zoning, occupancy and other required governmental permits and authorizations on a timely basis;
S-23
Table of Contents
- •
- our ability to control construction and development costs incurred for projects, including those that are not pursued to completion;
- •
- hurricanes, floods, fires or other natural disasters that could adversely affect a project;
- •
- defects in design or construction that may result in additional costs to remedy or require all or a portion of a property to be closed
during the period required to rectify the situation; and
- •
- governmental restrictions on the nature and size of a project or timing of completion.
If
we are unable to find and secure attractive locations to expand in existing markets or penetrate new markets, this may harm our ability to increase our revenues and profitability and
realize our growth strategy and our financial results may be negatively affected.
New facilities, once opened, may not be profitable, and the increases in comparable facility revenue
that we have experienced in the past may not be indicative of future results.
Our results have been, and in the future may continue to be, significantly impacted by a number of factors, including factors outside
of our control, related to the opening of new facilities, including the timing of new facility openings, associated facility preopening costs and operating inefficiencies, as well as changes in our
geographic concentration due to the opening of new facilities. We typically incur the most significant portion of opening expenses associated with a given facility within the first few months
immediately preceding and following the opening of the facility. A new facility generally takes up to 12 months to achieve a level of operating performance comparable to our similar existing
facilities due to lack of market awareness and other factors. We also may incur additional costs in new markets, particularly for contracting, real estate, labor, marketing and regional support, which
may impact the profitability of those facilities. Accordingly, the volume and timing of new facility openings may have a meaningful impact on our profitability and operating cash flow.
Although
we target specified operating and financial metrics, new facilities may not meet these targets or may take longer than anticipated to do so. Any new facilities we open may not
achieve profitability or operating results similar to those of our existing facilities. Similarly, new full-service hospitals may not, or may take more time than a new freestanding emergency room
facility to, achieve profitability or operating results similar to our existing facilities in light of the greater construction and operating costs associated with such hospitals. If our new
facilities do not perform as planned, our business and future prospects could be harmed. In addition, if we are unable to achieve expected comparable facility revenues, our business, financial
condition or results of operations could be adversely affected.
Opening new facilities in existing markets has and may continue to negatively affect revenue at our
existing facilities.
The target area of our facilities varies by location and depends on a number of factors, including population density, other available
emergency medical services, area demographics and geography. As a result, the opening of a new facility in or near markets in which we already have facilities has and may continue to negatively affect
revenue at our existing facilities. Existing facilities could also make it more difficult to build our patient base for a new facility in the same market. Our business strategy does not entail opening
new facilities that we believe will materially affect revenue at our existing facilities, but we may selectively open new facilities in and around areas of existing facilities that are operating at or
near capacity to effectively serve our patients. Revenue cannibalization between our facilities may become significant in the future as we continue to expand our operations and could affect our
revenue growth, which could, in turn, adversely affect our business, financial condition or results of operations.
S-24
Table of Contents
We are required to make capital expenditures, particularly to implement our growth strategy, in
order to remain competitive.
Our capital expenditure requirements primarily relate to identifying expansion opportunities for our facilities, the costs associated
to establish such new facilities in existing and new markets and maintaining and upgrading our medical equipment to serve our customers and remain competitive. Our capital expenditures totaled
$47.4 million, $46.0 million and $11.5 million, for the years ended December 31, 2014, 2013 and 2012, respectively. In addition, changing competitive conditions or the
emergence of any significant advances in medical technology could require us to invest significant capital in additional equipment or capacity in order to remain competitive. If we are
unable to fund any such investment or otherwise fail to invest in new medical equipment, our business, financial condition or results of operations could be materially and adversely affected.
We currently rely on our Master Funding and Development Agreements with Medical Properties Trust to
execute our expansion strategy.
We have experienced rapid growth in recent periods, growing from 14 facilities at the end of 2012 to 26 facilities at the end of 2013,
and to 68 facilities as of June 30, 2015. We have a robust pipeline under development designed to support the addition of approximately 11 facilities during the remainder of 2015. A major
source of financing we have and employ to open new facilities is derived from our MPT Agreements. Under the terms of the MPT Agreements, MPT acquires parcels of land, funds the ground-up construction
of new freestanding emergency room facilities and leases the facilities to us upon completion of construction. MPT is also required to fund all hard and soft costs, including the project purchase
price, closing costs and pursuit costs for the assets relating to the construction of up to a maximum aggregate funding of $500.0 million, of which $228.5 million remained available
under the MPT Agreements as of June 30, 2015. An inability to rely on our relationship with MPT or to obtain alternate funding sources to fund our expansion strategies may require us to delay,
scale back or eliminate some or all of the expansion of our current pipeline and future projects, which may have a material adverse effect on our business, operating results, financial condition or
prospects.
We may require additional capital to fund our expansion, and our inability to obtain such capital
could harm our business.
To support our expansion strategy, we must have sufficient capital to continue to make significant investments in our new and existing
facilities. Funding from outside financing or cash generated by our operations may not be sufficient to allow us to sustain our expansion efforts. If funding from outside financing sources or cash
flows from operations are not sufficient, we may need additional equity or debt financing to provide the funds required to expand our business. If such financing is not available on satisfactory terms
or at all, we may be unable to expand our business or to develop new business at the rate desired and our operating results may suffer. Debt financing increases expenses and must be repaid regardless
of operating results, and the documents governing indebtedness may contain covenants that restrict the operation of our business. Equity financing, or debt financing that is convertible into equity,
could result in additional dilution to our existing stockholders. Furthermore, our inability to obtain adequate capital resources, whether in the form of equity or debt, to fund our business and
growth strategies may require us to delay, scale back or eliminate some or all of our operations or the expansion of our business, which may have a material adverse effect on our business, operating
results, financial condition or prospects.
Damage to our reputation or our brand in existing or new markets could negatively impact our
business, financial condition and results of operations.
We believe we have built our reputation on the high quality of our emergency medical services, physicians and operating personnel, as
well as on our unique culture and the experience of our patients
S-25
Table of Contents
in
our facilities, and we must protect and grow the value of our brand to continue to be successful in the future. Our brand may be diminished if we do not continue to make investments in areas such
as marketing and advertising, as well as the day-to-day investments required for facility operations, equipment upgrades and staff training. Any incident, real or perceived, regardless of merit or
outcome, that erodes our brand, such as, but not limited to, patient disability or death due to medical malpractice or allegations of medical malpractice, failure to comply with federal, state or
local regulations including allegations or perceptions of non-compliance or failure to comply with ethical and operating standards, could significantly reduce the value of our brand, expose us to
adverse publicity and damage our overall business and reputation. Further, our brand value could suffer and our business could be adversely affected if patients perceive a reduction in the quality of
service or staff, or an adverse change in our culture, or otherwise believe we have failed to deliver a consistently positive patient experience.
We may be unable to maintain or improve our operating margins, which could adversely affect our
financial condition and ability to grow.
If we are unable to successfully manage the potential difficulties associated with growth, we may not be able to capture the
efficiencies and opportunities that we expect from our expansion strategy. If we are not able to capture expected efficiencies of scale, maintain patient volumes, improve our systems and equipment,
continue our cost discipline and retain appropriate physician and overall labor levels, our operating margins may stagnate or decline, which could have a material adverse effect on our business,
financial condition and results of operations and adversely affect the price of our Class A common stock.
Our marketing programs may not be successful.
We incur costs and expend other resources in our marketing efforts to attract and retain patients. Our total marketing initiatives for
the years ended December 31, 2014, 2013 and 2012 resulted in costs of approximately $9.3 million, $5.9 million and $3.1 million, respectively. Our marketing activities are
principally focused on increasing brand awareness and awareness of our service capabilities and our marketing team is responsible for implementing our marketing efforts through activating field
marketing teams, underscoring leadership through brand wide program initiatives, participating in trade show sponsorship, white paper publication, arranging for speaking engagements for our senior
executives and formal training about our products and services. We also sponsor and host local community activities including fundraisers, street parties and sporting events to bolster our overall
community involvement. As we open new facilities, we undertake aggressive marketing campaigns to increase community awareness about our growing presence. We plan to utilize targeted marketing efforts
within local neighborhoods through channels such as direct mail, mobile billboards, radio advertisements, television, community sponsorships and a robust online/social media presence. These
initiatives may not be successful, resulting in expenses incurred without the benefit of higher revenue. Our ability to market our services may be restricted or limited by federal or state law.
We face intense competition in the emergency care market, including competition for patients,
strategic relationships and commercial payor contracts which could adversely affect our contract and revenue base.
The market for providing emergency care services is highly competitive and each of the individual geographic areas in which we operate
has a different competitive landscape. We compete with national, regional and local enterprises, some of which may have greater financial and other resources available to them, greater access to
physicians or greater access to potential customers. We may also compete with urgent care centers and physician-owned facilities for lower-acuity cases and with hospitals for higher acuity cases. Such
competition could adversely affect our ability to obtain new contracts, retain existing contracts and increase or maintain profit margins.
S-26
Table of Contents
In
each of our markets we compete with other healthcare providers for patients and in contracting with commercial payors. We are also in competition with other emergency care providers,
hospitals, urgent care centers, clinics and healthcare systems in the communities we serve to attract patients and provide them with the care they need. There are hospitals and health systems that
compete with us in each market in which we operate, and many of them have more established relationships with physicians and payors than we do. In addition, other companies are currently in the same
or similar business of
developing, acquiring and operating emergency care facilities, or may decide to enter this business. We also compete with some of these companies for entry into strategic relationships with health
systems. As a result of the differing competitive factors within the markets in which we operate, the individual results of our facilities may be volatile. If we are unable to compete effectively with
any of these entities or groups we may be unable to implement our business strategies successfully, which could have a material adverse effect on our business, prospects, results of operations and
financial condition.
We may not be able to successfully recruit and retain physicians and other healthcare professionals
with the qualifications and attributes we and our patients' desire.
Our success depends upon our continuing ability to recruit and retain qualified physicians, nurses, technologists and other operating
staff. There is currently a national shortage of certain of these healthcare professionals. To the extent that a significant number of physicians within an individual community or market decide to
partner with competing emergency care providers, hospitals or health systems and not with us, we may not be able to operate our facilities in such community. We face competition for such personnel
from emergency care providers and other organizations. This competition may require us to enhance wages and benefits to recruit and retain qualified personnel. In the event we are unable to recruit
and retain these professionals, such shortages could have a material adverse effect on our ability to grow or be profitable.
If we are unable to negotiate and enter into favorable contracts or maintain satisfactory
relationships and renew existing contracts on favorable terms with third-party payors, our revenue and profitability may decrease.
We estimate that 97.8%, 98.8% and 98.1%, of our net patient service revenue for the years ended December 31, 2014, 2013 and
2012, respectively, was derived from third-party payors such as managed care organizations, commercial insurance providers and employer sponsored healthcare plans. We receive most of these payments
from third-party payors that have contracts or other arrangements in place with us in Texas and Colorado. We currently have a contract in place with one significant commercial insurance provider and
an arrangement with another organization that enables us to access third-party payors at in network rates. These third-party payors use a variety of methods for reimbursement depending on the
arrangement involved. These arrangements include fee for service, preferred provider organizations, health maintenance organizations, as well as prepaid and discounted medical service packages and
capitated (fixed fee) contracts. Rates for health maintenance organization benefit plans are typically lower than those for preferred provider organization or other benefit plans that offer broader
provider access.
There
is often pressure to renegotiate our reimbursement levels, including, in particular, in connection with changes to Medicare. Typically, third-party commercial payors reimburse us
based upon contracted discounts to our established base rates. In 2012, we entered into a contract with a large third-party payor and implemented a price increase in May 2013 and May 2014 under that
contract. To date, we
have not experienced a shift toward payors who base reimbursement levels on Medicare rates. During the past three years, we have experienced a trend towards increasing reimbursement by third-party
commercial payors. If managed care organizations and other third-party payors reduce their rates or we were to experience a significant shift in our revenue mix toward Medicare, Medicaid or Tricare,
S-27
Table of Contents
which
we recently began to accept in Arizona, or other government reimbursement programs, which we do not currently accept, but may accept in the future, then our revenue and profitability may decline
and our operating margins will be reduced. Third-party payors continue to demand discounted fee structures, and the trend toward consolidation among third-party payors tends to increase their
bargaining power over fee structures. Because some third-party payors rely on all or portions of Medicare payment systems to determine payment rates, changes to government healthcare programs that
reduce payments under these programs may negatively impact payments from third-party payors. Other healthcare providers may impact our ability to negotiate increases and other favorable terms in our
reimbursement arrangements with third-party payors. For example, some of our competitors may negotiate exclusivity provisions with third-party payors or otherwise restrict the ability of third-party
payors to contract with us or our health system partners. Our results of operations will depend, in part, on our and our health system partners' ability to retain and renew our managed care contracts
as well as enter into new managed care contracts on terms favorable to us. Our inability to maintain suitable financial arrangements with third-party payors could have a material adverse impact on our
business.
As
various provisions of the PPACA are implemented, including the establishment of health insurance exchanges, quality-based reimbursement and bundled payments, third-party payors may
increasingly demand reduced fees. In addition, there is a growing trend for third-party payors to take steps to shift the primary cost of care to the plan participant by increasing co-payments,
co-insurance and deductibles, and these actions could discourage such patients from seeking treatment at our facilities. Patient volumes could decrease if we or our health system partners are unable
to enter into acceptable contracts with such third-party payors, which could have a material adverse effect on our business, prospects, results of operations and financial condition.
We depend on payments from a variety of third-party payors. If these payments are significantly
delayed, are reduced or eliminated, our revenue and profitability could decrease.
We depend upon compensation from third-party payors for the services provided to patients in our facilities. The amount that our
facilities receive in payment for their services may be adversely affected by factors we do not control, including state regulatory changes, cost-containment decisions and changes in reimbursement
schedules of third-party payors and legislative changes. Any reduction or elimination of these payments could have a material adverse effect on our business, prospects, results of operations and
financial condition.
Additionally,
the reimbursement process is complex and can involve lengthy delays. While we recognize revenue when healthcare services are provided, there can be delays before we receive
payment. In addition, third-party payors may disallow, in whole or in part, requests for reimbursement based on determinations that certain amounts are not reimbursable under plan coverage, that
services provided were not medically necessary, that services rendered in our facilities did not require emergency level care or that additional supporting documentation is necessary. Retroactive
adjustments may change amounts realized from third-party payors. Delays and uncertainties in the reimbursement process may adversely affect accounts receivable, increase the overall costs of
collection and cause us to incur additional borrowing costs.
Significant changes in our payor mix or acuity mix resulting from fluctuations in the types of
patients seen at our facilities could have a material adverse effect on our business, prospects, results of operations and financial condition.
Our results may change from period to period due to fluctuations in payor mix or acuity mix or other factors relating to the type of
treatment performed by physicians at our facilities. Payor mix refers to the relative share of total cases provided to patients with, respectively, no insurance, commercial insurance and other
coverage. Since, generally speaking, we receive relatively higher payment rates from third-party payors than self-pay patients, a significant shift in our payor mix toward a higher
S-28
Table of Contents
percentage
of self-pay or Medicare, Medicaid or Tricare, which we recently began to accept in Arizona, or other government reimbursement programs, which we do not currently accept, but may accept in
the future, which could occur for reasons beyond our control, could result in a material adverse effect on our business, prospects, results of operations and financial condition. Acuity mix refers to
the relative share of total visits by acuity level, which affects the costs of the services we provide as well as the related revenue. Generally speaking, we derive relatively higher revenue from more
complex treatments and patient encounters. Therefore, a significant shift in our acuity mix toward a higher percentage of lower revenue treatments could result in a material adverse effect on our
business, prospects, results of operations and financial condition.
Failure to timely or accurately bill for our services could have a negative impact on our net
revenues, bad debt expense and cash flow.
Billing for our services is complex. The practice of providing medical services in advance of payment or prior to assessing a patient's
ability to pay for such services may have a significant negative impact on our patient service revenue, bad debt expense and cash flow. We bill numerous and varied payors, including self-pay patients
and various forms of commercial insurance providers. Different payors typically have differing forms of billing requirements that must be met prior to receiving payment for services rendered. Self-pay
patients and third-party payors may fail to pay for services even if they have been properly billed. Reimbursement to us is typically conditioned, among other things, on our providing the proper
procedure and diagnosis codes. Incorrect or incomplete documentation and billing information could result in non-payment for services rendered.
Additional
factors that could complicate our billing include:
- •
- disputes between payors as to which party is responsible for payment;
- •
- variation in coverage for similar services among various payors;
- •
- the difficulty of adherence to specific compliance requirements, coding and various other procedures mandated by responsible parties;
- •
- the fact that we bill payors a facility fee, a professional services fee and other related fees;
- •
- the transition to new coding standards, which will require significantly more information than the codes currently used for medical
coding and will require covered entities to code with much greater detail and specificity; and
- •
- failure to obtain proper physician enrollment and documentation in order to bill various payors.
To
the extent the complexity associated with billing for our services causes delays in our cash collections, we assume the financial risk of increased carrying costs associated with the
aging of our accounts receivable as well as the increased potential for bad debt expense.
Our relationships with health systems are important to our growth strategy. If we fail to maintain
good relationships with these health systems or to enter into new relationships, we may be unable to implement our growth strategy successfully and our reputation could be adversely affected.
Our business depends in part upon the success of our health system partners and the strength of our relationships with those health
systems. Our business could be adversely affected by any damage to those health systems' reputation or to our relationships with them, or as a result of an irreconcilable dispute with a health system
partner. Additionally, our reputation in the communities we serve is bolstered by our relationships with our partners. If we are unable to maintain such partnerships, our own reputation could be
adversely affected. We may enter into affiliation agreements or have informal arrangements with health systems in which we agree to transfer certain patients to affiliated hospitals in a defined
geographic area. We expect to focus on the creation of additional partnerships with health
S-29
Table of Contents
systems,
and others, as part of our expansion strategy. For example, we have arrangements with HCA to ensure bed availability for our patients in need of acute care services at nearby HCA hospitals in
both the North Texas and Houston areas. In addition, we have a relationship with the Concentra urgent care clinics in the Dallas/Fort Worth market, whereby we are able to refer workers' compensation
patients to Concentra when follow-up, non-emergent, care is needed. If we are unable to develop and maintain good relationships with such health systems, maintain our existing agreements on terms and
conditions favorable to us or enter into relationships with additional health systems on favorable terms, or at all, we may be unable to implement our growth strategies successfully.
We may enter into partnerships with healthcare providers. If this strategy is not successful, our
financial performance could be adversely affected.
In recent years, we have entered into strategic business partnerships with hospital systems and other large providers to take advantage
of commercial opportunities in our facility based business. For example, and as discussed above, we have agreements with HCA and Concentra to ensure that patients have direct access to nearby
hospitals and urgent care centers, as necessary. However, there can be no assurance that our efforts in these areas will continue to be successful.
Moreover,
this strategic partnership model exposes us to commercial risks that may be different from our own business model, including that the success of such partnerships is only
partially under our operational and legal control, the potential for opportunity costs in not being able to pursue other partnerships should we enter into exclusive arrangements, and the risk that our
partners may enter into additional arrangements with our competitors if these arrangements are not exclusive. Furthermore, partnership arrangements may raise fraud and abuse issues. For example, the
Office of Inspector General of the Department of Health and Human Services, or the OIG, has taken the position that certain contractual arrangements between a party that receives remuneration for
making referrals and a party that receives referrals for a specific type of service may violate the federal Anti-Kickback Statute, or the Anti-Kickback Statute, if one purpose of the arrangement is to
encourage referrals. Our strategic partnership agreements do not involve the payment of any compensation. We believe our strategic partnership arrangements comply with the Anti-Kickback Statute;
however, other regulatory bodies or a court may interpret these agreements differently and there is a risk that we may be found non-compliant and subject to government investigation, private and
public lawsuits, civil penalties and criminal sanctions.
Proposed changes to financial accounting standards could require our operating leases to be
recognized on the balance sheet.
In addition to our significant level of indebtedness, we have considerable obligations relating to our current capital and operating
leases. Proposed changes to financial accounting standards could require such leases to be recognized on our balance sheet. All of our existing facilities are subject to leases. All facilities under
the MPT Agreements have initial terms of 15 years, with three five year renewal options. The terms of our non-MPT facilities vary, but typically have initial terms of between five and seven
years with three year to five year renewal options. As of December 31, 2014 and 2013, we had 54 and 25 leased facilities, 53 and 24 of which were classified as operating leases and one of which
was classified as a capital lease, respectively. The accounting treatment of these leases is described in Note 11 to our consolidated financial statements. For the years ended
December 31, 2014, 2013 and 2012, our operating lease expense was approximately $15.2 million, $4.5 million and $2.1 million, respectively.
In
May 2013, the Financial Accounting Standards Board, or FASB, and the International Accounting Standards Board issued a revised joint discussion paper highlighting proposed changes to
financial accounting standards for leases. The proposed changes would require that substantially all operating leases be recognized as assets and liabilities on our balance sheet, which would be a
S-30
Table of Contents
significant
departure from the current standard, which classifies operating leases as off balance sheet transactions and accounts for only the current year operating lease expense in the statement of
operations. The right to use the leased property would be capitalized as an asset and the expected lease payments over the life of the lease would be accounted for as a liability. The effective date,
which has not been determined, could be as early as 2016 and may require retrospective adoption. While we have not quantified the impact this proposed standard would have on our financial statements,
if our current operating leases are instead recognized on the balance sheet, it will result in a significant increase in the liabilities reflected on our balance sheet and in the interest expense and
depreciation and amortization expense reflected in our statement of operations, while reducing the amount of rent expense. This could potentially decrease our reported net income.
A successful challenge by tax authorities to our treatment of certain physicians as independent
contractors or the elimination of an existing safe harbor could materially increase our costs relating to these physicians.
As of December 31, 2014, through National Medical Professionals of Texas PLLC, National Medical Professionals of Colorado, P.C.
and National Medical Professionals of Arizona LLC, affiliated professional limited liability companies owned and operated by our Executive Medical Director, we contracted with approximately 434
physicians and other medical staff as independent contractors to fulfill our contractual obligations to customers. Because these staff members are treated as independent contractors rather than as
employees, National Medical Professionals of Texas PLLC, National Medical Professionals of Colorado, P.C. and National Medical Professionals of Arizona LLC do not (i) withhold federal or
state income or other employment related taxes from their compensation, (ii) make federal or state unemployment tax or Federal Insurance Contributions Act payments with respect to them,
(iii) provide workers compensation insurance with respect to them (except in states where they are required to do so for independent contractors), or (iv) allow them to participate in
benefits and retirement programs available to employees. The contracts in place with these physicians obligate them to pay these taxes and other costs. Whether these physicians are properly classified
as independent contractors generally depends upon the facts and circumstances of our relationship with them. If a challenge to our treatment of these physicians as independent contractors by federal
or state authorities were successful and these physicians were treated as employees instead of independent contractors, we and/or National Medical Professionals of Texas PLLC, National Medical
Professionals of Colorado, P.C. and National Medical Professionals of Arizona LLC could be liable for taxes, penalties and interest. In addition, there are currently, and have been in the past,
proposals made to eliminate an existing safe harbor that would potentially protect us
from the imposition of taxes in these circumstances, and similar proposals could be made in the future. If such a challenge were successful or if the safe harbor were eliminated, this could cause a
material increase in our costs relating to these physicians and, therefore, a material adverse effect on our business, financial condition and results of operations.
We have experienced net losses and may not achieve or sustain profitability in the future.
We have experienced periods of net losses, including consolidated net losses of approximately $17.3 million and
$3.0 million for the years ended December 31, 2014 and 2013, respectively. Our revenue may not grow and we may not achieve or maintain profitability in the future. Even if we do achieve
profitability, we may not sustain or increase profitability on a quarterly or annual basis in the future. Our ability to achieve profitability will be affected by the other risks and uncertainties
described in this section and in "Management's Discussion and Analysis of Financial Condition and Results of Operations." If we are not able to achieve, sustain or increase profitability, our business
will be materially adversely affected and the price of our Class A common stock may decline.
S-31
Table of Contents
We depend on our senior management and may not be able to retain those employees or recruit
additional qualified personnel.
We depend on our senior management, including Thomas S. Hall, our Chairman and Chief Executive Officer, Timothy Fielding, our Chief
Financial Officer, and Graham Cherrington, our President and Chief Operating Officer. We rely on the extensive experience of our management team across the healthcare, retail and hospitality sectors
as well as extensive knowledge of healthcare operations and facility expansion. The loss of services of any of these or any other members of our senior management could adversely affect our business
until a suitable replacement can be found. There may be a limited number of persons with the requisite skills to serve in these positions, and we cannot assure you that we would be able to identify or
employ such qualified personnel on acceptable terms.
Our business depends on numerous complex information systems, and any failure to successfully
maintain these systems or implement new systems could materially harm our operations.
We depend on complex, integrated information systems and standardized procedures for operational and financial information and our
billing operations. We may not have the necessary resources to enhance existing information systems or implement new systems where necessary to handle our increased patient volume and changing needs.
Furthermore, we may experience unanticipated delays, complications and expenses in implementing, integrating and operating our systems. Any interruptions in operations during periods of implementation
would adversely affect our ability to properly allocate resources and process billing information in a timely manner, which could result in customer dissatisfaction and delayed cash flow. In addition,
our technology systems, or a disruption in the operation of such systems, could be subject to physical or electronic break-ins, and similar disruptions from unauthorized tampering. The failure to
successfully implement and maintain operational, financial and billing information systems could have an adverse effect on our ability to obtain new business, retain existing business and maintain or
increase our profit margins.
Our facilities currently located in Texas, Colorado and Arizona make us particularly sensitive to
regulatory, economic and other conditions in those states.
Our facilities are currently located in Texas, Colorado and Arizona. If there were an adverse regulatory, economic or other development
in any of these states, our patient volume could decline, our ability to operate our facilities under our existing business model could be impacted, or there could be other unanticipated adverse
impacts on our business that could have a material adverse effect on our business, prospects, results of operations and financial condition. See "—Risks Related To Healthcare
Regulation—Changes in the rates or methods of third party reimbursements, including due to political discord in the budgeting process outside our control, may adversely affect our revenue
and operations."
Our patient volumes are sensitive to seasonal fluctuations and patient concerns over outbreaks and
other infectious diseases, which impact our results of operations.
Our patient volumes are sensitive to seasonal fluctuations in emergency activity. Typically, winter months see a higher occurrence of
influenza, bronchitis, pneumonia and similar illnesses; however the timing and severity of these outbreaks can vary dramatically. Our patient volumes are influenced by fluctuations in the demand for
our healthcare services and are sensitive to patient concerns over pandemic outbreaks such as Ebola and other infectious diseases, including patient concerns over the possibility of acquiring or
communicating such diseases in a medical care environment. Additionally, as consumers shift towards high deductible insurance plans, they are
responsible for a greater percentage of their bill, particularly in the early months of the year before other healthcare spending has occurred, which may lead to an increase in bad debt expense during
that period. Our quarterly operating results may fluctuate significantly in the future depending on these and other factors.
S-32
Table of Contents
Our ability to open and operate facilities may be impacted by weather conditions.
Our construction timelines may be delayed due to weather conditions. This may prevent us from opening facilities on time and increase
our preopening expense burden. Additionally, extreme weather or natural disasters could also severely hinder our ability to operate existing facilities, delay capital improvements or cause us to close
facilities. For example, in 2014, 38.5% of our patient service revenue was generated from facilities in the Houston market. If a hurricane, or other severe weather, were to affect this market, it
could impact our ability to operate these facilities.
Disruptions in our disaster recovery systems or management continuity planning could limit our
ability to operate our business effectively.
While we have disaster recovery systems and business continuity plans in place, any disruptions in our disaster recovery systems or the
failure of these systems to operate as expected could, depending on the magnitude of the problem, adversely affect our operating results by limiting our capacity to effectively monitor and control our
operations. In addition, in the event that a significant number of our management personnel were unavailable in the event of a disaster, our ability to effectively conduct business could be adversely
affected.
We could be subject to lawsuits for which we are not fully reserved.
Physicians, hospitals, clinics and other participants in the healthcare industry have become subject to an increasing number of
lawsuits alleging medical malpractice and related legal theories such as negligent hiring, supervision and credentialing. Some of these lawsuits
may involve large claim amounts and substantial defense costs. We generally procure professional liability insurance coverage for our affiliated medical professionals and professional and corporate
entities. As of December 31, 2014, our professional liability insurance coverage was $20 million. This insurance coverage may not cover all claims against us, and insurance coverage may
not continue to be available at a cost satisfactory to us to allow for the maintenance of adequate levels of insurance. If one or more successful claims against us were not covered by or exceeded the
coverage of our insurance, it could have a material adverse effect on our business, prospects, results of operations and financial condition. Moreover, in the normal course of our business, we are
involved in lawsuits, claims, audits and investigations, including those arising out of our billing and marketing practices, employment disputes, contractual claims and other business disputes for
which we may have no insurance coverage, and which are not subject to actuarial estimates. The outcome of these matters could have a material effect on our results of operations in the period when we
identify the matter, and the ultimate outcome could have a material adverse effect on our financial position, results of operations, or cash flows.
The reserves we establish with respect to our losses not covered under our insurance programs are
subject to inherent uncertainties.
In connection with our insurance programs, we establish reserves for losses and related expenses, which represent estimates involving
actuarial and statistical projections, at a given point in time, of our expectations of the ultimate resolution and administration costs of losses we have incurred in respect of our liability risks.
Insurance reserves are inherently subject to uncertainty. Our reserves are based on historical claims, demographic factors, industry trends, severity and exposure factors and other actuarial
assumptions calculated by an independent actuary firm. The independent actuary firm performs studies of projected ultimate losses on an annual basis and provides quarterly updates to those
projections. We use these actuarial estimates to determine appropriate reserves. Our reserves could be significantly affected if current and future occurrences differ from historical claim trends and
expectations. While we monitor claims closely when we estimate reserves, the complexity of the claims and the wide range of potential outcomes may hamper timely adjustments to the assumptions we use
in these estimates. Actual losses and related expenses may deviate, individually and in the aggregate, from the reserve
S-33
Table of Contents
estimates
reflected in our consolidated financial statements. As of December 31, 2014 and 2013, we had a reserve of approximately $0.7 million and $0.7 million for incurred but
unreported health claims, respectively. If we determine that our estimated reserves are inadequate, we will be required to increase reserves at the time of the determination, which would result in a
reduction in our net income in the period in which the deficiency is determined.
Insurance coverage for some of our losses may be inadequate and may be subject to the credit risk of
commercial insurance providers.
Our insurance coverage is through various third-party insurers. To the extent we hold policies to cover certain groups of claims or
rely on insurance coverage obtained by third parties to cover such claims, but either we or such third parties did not obtain sufficient insurance limits, did not buy an extended reporting period
policy, where applicable, or the issuing insurance company is unable or unwilling to pay such claims, we may be responsible for those losses. Furthermore, for our losses that are insured or reinsured
through commercial insurance providers, we are subject to the "credit risk" of those insurance companies. While we believe our commercial insurance providers are currently creditworthy, they may not
remain so in the future.
We may not be able to adequately protect our intellectual property and other proprietary rights that
are material to our business, or to defend successfully against intellectual property infringement claims by third parties.
Our ability to compete effectively depends in part upon our intellectual property rights, including but not limited to our trademarks.
Our use of contractual provisions, confidentiality procedures and agreements, and trademark, copyright, unfair competition, trade secret and other laws to protect our intellectual property rights may
not be adequate. Litigation may be necessary to enforce our intellectual property rights, or to defend against claims by third parties that the conduct of our businesses or our use of intellectual
property infringes upon such third party's intellectual property rights. Any intellectual property litigation or claims brought against us, whether or not meritorious, could result in substantial
costs and diversion of our resources, and there can be no assurances that favorable final outcomes will be obtained in all cases. The terms of any settlement or judgment may require us to pay
substantial amounts to the other party or cease exercising our rights in such intellectual property, including ceasing the use of certain trademarks used by us to distinguish our services from those
of others or ceasing the exercise of our rights in copyrightable works. In addition, we may have to seek a license to continue practices found to be in violation of a third party's rights, which may
not be available on reasonable terms, or at all. Our business, financial condition or results of operations could be adversely affected as a result.
Risks Related to Healthcare Regulation
We conduct business in a heavily regulated industry and, if we fail to comply with these laws and
government regulations, we could incur penalties or be required to make significant changes to our operations.
The healthcare industry is heavily regulated and closely scrutinized by federal, state and local governments. Comprehensive statutes
and regulations govern the manner in which we provide and bill for services, our contractual relationships with our physicians, vendors and customers, our marketing activities and other aspects of our
operations. Failure to comply with these laws can result in civil and criminal penalties such as fines, damages, overpayment recoupment, loss of enrollment status or exclusion from government
healthcare programs. The risk of our being found in violation of these laws and regulations is increased by the fact that many of them have not been fully interpreted by regulatory authorities or the
courts, and their provisions are sometimes open to multiple interpretations. Any action against us for violation of these laws or regulations, even if we successfully defend against it,
S-34
Table of Contents
could
cause us to incur significant legal expenses and divert our managements' attention from the operation of our business.
Our
physicians, nurses and technicians, as well as the third-party payors with which we have a relationship are also subject to ethical guidelines and operating standards of professional
and trade associations and private accreditation agencies. Compliance with these guidelines and standards is often required by our contracts with our customers or to maintain our reputation.
The
laws, regulations and standards governing the provision of healthcare services may change significantly in the future. New or changed healthcare laws, regulations or standards may
materially and adversely affect our business. In addition, a review of our business by judicial, law enforcement, regulatory or accreditation authorities could result in a determination that could
adversely affect our operations.
Our current facilities are subject to state statutes and regulations that govern our operations, and
the failure to comply with these laws and regulations can result in civil or criminal sanctions.
Our operating freestanding emergency room facilities in Texas and Colorado, and our hospital in Arizona, are subject to many laws and
regulations, particularly at the state and local government levels. These laws and regulations require our freestanding emergency rooms and our hospital in Arizona to meet various licensing,
certification and other requirements, including those relating to:
- •
- building and construction codes, fire codes and life safety standards for our facilities;
- •
- the qualifications of medical and support personnel in our facilities;
- •
- the adequacy of medical care, equipment, personnel, operating policies and procedures;
- •
- required governance boards and organizational plans to oversee the facility;
- •
- required services and treatment lines, particularly in the hospital setting;
- •
- facility licensure;
- •
- maintenance and protection of medical records;
- •
- environmental protection and health and safety, including the handling and disposal of medical waste;
- •
- development of infection control and quality improvement policies and procedures;
- •
- required operating hours;
- •
- requirements to treat our emergent patients regardless of ability to pay;
- •
- restrictions on advertising and billing with respect to patients to make clear the facility is operating as an emergency room; and
- •
- patient transfer agreements and patient transfer plans to care for patients of an acuity beyond the capability of the facility.
We
may be subject to regulatory fines, penalties or other sanctions if our operations or facilities are found to not comply with applicable laws and regulations. Further, these laws and
regulations are subject to change. New regulation of such facilities is also possible, which could force us to change our
operational approach or lead to a finding by regulators that our facilities do not meet legal requirements.
S-35
Table of Contents
State law regulation of construction or expansion of emergency rooms could prevent us from
developing additional freestanding emergency rooms or other facilities.
Approximately 36 states have certificate of need programs that require some level of prior approval for the construction of a new
facility, acquisition or expansion of an existing facility, or the addition of new services for various healthcare facilities. One of the most common categories of healthcare services reviewed under
certificate of need laws is hospital services, which may include the emergency services we provide at our freestanding emergency rooms. While the states where our facilities are currently operational
(Texas, Colorado and Arizona) do not require a certificate of need, other states where we seek to expand our operations may require certificates of need under circumstances not currently applicable to
our facilities. If these states require such a certificate, they may examine any proposed facility for the cost of adding additional services compared with other treatment models, the impact of our
proposed facility on existing providers, the need for additional or expanded healthcare services in the relevant market and other analyses that may require changes to our business model. In such case,
we may not be able to obtain the necessary certificates of need or other required approvals to meet our expansion plans. In addition, if we seek to acquire other facilities, in certificate of need
states, we may be required to obtain a certificate of need before the acquisition, before we replace the equipment or before we expand the acquired facility. If we are unable to obtain such approvals,
we may not be able to move forward with a planned acquisition, expand the acquired facility, add additional services to the facility or replace its equipment.
In
addition, there is a significant risk of additional state legislation restricting our ability to obtain licensure for new facilities. Only a few states, including Texas and Colorado,
currently license the freestanding emergency room facilities that we operate. The lack of a specific licensure process for freestanding emergency facilities may lead state legislators or regulators to
aggressively regulate the growth of such facilities, potentially seeking to treat our freestanding emergency room facilities in a manner similar to hospitals. In other states, the growing number of
freestanding emergency departments may lead state legislatures to pass legislation requiring us to substantially change our operations or cease our operations in that state entirely. Any such
licensure challenges could materially impact our prospects and growth strategy.
Alternatively,
without current state licensure of freestanding emergency room facilities, we may need to develop new models or form partnerships with existing facilities to expand to new
states. Such challenges were one reason we entered into a joint venture with Dignity Health announced in October
2014. The new partnership has started with Dignity Health Arizona General Hospital, which was recently licensed as a general hospital by the Arizona Department of Health Services. These alternative
models or partnerships may not be as profitable as our current freestanding facilities, and such development may materially impact our prospects or our growth strategy.
We are subject to comprehensive and complex laws and rules that govern the manner in which we bill
and are paid for our services by third-party payors, and the failure to comply with these rules, or allegations that we have failed to do so, can result in civil or criminal sanctions, including
exclusion from federal and state healthcare programs.
Substantially all of our services are paid for by third-party commercial payors. These third-party payors typically have differing and
complex billing and documentation requirements that we must meet in order to receive payment for our services. Reimbursement is typically conditioned on our providing the correct procedure and
diagnostic codes and properly documenting the services themselves, including the level of service provided, the medical necessity for the services, the site of service, and the identity of the
physician, nurse or technician who provided the service.
We
must also comply with numerous other state and federal laws applicable to our documentation and the claims we submit for payment, including but not limited to (i) "coordination
of benefits" rules
S-36
Table of Contents
that
dictate which payor we must bill first when a patient has potential coverage from multiple payors, (ii) requirements that we obtain the signature of the patient or patient representative,
or, in certain cases, alternative documentation, prior to submitting a claim, (iii) requirements that we make repayment within a specified period of time to any payor which pays us more than
the amount to which we are entitled, (iv) "reassignment" rules governing our ability to bill and collect professional fees on behalf of our physicians, (v) requirements that our
electronic claims for payment be submitted using certain standardized transaction codes and formats and (vi) laws requiring us to handle all health and financial information of our patients in
a manner that complies with specified security and privacy standards.
Private
third-party payors carefully audit and monitor our compliance with these and other applicable rules. Our failure to comply with the billing and other rules applicable to us could
result in non-payment for services rendered or refunds of amounts previously paid for such services.
Additionally,
on January 16, 2009, the United States Department of Health and Human Services, or HHS, released the final rule mandating that everyone covered by the Administrative
Simplification Provisions of the Health Insurance Portability and Accountability Act of 1996, or HIPAA, which includes our facilities must implement the International Classification of Diseases
(10th Edition), or ICD-10, for medical coding on October 1, 2013. HHS subsequently postponed the deadline for implementation of ICD-10 codes until October 1, 2014, which Congress
extended until October 1, 2015, as part of the Protecting Access to Medicare Act of 2014. ICD-10 codes contain significantly more information than the ICD-9 codes currently used for medical
coding and will require covered entities to code with much greater detail and specificity than ICD-9 codes. However, the transition to ICD-10 does not affect Current Procedural Terminology coding for
physician services or outpatient procedures. We may incur additional costs for computer system updates, training, and other resources required to implement these changes. We may also incur additional
costs from further delays in training staff on both the ICD-9 and ICD-10 codes and maintaining software that can operate under both systems through the inherent uncertainty from ongoing delays in
ICD-10 implementation.
If
our operations are found to be in violation of these or any of the other laws which govern our activities, any resulting penalties, damages, fines or other sanctions could adversely
affect our ability to operate our business and our financial results.
Changes in the rates or methods of third-party reimbursements, including due to political discord in
the budgeting process outside our control, may adversely affect our revenue and operations.
We derive a majority of our revenue from direct billings to patients and third-party payors. As a result, any changes in the rates or
methods of reimbursement for the services we provide could have a significant adverse impact on our revenue and financial results. Reimbursement rates can vary depending on whether the facility
provider is an in-network or out-of-network provider. Each of our facilities will be out-of-network for some patients. Some facilities, as an out-of-network provider, may have issues billing
appropriately with certain third-party payors. In some states, we may rely on state law that requires reimbursement of our services at in-network rates. A change in state law where the majority of our
facilities are operated could have a material effect on our revenue or force us to negotiate lower rates with third-party payors who may or may not be willing to enter into agreements with us. In the
last legislative session, members of the Colorado legislature proposed but did not pass a bill which would have significantly reduced reimbursement rates for our facilities within the state by making
it a violation of the state insurance code to bill insurers or their beneficiaries for facility fees. We cannot predict the outcome of any legislation and cannot assure you that the Colorado
legislature or another state where we operate would not pass another law that damages our ability to operate under our current model.
S-37
Table of Contents
Additionally,
the PPACA could ultimately result in substantial changes in coverage and reimbursement, including changes in coverage or amounts paid by private payors, which could have an
adverse impact on our revenue from those sources.
Recent healthcare reform legislation and other changes in the healthcare industry and in healthcare
spending could adversely affect our business model, financial condition or results of operations.
Our results of operations and financial condition could be affected by changes in healthcare spending and policy. The healthcare
industry is subject to changing political, regulatory and other influences. In March 2010, the President signed the PPACA into law, which made major changes in how healthcare is delivered and
reimbursed, and increased access to health insurance benefits to the uninsured and underinsured population of the United States. However, certain provisions in the PPACA, such as the establishment of
the Independent Payment Advisory Board, could cause us to face reduced reimbursement rates that would adversely affect our business model.
The
PPACA may also adversely affect payors by increasing their medical cost trends, which could have an effect on the industry and potentially impact our business and revenue as payors
seek to offset these increases by reducing costs in other areas, although the extent of this impact is currently unknown.
Because
of the continued uncertainty about the implementation of the PPACA, including the potential for further legal challenges, we cannot quantify or predict with any certainty the
likely impact of the PPACA on our business model, prospects, financial condition or results of operations. We also anticipate that Congress, state legislatures, and third-party payors may continue to
review and assess alternative healthcare delivery and payment systems and may in the future propose and adopt legislation or policy changes or implementations effecting additional fundamental changes
in the healthcare delivery system. We cannot assure you as to the ultimate content, timing, or effect of changes, nor is it possible at this time to estimate the impact of potential legislation.
If current or future laws or regulations force us to restructure our arrangements with physicians,
professional corporations and hospitals, we may incur additional costs, lose contracts and suffer a reduction in net revenue under existing contracts, and we may need to refinance our debt or obtain
debt holder consent.
A number of laws bear on our relationships with our physicians. State authorities in some jurisdictions could find that our contractual
relationships with our physicians violate laws prohibiting the corporate practice of medicine or fee-splitting. These laws are generally intended to prevent unlicensed persons or entities from
interfering with or inappropriately influencing the physician's professional judgment, but they may also prevent the sharing of professional services income
with professional, non-professional or other business interests. Over 30 states have some form of corporate practice of medicine restrictions and as we continue to expand into new markets, our current
business model may implicate these restrictions. The states in which we currently operate (Colorado, Texas and Arizona) have some level of corporate practice of medicine restrictions. In each of these
states, a business corporation may not employ physicians or provide medical services. While we believe we are currently in material compliance with applicable state laws relating to the corporate
practice of medicine and fee-splitting, regulatory authorities or other parties, including our affiliated physicians, may assert that, despite these arrangements, we are impermissibly engaged in the
practice of medicine or that our contractual arrangements with affiliated physician groups constitute unlawful fee-splitting. In this event, we could be subject to adverse judicial or administrative
interpretations, to civil or criminal penalties, our contracts could be found legally invalid and unenforceable or we could be required to restructure our contractual arrangements with our affiliated
physicians and physician groups.
S-38
Table of Contents
Our
physician contracts include contracts with individual physicians and with physicians organized as separate legal professional entities (e.g., professional medical
corporations). Antitrust laws may deem each such physician/entity to be separate, both from us and from each other, and, accordingly, each such physician/practice would be subject to a wide range of
laws that prohibit anti-competitive conduct between or among separate legal entities or individuals. A review or action by regulatory authorities or the courts could force us to terminate or modify
our contractual relationships with physicians and affiliated medical groups, or to revise them in a manner that could be materially adverse to our business.
Various
licensing and certification laws, regulations and standards apply to us, our affiliated physicians and our relationships with our affiliated physicians. Failure to comply with
these laws and regulations could result in our services being found to be non-reimbursable or prior payments being subject to recoupment, and can give rise to civil or criminal penalties, including
loss of licensure for the facility. We routinely take actions we believe are necessary to retain or obtain all requisite licensure and operating authorities, including all building codes, state
licensure rules and all state-mandated services. While we have made reasonable efforts to substantially comply with federal, state and local licensing and certification laws and regulations and
standards as we interpret them, agencies that administer these programs may find that we have failed to comply in some material respects. Further, any expansion in new states or participation in the
Medicare or Medicaid programs may add additional licensing and certification requirements with which we may not be in full compliance today.
Adverse
judicial or administrative interpretations could result in a finding that we are not in compliance with one or more of these laws and rules that affect our relationships with our
physicians.
These
laws and rules, and their interpretations, may also change in the future. Any adverse interpretations or changes could force us to restructure our relationships with physicians,
professional corporations or our hospital systems, or to restructure our operations. This could cause our operating costs to increase significantly. A restructuring could also result in a loss of
contracts or a reduction in revenue under existing contracts. Moreover, if we are required to modify our structure and organization to comply with these laws and rules, our financing agreements may
prohibit such modifications and require us to obtain the consent of the holders of such debt or require the refinancing of such debt.
We are subject to the data privacy, security and breach notification requirements of HIPAA and other
data privacy and security laws, and the failure to comply with these rules, or allegations that we have failed to do so, can result in civil or criminal sanctions.
HIPAA required HHS to adopt standards to protect the privacy and security of certain health-related information. The HIPAA privacy
regulations contain detailed requirements concerning the use and disclosure of individually identifiable health information and the grant of certain rights to patients with respect to such information
by "covered entities." As a provider of healthcare who conducts certain electronic transactions, each of our facilities is considered a covered entity under HIPAA. We have taken actions to comply with
the HIPAA privacy regulations and believe that we are in substantial compliance with those regulations. These actions include the creation and implementation of policies and procedures, staff
training, execution of HIPAA-compliant contractual arrangements with certain service providers and various other measures. Ongoing implementation and oversight of these measures involves significant
time, effort and expense.
In
addition to the privacy requirements, HIPAA covered entities must implement certain administrative, physical, and technical security standards to protect the integrity,
confidentiality and availability of certain electronic health-related information received, maintained, or transmitted by covered entities or their business associates. We have taken actions in an
effort to be in compliance with these security regulations and believe that we are in substantial compliance, however, a security incident that bypasses our information security systems causing an
information security breach, loss of
S-39
Table of Contents
protected
health information or other data subject to privacy laws or a material disruption of our operational systems could result in a material adverse impact on our business, along with fines.
Ongoing implementation and oversight of these security measures involves significant time, effort and expense.
The
Health Information Technology for Economic and Clinical Health Act, or HITECH, as implemented in part by an omnibus final rule published in the Federal Register on January 25,
2013, further requires that patients be notified of any unauthorized acquisition, access, use, or disclosure of their unsecured protected health information, or PHI, that compromises the privacy or
security of such information. HHS has established the presumption that all unauthorized uses or disclosures of unsecured protected health information constitute breaches unless the covered entity or
business associate establishes that there is a low probability the information has been compromised. HITECH and implementing regulations specify that such notifications must be made without
unreasonable delay and in no case later than 60 calendar days after discovery of the breach. If a breach affects 500 patients or more, it must be reported immediately to HHS, which will post the name
of the breaching entity on its public website. Breaches affecting 500 patients or more in the same state or jurisdiction must also be reported to the local media. If a breach involves fewer than 500
people, the covered entity must record it in a log and notify HHS of such breaches at least annually. These breach notification requirements apply not only to unauthorized disclosures of unsecured PHI
to outside third parties, but also to unauthorized internal access to or use of such PHI.
HITECH
significantly expanded the scope of the privacy and security requirements under HIPAA and increased penalties for violations. Currently, violations of the HIPAA privacy, security
and breach notification standards may result in civil penalties ranging from $100 to $50,000 per violation, subject to a cap of $1.5 million in the aggregate for violations of the same standard
in a single calendar year. The amount of penalty that may be assessed depends, in part, upon the culpability of the applicable covered entity or business associate in committing the violation. Some
penalties for certain violations that were not due to "willful neglect" may be waived by the Secretary of HHS in whole or in part, to the extent that the payment of the penalty would be excessive
relative to the violation. HITECH also authorized state attorneys general to file suit on behalf of residents of their states. Applicable courts may able to award damages, costs and attorneys' fees
related to violations of HIPAA in such cases. HITECH also mandates that the Secretary of HHS conduct periodic compliance audits of a cross-section of HIPAA covered entities and business associates.
Every covered entity and business associate is subject to being audited, regardless of the entity's compliance record.
States
may impose more protective privacy restrictions in laws related to health information and may afford individuals a private right of action with respect to the violation of such
laws. Both state and federal laws are subject to modification or enhancement of privacy protection at any time. We are subject to any federal or state privacy-related laws that are more restrictive
than the privacy regulations issued under HIPAA. These statutes vary and could impose additional requirements on us and more severe penalties for disclosures of health information. Texas, Colorado and
Arizona each have privacy regulations that impose requirements and restrictions in addition to those under HIPAA. If we fail to comply with HIPAA or similar state laws, including laws addressing data
confidentiality, security or breach notification, we could incur substantial monetary penalties and our reputation.
In
addition, states may also impose restrictions related to the confidentiality of personal information that is not considered "protected health information" under HIPAA. Such
information may include certain identifying information and financial information of our patients. Theses state laws may impose additional notification requirements in the event of a breach of such
personal information. Failure to comply with such data confidentiality, security and breach notification laws may result in substantial monetary penalties.
S-40
Table of Contents
We recently enrolled our Arizona general hospital in the federal Medicare program and the Arizona
Medicaid program. As a result of participating in these programs, we will be required to comply with a number of additional federal and state regulatory schemes.
While the majority of our facilities do not currently participate as providers in the federal Medicare, Medicaid or Tricare programs,
our hospital in Arizona recently received confirmation of its enrollment in Medicare and Medicaid. By enrolling in these programs, we will face certain federal and state regulatory schemes for the
first time. For example, the federal physician self-referral law, or the Stark Law, and the Anti-Kickback Statute apply to the provision of healthcare services and supplies to Medicare and Medicaid
patients. While we have sought to organize our operations—both at our freestanding emergency rooms that do not participate in these programs and at our newly-opened hospital in
Arizona—to comply with both the Stark Law and Anti-Kickback Statute, we cannot assure you that our enrollment in these government programs will not require some reorganization of our
existing relationships with our physicians, referral sources and other partners, or that we will not be subject to government investigation for failure to comply with these laws.
By
not participating in these programs at our freestanding emergency rooms, many potential consumers of our services in our target markets may choose to receive services from other
providers. To participate in these programs at our freestanding emergency room facilities we would need to significantly modify our current operational model. Such programs, particularly Medicare,
have substantial statutory and regulatory requirements to participate. For example, the Medicare program does not currently allow the participation of independent freestanding emergency room
facilities. To participate as a Medicare provider in states where we operate only freestanding emergency rooms, we would need to open a central-hospital facility that owns and operates the satellite
freestanding emergency rooms as "provider-based facilities" under a unified organization. Under Medicare, establishing such a central-hospital facility with satellite freestanding emergency rooms
structure requires a hospital to be "primarily engaged in the provision of services to inpatients." This requirement could limit our ability to grow by restricting the number of additional
freestanding facilities associated with each Medicare-certified hospital to ensure compliance with the inpatient service requirements. This and other Medicare conditions of participation could be
costly and limit our expansion plans. Our current accreditation from The Joint Commission as freestanding emergency room facilities does not guarantee that our facilities would meet The Joint
Commission hospital standards, Medicare conditions of participation or Medicaid requirements for hospitals.
Furthermore,
the Medicare and Medicaid programs are particularly susceptible to statutory and regulatory changes, retroactive and prospective rate adjustments, spending freezes, federal
and state funding reductions and administrative rulings and interpretations concerning, without limitation, patient
eligibility requirements, funding levels and the method of calculating payments or reimbursements, all of which we now face for the first time at our Arizona hospital. The PPACA reduces annual payment
updates for certain providers, including hospitals, and reduces Medicare payments for certain events, such as hospital readmissions and hospital-acquired infections. Furthermore, the Budget Control
Act of 2011 requires automatic spending reductions for each fiscal year through 2021. We are unable to predict how these spending reductions will be structured, what other deficit reduction
initiatives may be adopted by the U.S. Congress or how these changes will impact our Arizona hospital or would impact our freestanding emergency room facilities if such facilities subsequently
participate in the Medicare program.
Enrolling
as a Medicaid provider also subjects a portion of our revenue to fluctuations and limitations in state budgets. Many state legislatures, including Arizona, Colorado and Texas,
are required by their state constitution or laws to balance the state's budgets annually and the Medicaid program is often the largest budget expenditure for many states. In recent years, as economic
forces put pressure on state budgets, many states decreased spending or decreased spending growth for their Medicaid programs. States also continually review and revise their Medicaid programs and
request
S-41
Table of Contents
waivers
from the CMS from otherwise national requirements, which could result in certain payments being reduced or eliminated. Such spending changes could have a material impact on the performance of
our Arizona general hospital and our freestanding emergency rooms, if such facilities later participate in state Medicaid programs.
State regulation of healthcare marketing in our current or target markets could impact our marketing
efforts, which may in turn hamper our ability to increase patient volume, increase same store sales, or build awareness of our care model, particularly if we choose to participate in Medicaid in the
future.
Some states regulate healthcare providers' marketing efforts to persons enrolled in governmental healthcare programs, such as Medicaid
and the Children's Health Insurance Program, or CHIP. These marketing restrictions may impact our future marketing efforts. In particular, some state laws prohibit direct and/or indirect marketing and
outreach efforts to enrollees of state-funded governmental healthcare programs. Some states restrict the direct marketing activities of providers by prohibiting providers from engaging in unsolicited
personal contact or promotions of their practices to enrollees. In states that restrict providers' marketing efforts directly, regulations sometimes prohibit provider marketing materials from
containing any false, misleading, or inaccurate statements relating to the providers' services, benefits or costs. A number of states also prohibit provider marketing materials from containing any
state-owned logos or making any statement of endorsement by federal or state governmental entities.
Other
states, including Arizona, restrict providers' marketing efforts indirectly by regulating the activities of health plans that contract with state-funded governmental healthcare
programs. Some states require state-contracted health plans to report their marketing costs to state regulatory agencies and submit all marketing materials for prior regulatory approval. We are not
classified as a health plan, but we may contract with state-contracted health plans as a subcontracted provider subject to such restrictions in the future. In such case, some states' state-contracted
health plans may restrict our marketing activities, in order to ensure the health plans' compliance with state-funded governmental healthcare programs' marketing restrictions. For example, a number of
state-contracted health plans require their subcontracted providers to submit all marketing materials to the health plan. If the health plan deems it necessary, the health plan may then submit the
subcontracted providers' marketing materials to the appropriate state regulatory agency. To our knowledge, we are currently in compliance with state healthcare marketing laws in the states in which we
operate. However, these restrictions are rapidly evolving and we may be required to change our practices in the future. This risk is more pronounced in Arizona where we have enrolled our hospital in
the state's Medicaid program, and such risks may increase in other states if we choose to enroll our facilities in those states' Medicaid or CHIP programs.
Our facilities, billing practices, relationships with healthcare providers and third parties, and
our marketing practices are (at least in part) subject to the Anti-Kickback Statute, Stark Law, False Claims Act and similar state laws.
By enrolling in the federal Medicare, Medicaid, and Tricare programs, our Arizona hospital (and any other of our facilities that enroll
in such programs in the future) is directly subject to additional federal laws, including, but not limited to, those discussed below.
Anti-Kickback Statute
Provisions in Title XI of the Social Security Act, commonly referred to as the Anti-Kickback Statute, prohibit the knowing and willful
offer, payment, solicitation or receipt of remuneration, directly or indirectly, in return for the referral of patients or arranging for the referral of patients, or in return for the recommendation,
arrangement, purchase, lease or order of items or services that are covered, in whole or in part, by a federal healthcare program such as Medicare or Medicaid. The definition of
S-42
Table of Contents
"remuneration"
has been broadly interpreted to include anything of value such as gifts, discounts, rebates, waiver of payments or providing anything at less than its fair market value. Many states
such as Texas and Arizona have adopted similar prohibitions against kickbacks and other practices that are intended to influence the purchase, lease or ordering of healthcare items and services
reimbursed by a governmental health program or state Medicaid. Some of these state prohibitions apply to remuneration for referrals of healthcare items or services reimbursed by any payor, including
private payors.
Even
at facilities where we do not currently accept Medicare, Medicaid or Tricare reimbursement, we could still be subject to the Anti-Kickback Statute to the extent we have referral or
financial relationships with other parties that do participate in those programs.
Violations
of the Anti-Kickback Statute can result in exclusion from Medicare, Medicaid or other governmental programs as well as civil and criminal penalties, such as $25,000 per
violation and up to three times the remuneration involved. We may be required to enter into settlement agreements with the government to avoid such sanctions. Typically, such settlement agreements
require substantial payments to the government in exchange for the government to release its claims, and may also require us to enter into a Corporate Integrity Agreement, or CIA, with the OIG. The
obligations contained in such CIA could have a material adverse effect on our business, financial condition and results of operations.
Stark Law
The Stark Law prohibits a physician from referring a patient to a healthcare provider for certain designated health services
reimbursable by Medicare if the physician (or close family members) has a financial relationship with that provider, including an investment interest, a loan or debt relationship or a compensation
relationship. The designated health services covered by the law include, among others, hospital inpatient, hospital outpatient, laboratory and imaging services. Some states, including Texas and
Colorado, have self-referral laws similar to Stark Law for Medicaid claims (and commercial claims). States such as Arizona and Texas also require physicians to disclose to their patients that they
have a direct financial relationship in a separate diagnostic or treatment agency or in services and goods being prescribed.
Violation
of the Stark Law may result in prohibition of payment for services rendered, a refund of any Medicare payments for services that resulted from an unlawful referral, $15,000
civil monetary penalties for specified infractions, criminal penalties, exclusion from Medicare and Medicaid programs, and
potential false claims liability. The repayment provisions in the Stark Law are not dependent on the parties having an improper intent; rather, the Stark Law is a strict liability statute and any
violation is subject to repayment of all tainted referrals. If physician self-referral laws are interpreted differently or if other legislative restrictions are issued, we could incur significant
sanctions and loss of revenues, or we could have to change our arrangements and operations in a way that could have a material adverse effect on our business, prospects, results of operations and
financial condition.
False Claims Act
The federal government is authorized to impose criminal, civil and administrative penalties on any person or entity that files a
false claim for payment from the Medicare or Medicaid programs. False claims filed with private insurers can also lead to criminal and civil penalties under state law. While the criminal statutes are
generally reserved for instances of fraudulent intent, the government applies criminal, civil and administrative penalty statutes to a range of circumstances, including coding errors, billing for
services not provided, submitting false cost reports, submitting claims resulting from arrangements prohibited by the Stark Law or the Anti-Kickback Statute, billing for services not rendered in
compliance with complex Medicare and Medicaid regulations and guidance,
S-43
Table of Contents
misrepresenting
services rendered (e.g., miscoding, upcoding, etc.) and application for duplicate reimbursement. Additionally, the federal government has taken the position that claiming
reimbursement for unnecessary or substandard services violates these statutes if the claimant should have known that the services were unnecessary or substandard. Criminal penalties also are available
in the case of claims filed with private insurers if the federal government shows that the claims constitute mail fraud or wire fraud or violate a number of federal criminal healthcare fraud statutes.
Under
the "qui tam" provisions of the Federal False Claims Act, private parties ("relators" or "whistleblowers") may bring actions against providers on behalf of the federal government.
Such private parties are entitled to share in any amounts recovered by the government through trial or settlement. Qui tam cases are sealed by the court at the time of filing. The only parties privy
to the information contained in the complaint are the relator, the federal government and the presiding court. In recent years, the number of suits brought by private individuals has increased
dramatically.
Both
direct enforcement activity by the government and whistleblower lawsuits under the Federal False Claims Act have increased significantly in recent years and have increased the risk
of healthcare
companies like us having to defend a false claims action, repay claims paid by the government, pay fines or be excluded from the Medicare and Medicaid programs. In addition, under the PPACA, providers
must report and refund the overpayments before the later of 60 days after the overpayment was identified or the date any corresponding cost report is due, if applicable. Any overpayment that is
retained after this deadline is considered an obligation subject to an action under the Federal False Claims Act.
A
number of states have enacted false claims acts that are applicable to claims submitted to state Medicaid programs and are similar to the Federal False Claims Act. Section 6031
of the Deficit Reduction Act of 2005 as amended, or DRA, amended federal law to encourage these types of state laws, along with a corresponding increase in state initiated false claims enforcement
efforts. Currently, most states and the District of Columbia have some form of state false claims act. The OIG has reviewed various state false claims acts and on numerous occasions has determined
that some state false claims acts satisfy the DRA standards, including Texas and Colorado. Several states were given a grace period to amend their false claims acts to come into compliance with recent
amendments to the Federal False Claims Act. We anticipate this figure will continue to increase.
CMS Recovery Audit Program
We believe that the CMS will continue to operate its Recovery Audit Program, which could randomly audit our Arizona hospital and any of
our other facilities that enroll in the Medicare or Medicaid in the future. The Recovery Audit Program's mission is to identify and correct Medicare improper payments through the efficient detection
and collection of overpayments made on claims of healthcare services provided to Medicare beneficiaries, and the identification of underpayments to providers so that the CMS can implement actions that
will prevent future improper payments. Federal law also requires states to create Recovery Audit Programs for their state Medicaid programs. Enrollment in Arizona's and other states' Medicaid programs
may mean additional state scrutiny of potential overpayments.
The Emergency Medical Treatment and Labor Act
Our participation in Medicare, Medicaid and Tricare at our Arizona hospital subjects the hospital to certain requirements of the
Emergency Medical Treatment and Labor Act, or EMTALA. Under EMTALA, all participating hospitals with emergency departments are required to provide an appropriate medical screening examination upon
request by any individual to determine whether an emergency medical condition exists or if the patient is in active labor. If the hospital determines that there is an emergency medical condition, then
the hospital must stabilize the individual. Violations of these EMTALA obligations (if applicable) could subject us to civil penalties.
Furthermore, individuals have a private right of enforcement if they suffer harm that is a direct result of a violation of EMTALA.
S-44
Table of Contents
Our facilities are subject to state requirements similar to those of EMTALA, regardless of whether our facilities are enrolled in Medicare, Medicaid or Tricare.
For example, in Texas, as freestanding emergency room facilities, we are required by state law to provide appropriate screening and examinations to individuals to determine if an emergency medical
condition exists. The facilities are also required to provide the necessary stabilizing treatment without assessing the individual's ability to pay. Violations of these requirements could lead to
administrative and criminal penalties.
Changes in our ownership structure and operations may require us to comply with numerous
notification and reapplication requirements in order to maintain our licenses, certifications or other authorizations to operate, and failure to do so, or an allegation that we have failed to do so,
could result in payment delays, forfeiture of payment or civil and criminal penalties or loss of third-party payor contracts.
We and our contracted physicians are subject to various federal, state and local licensing and certification laws with which we must
comply in order to maintain authorization to provide, or receive payment for, our services. Compliance with these requirements is complicated by the fact that they differ from jurisdiction to
jurisdiction, and in some cases are not uniformly applied or interpreted even within the same jurisdiction. Failure to comply with these requirements can lead not only to delays in payment and refund
requests, but in extreme cases can give rise to civil or criminal penalties.
In
certain jurisdictions, changes in our ownership structure require pre- or post-notification to state governmental licensing and certification agencies, or agencies with which we have
contracts. Relevant laws in some jurisdictions may also require re-application or re-enrollment and approval to maintain or renew our licensure, certification, contracts or other operating authority.
Our changes in corporate structure and ownership involving changes in our beneficial ownership required us in some instances to give notice, re-enroll or make other applications for authority to
continue operating in various jurisdictions or to begin to receive payment from government payment programs. The extent of such notices and filings may vary in each jurisdiction in which we operate,
although those regulatory entities requiring notification generally request factual information regarding the new corporate structure and new ownership composition of the operating entities that hold
the applicable licensing and certification. Additionally, certain of our third-party payor contracts may require us to provide notice of any changes to our ownership structure.
While
we have made consistent efforts to substantially comply with these requirements, we cannot assure you that the agencies that administer these programs or have awarded us contracts
will not find that we have failed to comply in some material respects. A finding of non-compliance and any resulting payment delays, refund demands or other sanctions could have a material adverse
effect on our business, financial condition or results of operations.
Federal law does not mandate coverage or reimbursement amounts by private payors for services
provided in our freestanding facilities.
The PPACA requires all non-grandfathered insurance plans covering emergency services to cover treatment of a "prudent layperson" who
reasonably believes his or her health is in jeopardy at emergency departments of a hospital without regard to whether that hospital is in-network. The PPACA further prohibits insurance providers from
requiring pre-approval authorization or other administrative limits on such services in out-of-network hospitals, and has certain minimum payment provisions for emergency care in a hospital emergency
department that meet this prudent layperson standard. Our Arizona hospital should be eligible to receive certain payment protections from these provisions for services provided in the hospital's
emergency room. There is no guarantee that these payment protections will continue to be available to us (or any provider) in the future.
S-45
Table of Contents
Risks Related to Our Organizational Structure
We are an "emerging growth company" as defined in the Securities Act and we cannot be certain if the
reduced disclosure requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors.
We are an "emerging growth company" as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and we may
take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies" including, among other things, not being
required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced financial disclosure requirements, which include being permitted to provide only
two years of audited financial statements, with correspondingly reduced "Management's Discussion and Analysis of Financial Condition and Results of Operations" disclosure, reduced disclosure
obligations regarding executive compensation and exemptions from the requirements of holding a non-binding stockholder advisory vote on executive compensation and stockholder approval of any golden
parachute payments not previously approved. As a result, our stockholders may not have access to certain information that they may deem important. In addition, Section 107 of the JOBS Act also
provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2) of the Securities Act for complying with new or revised accounting
standards. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards
as other public companies that are not emerging growth companies.
We
may avail ourselves of these provisions until December 31, 2015, after which we will cease to be an emerging growth company. Investors may find our Class A common stock
less attractive because we may rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our
Class A common stock and our stock price may be more volatile.
Pursuant to the JOBS Act, our independent registered public accounting firm will not be required to
attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the filing of our next annual report.
Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, requires annual management assessments of
the effectiveness of our internal control over financial reporting, starting with the second annual report that we file with the SEC as a public company, and generally requires in the same report a
report by our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. Under the JOBS Act, our independent registered public accounting firm
will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer an "emerging growth company."
As
of December 31, 2015, we will cease to be an "emerging growth company." Accordingly, we must comply with the requirements of Section 404 of the Sarbanes-Oxley Act
starting with our next annual report for the year ended December 31, 2015. While we expect to be ready to comply with Section 404 of the Sarbanes-Oxley Act by the applicable deadline, we
cannot assure you that this will be the case. Furthermore, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for
compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified,
supplemented or amended from time to time, we may not be able to conclude that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley
Act. If we are not able to implement the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or with adequate
S-46
Table of Contents
compliance,
our independent registered public accounting firm may issue an adverse opinion due to ineffective internal controls over financial reporting and we may be subject to sanctions or
investigation by regulatory authorities, such as the SEC. As a result, there could be a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial
statements. In addition, we may be required to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could have a material adverse effect on our
business, prospects, results of operations and financial condition.
Adeptus Health Inc.'s only material asset is its interest in Adeptus Health LLC, and
it is accordingly dependent upon distributions from Adeptus Health LLC to pay taxes and pay dividends.
Adeptus Health Inc. is a holding company that was formed in connection with our initial public offering and has no material
assets other than its ownership of LLC Units. Adeptus Health Inc. has no independent means of generating revenue. Adeptus Health Inc. intends to cause Adeptus Health LLC to
make distributions to its unitholders in an amount sufficient to cover all applicable taxes at assumed tax rates and dividends, if any. Deterioration in the financial condition, earnings or cash flow
of Adeptus Health LLC and its subsidiaries for any reason could limit or impair their ability to pay such distributions. Additionally, to the extent Adeptus Health Inc. needs funds, and
Adeptus Health LLC is restricted from making such distributions under applicable law or regulation or under the terms of our financing arrangements, or is otherwise unable to provide such
funds, it could materially adversely affect our business, prospects, results of operations or financial condition.
Payments
of dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including general and economic conditions, our financial
condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications of the payment of
dividends by us to our stockholders or by our subsidiaries (including Adeptus Health LLC) to us, and such other factors as our board of directors may deem relevant. First Choice ER, LLC
and its subsidiaries are currently subject to certain restrictions and covenants under our senior secured credit facility, or, as amended, the Senior Secured Credit Facility, including limits on
amounts of leverage, interest charges and capital expenditures. These restrictions and covenants may restrict the ability of those entities to make distributions to Adeptus Health Inc. Any
additional financing arrangement we enter into in the future may include restrictive covenants that limit our ability to pay dividends. In addition, Adeptus Health LLC is generally prohibited
under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of Adeptus Health LLC (with
certain exceptions) exceed the fair value of its assets. Subsidiaries of Adeptus Health LLC are generally subject to similar legal limitations on their ability to make distributions to Adeptus
Health LLC.
Adeptus Health Inc. is required to pay the Post-IPO Unit Holders and the Merged Owner certain
tax benefits they may claim arising in connection with this offering and related transactions and subsequent exchanges in the future, and the amounts it may pay could be significant.
In connection with our initial public offering, we entered into a tax receivable agreement with the Post-IPO Unit Holders and the
Merged Owner, each as defined under the heading "Organizational Structure," providing for the payment by Adeptus Health Inc. to the Post-IPO Unit Holders of 85% of the benefits, if any, that
Adeptus Health Inc. is deemed to realize as a result of increases in tax basis and certain other tax benefits. See "Organizational Structure."
We
expect the payments that Adeptus Health Inc. may make under the tax receivable agreement will be substantial. There may be a material negative effect on our liquidity if, as a
result of timing discrepancies or otherwise or if distributions to Adeptus Health Inc. by Adeptus Health LLC are not sufficient to permit Adeptus Health Inc. to make payments
under the tax receivable agreement after it
S-47
Table of Contents
has
paid taxes. The payments under the tax receivable agreement are not conditioned upon the Post-IPO Unit Holders' or Merged Owner's continued ownership of us.
Estimating
the amount of payments that may be made under the tax receivable agreement is by its nature imprecise, insofar as the calculation of amounts payable depends on a variety of
factors. The actual increase in tax basis, as well as the amount and timing of any payments under the tax receivable agreement, will vary depending upon a number of factors, including the timing of
exchanges, the relative value of our assets at the time of the exchange, the price of shares of our Class A common stock at the time of the exchange, the extent to which such exchanges are
taxable, the amount and timing of the taxable income we realize in the future and the tax rate then applicable, our use of loss carryovers and the portion of our payments under the tax receivable
agreement constituting imputed interest or depreciable or amortizable basis.
We
are not aware of any issue that would cause the IRS to challenge a tax basis increase; however, if the IRS were successful in making such a challenge, we would not be reimbursed for
any payments that may previously have been made under the tax receivable agreement if it is later determined that we did not receive the anticipated corresponding tax benefit. As a result, in certain
circumstances we could make payments under the tax receivable agreement in excess of our cash tax savings.
Our corporate structure may result in conflicts of interest between our stockholders and the holders
of LLC Units.
We hold our assets and conduct substantially all of our operations through Adeptus Health LLC, which may in the future issue
additional LLC Units to third parties. Persons holding LLC Units would have the right to vote on certain amendments to the limited liability company agreement of Adeptus
Health LLC, as well as on certain other matters. Persons holding these voting rights may exercise them in a manner that conflicts with the interests of our stockholders. Circumstances may arise
in the future when the interests of members in Adeptus Health LLC conflict with the interests of our stockholders. As we are the managing member of Adeptus Health LLC, we have fiduciary
duties to the other members of Adeptus Health LLC that may conflict with fiduciary
duties our officers and directors owe to our stockholders. These conflicts may result in decisions that are not in the best interests of stockholders.
Transformation into a public company has increased our costs and may disrupt the regular operations
of our business.
Our initial public offering had a significant transformative effect on us. Prior to our initial public offering, our business operated
as a privately owned company and we now incur significant additional legal, accounting, reporting and other expenses as a result of having publicly-traded Class A common stock. We also incur
costs that we have not incurred previously, and will incur additional costs after we are no longer an "emerging growth company." Such costs include, but are not limited to, costs and expenses for
directors' fees, increased directors and officers insurance, investor relations, compliance with the Sarbanes-Oxley Act and rules and regulations of the SEC, and various other costs of a public
company.
The
additional demands associated with being a public company may disrupt regular operations of our business by diverting the attention of some of our senior management team away from
revenue producing activities to management and administrative oversight, adversely affecting our ability to attract and complete business opportunities and increasing the difficulty in both retaining
professionals and managing and growing our businesses. Any of these effects could harm our business, financial condition and results of operations.
S-48
Table of Contents
Our Sponsor will have reduced influence over us after this offering.
Our Sponsor will hold approximately 28.0% of the voting power of our outstanding capital stock upon consummation of this offering (or
26.3% if the underwriters exercise in full their option to purchase additional shares of Class A common stock). As a result of our Sponsor's ownership, our Sponsor may have, through our board
of directors, the ability to control decision-making with respect to our business direction and policies. We have in recent years depended on our relationship with our Sponsor to help guide our
business plan. Following the offering, our Sponsor will continue to have the right to designate certain of the members of our board of directors, as well as one member on each of our nominating and
corporate governance committee and compensation committee. In addition, upon consummation of the offering, our Sponsor will have reduced its ownership of outstanding voting securities of our company
and will no longer have consent
rights with respect to certain significant corporate actions, including the hiring and firing of our chief executive officer, any change in control and any significant acquisitions, divestitures and
equity issuances. This reduction and any future reduction of our Sponsor's ownership in our company could reduce or eliminate the benefits we have historically achieved through our relationship with
it. Additionally, our Sponsor is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. Our
Sponsor's interests may differ from yours.
Anti-takeover provisions in our charter documents and Delaware law might discourage or delay
acquisition attempts for us that you might consider favorable.
Our amended and restated certificate of incorporation and amended and restated by-laws contain provisions that may make the acquisition
of our company more difficult without the approval of our board of directors. Among other things, these provisions:
- •
- authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued
without stockholder approval, and which may include super voting, special approval, dividend or other rights or preferences superior to the rights of the holders of Class A common stock;
- •
- expressly authorize the board of directors to make, alter or repeal our by-laws by majority vote; and
- •
- establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be
acted upon by stockholders at stockholder meetings.
These
anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our company, including actions
that our stockholders may deem advantageous, or negatively affect the trading price of our Class A common stock. These provisions could also discourage proxy contests and make it more difficult
for you and
other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire. See "Description of Capital Stock" in the accompanying prospectus.
Risks Related to this Offering and Our Class A Common Stock
Our share price may decline due to the large number of shares eligible for future sale and for
exchange.
The market price of our Class A common stock could decline as a result of sales of a large number of shares of Class A
common stock in the market after this offering or the perception that such sales could occur. These sales, or the possibility these sales may occur, might also make it more difficult for us to sell
equity securities in the future at a time and at a price that we deem appropriate. After the consummation of this offering, we will have 13,469,298 outstanding shares of Class A common stock.
This number includes shares of our Class A common stock we are selling in this offering, which may be resold immediately in the public market. In addition, after the consummation of
S-49
Table of Contents
this
offering, the Merged Owner will hold 2,474,046 shares of Class A common stock and the Post-IPO Unit Holders will hold 7,263,314 LLC Units. See "Shares Eligible for Future Sale."
In
addition, the Post-IPO Unit Holders (or certain permitted transferees thereof) will have the right (subject to the terms of the Amended and Restated Limited Liability Company
Agreement) to exchange their vested LLC Units (together with a corresponding number of shares of our vested Class B common stock) for shares of our Class A common stock on a
one-for-one basis, subject to customary adjustments for stock splits, stock dividends and reclassifications. These exchanges, or the possibility these exchanges may occur, might also make it more
difficult for holders of our Class A common stock to sell such stock in the future at a time and at a price that they deem appropriate.
We
have agreed not to sell or transfer any of our Class A common stock or securities convertible into, exchangeable for, exercisable for or repayable with our Class A
common stock (including LLC Units), for 90 days after the date of this prospectus supplement without first obtaining the written consent of certain of the underwriters, subject to
customary exceptions, except that such period will be 75 days after the date of this prospectus supplement for sales or transfers of our Class A common stock in which the proceeds will
be used solely to purchase outstanding LLC Units from certain executive officers, directors and certain other holders of our Class A common stock. Our executive officers, directors and
certain other holders of our Class A common stock, including the selling stockholder, have agreed not to sell or transfer any of our Class A common stock or securities convertible into,
exchangeable for, exercisable for or repayable with our Class A common stock (including LLC Units), for 75 days after the date of this prospectus supplement without first
obtaining the written consent of certain of the underwriters, subject to certain customary exceptions.
In
connection with our initial public offering, we entered into a registration rights agreement pursuant to which the Post-IPO Unit Holders, their affiliates and certain of their
transferees have the ability to cause us to register the shares of our Class A common stock they acquired in connection with the Reorganization Transactions described under the heading
"Organizational Structure" and elsewhere in this prospectus supplement or will receive upon exchange of their LLC Units (together with a corresponding number of shares of our Class B
common stock).
The market price of our Class A common stock may be volatile, which could cause the value of
your investment to decline or could subject us to litigation.
The market for equity securities worldwide experiences significant price and volume fluctuations that could result in a reduced market
price of our Class A common stock, even if our operating performance is strong. In addition, general economic, market or political conditions could have an adverse effect on our stock price.
Our Class A common stock price could also suffer significantly if our operating results are below the expectations of analysts and investors. Investors may be unable to resell their shares of
our Class A common stock at or above your purchase price, if at all. In addition, when the market price of a company's common stock drops significantly, stockholders sometimes institute
securities class action lawsuits against that company. A securities class action lawsuit against us could cause us to incur substantial costs and could divert the time and attention of our management
and other resources from our business.
If securities analysts do not publish research or reports about our business or if they downgrade
our company or our sector, the price of our Class A common stock could decline.
The trading market for our Class A common stock depends in part on the research and reports that industry or financial analysts
publish about us or our business. We do not influence or control the reporting of these analysts. If one or more of the analysts who do cover us
downgrade or provide a negative outlook on our company or our industry, or the stock of any of our competitors, the price of our Class A common stock could decline. If one or more of these
analysts ceases coverage of our company, we could lose visibility in the market, which in turn could cause the price of our Class A common stock to decline.
S-50
Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement contains and incorporates by reference "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 that reflect our current views as to future events, development and results with respect to, without limitation, conditions in our industry, our operations,
our economic performance and financial condition, including, in particular, statements relating to our business and growth strategy under the heading "Summary" in this prospectus supplement and under
the headings "Management's Discussion and Analysis of Financial Conditions and Results of Operations" and "Business" in our Annual Report, and under the heading "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in our Quarterly Report. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use
words such as "outlook," "aim," "anticipate," "are confident," "estimate," "expect," "will be," "will continue," "will likely result," "project," "intend," "plan," "believe," "see," "look to" and
other words and terms of similar meaning or the negative versions of such words in connection with a discussion of future operating or financial performance. Forward-looking statements speak only as
of the date made. All statements we make relating to our estimated and projected earnings, costs, expenditures, cash flows, growth rates and financial results are forward-looking statements. In
addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These
forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we
expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are
reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results.
Important factors that could cause actual results to differ materially from our expectations ("cautionary statements") are disclosed under the heading "Risk Factors" and elsewhere in this prospectus
supplement and under the heading "Risk Factors" in our Annual Report, including, without limitation, in conjunction with the forward-looking statements included and incorporated by reference herein.
All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Some of the
factors that we believe could affect our results include without limitation:
- •
- 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 MPT and the MPT 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;
S-51
Table of Contents
- •
- 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 the 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.
Accordingly,
there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be
construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus supplement and in the documents incorporated by reference herein. As
a result of these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements contained in this prospectus supplement or incorporated by reference. We
undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, changes in our expectations, or otherwise, except as
required by law.
S-52
Table of Contents
USE OF PROCEEDS
The net proceeds from the sale of shares of our Class A common stock by us in this offering will be approximately
$197.2 million, or approximately $224.4 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock, in each case assuming an
offering price per share of $108.90, which was the last reported sale price of our Class A common stock on the NYSE on July 24, 2015 and after deducting underwriting discounts and
commissions payable by us. We intend to use all of the net proceeds received by us to purchase, for cash, 1,906,229 outstanding LLC Units (or 2,169,037 outstanding LLC Units if the
underwriters exercise in full their option to purchase additional shares of Class A common stock) from certain of the Post-IPO Unit Holders, as defined under the heading "Organizational
Structure," at a purchase price per unit equal to the public offering price per share of Class A common stock in this offering net of underwriting discounts and commissions. We will not retain
any of the net proceeds from this offering. We will not receive any of the proceeds from the sale of shares of Class A common stock by the selling stockholder.
If
the underwriters exercise in full their option to purchase up to an aggregate of 412,500 additional shares of Class A common stock, we intend to purchase, for cash, 262,808
outstanding LLC Units from certain of the Post-IPO Unit Holders at a purchase price per unit equal to the public offering price per share of Class A common stock in this offering net of
underwriting discounts and commissions. The remaining 149,692 shares of Class A common stock subject to the underwriters' option to purchase additional shares are expected to be Class A
common stock to be held by the selling stockholder. We
will not receive any of the proceeds from the sale of shares of Class A common stock by the selling stockholder.
S-53
Table of Contents
PRICE RANGE OF OUR CLASS A COMMON STOCK
Shares of our Class A common stock have been listed and traded on the NYSE under the symbol "ADPT" since June 25, 2014.
The following table sets forth, for the periods indicated, the high and low intra-day sale prices in dollars on the NYSE for our Class A common stock.
|
|
|
|
|
|
|
|
Quarter Ended
|
|
High |
|
Low |
|
June 25, 2014 through June 30, 2014 |
|
$ |
26.75 |
|
$ |
25.00 |
|
September 30, 2014 |
|
$ |
29.33 |
|
$ |
23.35 |
|
December 31, 2014 |
|
$ |
38.78 |
|
$ |
24.22 |
|
March 31, 2015 |
|
$ |
50.62 |
|
$ |
30.12 |
|
June 30, 2015 |
|
$ |
95.93 |
|
$ |
47.05 |
|
September 30, 2015 (through July 24, 2015) |
|
$ |
113.55 |
|
$ |
86.17 |
|
There
is no trading market for shares of our Class B common stock.
On
July 24, 2015, the last reported sale price of our Class A common stock on the NYSE was $108.90 per share. As of July 24, 2015, there were approximately 220
stockholders of record of our Class A common stock and 20 stockholders of record of our Class B common stock. These figures do not reflect the beneficial ownership or shares held in
nominee name, nor do they include holders of any restricted stock units.
S-54
Table of Contents
DIVIDEND POLICY
We do not currently plan to pay a dividend on our Class A common stock following this offering. The declaration, amount and
payment of any future dividends on shares of our Class A common stock will be at the sole discretion of our board of directors.
Adeptus
Health Inc. is a holding company and has no material assets other than its ownership of LLC Units in Adeptus Health LLC. In the event that we do pay a
dividend, we intend to cause Adeptus Health LLC to make distributions to us in an amount sufficient to cover such dividend. If Adeptus Health LLC makes such distributions to us, the
other holders of LLC Units will also be entitled to receive distributions pro rata in accordance with the percentages of their respective LLC Units.
The
Senior Secured Credit Facility limits the ability of Adeptus Health LLC to pay distributions to us. See "Description of Indebtedness."
Any
financing arrangements that we enter into in the future may include restrictive covenants that limit our ability to pay dividends. In addition, Adeptus Health LLC is generally
prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of Adeptus
Health LLC (with certain exceptions) exceed the fair value of its assets. Subsidiaries of Adeptus Health LLC are generally subject to similar legal limitations on their ability to make
distributions to Adeptus Health LLC.
S-55
Table of Contents
CAPITALIZATION
The following table sets forth the cash and cash equivalents and capitalization as of March 31, 2015 on an actual basis and on a
pro forma basis giving effect to the transactions described under the heading "Unaudited Pro Forma Financial Information," including the application of net proceeds from this offering.
You
should read the information contained in this table in conjunction with the matters discussed under the headings "Use of Proceeds," Organizational Structure," "Unaudited Pro Forma
Financial Information" and "Selected Historical Consolidated Financial Data" in this prospectus supplement, under the headings "Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," as well as with our audited consolidated financial statements and related notes, in our Annual Report, and under the heading "Management's Discussion
and Analysis of Financial Condition and Results of Operations," as well as with our unaudited condensed consolidated financial statements and related notes, in our Quarterly Report.
|
|
|
|
|
|
|
|
|
|
As of March 31, 2015 |
|
(in thousands, except for share amounts)
|
|
Actual |
|
Pro Forma
(unaudited) |
|
Cash and cash equivalents |
|
$ |
13,872 |
|
$ |
12,029 |
|
|
|
|
|
|
|
|
|
|
Short-term debt: |
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
|
2,152 |
|
|
2,152 |
|
Current maturities of capital lease obligations |
|
|
86 |
|
|
86 |
|
|
|
|
|
|
|
|
|
|
Total short-term debt |
|
|
2,238 |
|
|
2,238 |
|
Long-term debt: |
|
|
|
|
|
|
|
Senior Secured Credit Facility-term loan(1) |
|
|
128,004 |
|
|
128,004 |
|
Capital lease obligations |
|
|
4,032 |
|
|
4,032 |
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
132,036 |
|
|
132,036 |
|
Shareholders' equity: |
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per share; 10,000,000 shares authorized and zero shares issued and outstanding |
|
|
— |
|
|
— |
|
Class A common stock: par value $0.01 per share; 50,000,000 shares authorized; 9,985,500 shares issued and outstanding; 13,469,298 shares issued and
outstanding, as adjusted for this offering |
|
|
100 |
|
|
135 |
|
Class B common stock: par value $0.01 per share; 20,000,000 shares authorized; 10,781,153 shares issued and outstanding; 7,263,314 shares issued and
outstanding, as adjusted for this offering |
|
|
108 |
|
|
73 |
|
Additional paid-in capital |
|
|
51,785 |
|
|
99,760 |
|
Accumulated other comprehensive loss |
|
|
(88 |
) |
|
(88 |
) |
Accumulated deficit |
|
|
(2,757 |
) |
|
(4,600 |
) |
Non-controlling interest |
|
|
52,869 |
|
|
19,062 |
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity |
|
|
102,017 |
|
|
114,342 |
|
|
|
|
|
|
|
|
|
|
Total capitalization |
|
$ |
236,291 |
|
$ |
248,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- On
October 31, 2013, we entered into a Senior Secured Credit Facility for a $75 million term loan, which matures on October 31, 2018.
The Senior Secured Credit Facility includes an additional $165.0 million delayed draw term loan commitment, which, if unused, expires 18 months after October 31, 2013; otherwise
the amounts outstanding expire on October 31, 2018. The Senior Secured Credit Facility also includes a $10.0 million revolving commitment that terminates on October 31, 2018. See
"Description of Indebtedness."
S-56
Table of Contents
ORGANIZATIONAL STRUCTURE
Organizational Structure
Adeptus Health Inc. was incorporated as a Delaware corporation in March 2014 for the purpose of conducting our initial public
offering, which was completed in June 2014. Adeptus Health Inc. is a holding company and its sole material asset is a controlling equity interest in Adeptus Health LLC. As the sole
managing member of Adeptus Health LLC, Adeptus Health Inc. operates and controls all of the business and affairs of Adeptus Health LLC and, through Adeptus Health LLC and
its subsidiaries, conducts our business. Adeptus Health Inc. owns 100% of the voting rights of Adeptus Health LLC, and therefore has control over Adeptus Health LLC. Adeptus
Health Inc. consolidates Adeptus Health LLC and its subsidiaries in its consolidated financial statements. Adeptus Health Inc. reports a noncontrolling interest related to
the LLC Units held by certain of the owners of Adeptus Health LLC prior to the consummation of our initial public offering, which we collectively refer to as the Pre-IPO Owners,
including funds affiliated with our Sponsor, a fund affiliated with our founder and certain members of management and our board of directors, which we refer to collectively as the Post-IPO Unit
Holders, in its consolidated statements of financial condition, operations, cash flows and comprehensive income (loss).
Our
organizational structure allows the Post-IPO Unit Holders that hold LLC Units to retain their equity ownership in Adeptus Health LLC, an entity that is classified as a
partnership for United States federal income tax purposes, in the form of LLC Units. Investors in this offering as well as in our initial
public offering, by contrast, hold their equity ownership in Adeptus Health Inc., a domestic corporation for United States federal income tax purposes, in the form of shares of Class A
common stock. Adeptus Health Inc. incurs United States federal, state and local income taxes on its share of any taxable income of Adeptus Health LLC.
In
connection with the initial public offering, SCP III AIV THREE-FCER Conduit, L.P., one of the Pre-IPO Owners and an affiliate of our Sponsor, which we refer to as
the Merged Owner, received shares of Class A common stock in connection with the merger of SCP III AIV THREE-FCER Blocker, Inc. with Adeptus Health Inc.
In
connection with the Reorganization Transactions described below, we amended and restated our certificate of incorporation to authorize two classes of common stock: Class A
common stock and Class B common stock. The Post-IPO Unit Holders hold LLC Units along with Class B common stock. The shares of Class B common stock, which were issued
concurrently with the Class A common stock, have no economic rights, but each allows the holder to exercise voting power at Adeptus Health Inc., the managing member of Adeptus
Health LLC, and correspond to such holder's economic interest in Adeptus Health LLC. Pursuant to our amended and restated certificate of incorporation, each holder of Class B
common stock is entitled to one vote for each share of Class B common stock held by such holder. Holders of Class B common stock have the right to exchange LLC Units (together
with a corresponding number of shares of our Class B common stock) for shares of Class A common stock of Adeptus Health Inc. pursuant to the exchange procedures described below.
Shares of Class B common stock have no right to receive dividends or a distribution on the liquidation or winding up of Adeptus Health Inc., do not share in the earnings of Adeptus
Health Inc., have no earnings allocable to such class and will generally not be transferable other than in connection with an exchange of LLC Units for Class A common stock.
S-57
Table of Contents
The
diagram below depicts our organizational structure immediately following this offering, assuming no exercise by the underwriters of their option to purchase up to 412,500 additional
shares of Class A common stock from us and the selling stockholder.
Note:
Does not include approximately 200,000 shares of Class A common stock issued to management since our initial public offering.
Reorganization Transactions
In connection with our initial public offering, we completed the transactions described below, which we collectively refer to in this
prospectus supplement as the "Reorganization Transactions."
Reclassification and Amendment and Restatement of the Limited Liability Company Agreement of
Adeptus Health LLC
As part of the Reorganization Transactions, the limited liability company agreement of Adeptus Health LLC was amended and
restated to, among other things, modify its capital structure by creating a single new class of LLC Units. We refer to this as the "Reclassification."
Pursuant
to the Amended and Restated Limited Liability Company Agreement, Adeptus Health Inc. became the sole managing member of Adeptus Health LLC. Adeptus
Health Inc. has the right to determine when distributions will be made to the members of Adeptus Health LLC and the amount of any such distributions. If Adeptus Health Inc.
authorizes a distribution, such distribution will be made to the members of Adeptus Health LLC pro rata in accordance with the percentages of their respective LLC Units.
S-58
Table of Contents
The
holders of LLC Units in Adeptus Health LLC, including Adeptus Health Inc., incur U.S. federal, state and local income taxes on their share of any taxable income
of Adeptus Health LLC. Net profits and net losses of Adeptus Health LLC are generally allocated to its members (including Adeptus Health Inc.) pro rata in accordance with the
percentages of their respective LLC Units, except as otherwise required by law. In accordance with the Amended and Restated Limited Liability Company Agreement, Adeptus Health LLC is
required, subject to certain limitations, to make pro rata cash distributions to the holders of LLC Units for purposes of funding their tax obligations based on the taxable income of Adeptus
Health LLC. Generally, these tax distributions are computed based on our estimate of the taxable income of Adeptus Health LLC multiplied by an assumed tax rate equal to the highest
marginal effective rate applicable to either an individual or a corporation resident in either California or New York, New York (taking into account the nondeductibility of certain expenses and the
character of our income).
Merger with Adeptus Health Inc.
In connection with the initial public offering and the Reorganization Transactions, SCP III AIV THREE-FCER Blocker, Inc., one of
our Pre-IPO Owners, merged with Adeptus Health Inc. As a result, Adeptus Health Inc. acquired 4,474,107 LLC Units (or 21.8% of the economic interest in Adeptus Health LLC)
owned by the Merged Owner, and the Merged Owner received 4,474,107 shares of our Class A common stock.
Offering
At the time of the consummation of this offering, Adeptus Health Inc. intends to purchase, for cash, 1,906,229 LLC Units
from certain of the Post-IPO Unit Holders at a purchase price per unit equal to the offering price per share of Class A common stock in this offering net of underwriting discounts and
commissions and fees associated with this transaction. If the underwriters exercise in full their option to purchase additional shares of Class A common stock, we intend to purchase, for cash,
an aggregate of 262,808 outstanding LLC Units from certain of the Post-IPO Unit Holders at a purchase price per unit equal to the public offering price per share of Class A common stock
in this offering net of underwriting discounts and commissions.
Exchange Procedures
Pursuant to the Amended and Restated Limited Liability Company Agreement, the Post-IPO Unit Holders (or certain permitted transferees
thereof) have the right (subject to the terms of the Amended and Restated Limited Liability Company Agreement) to exchange their vested LLC Units (together with a corresponding number of shares
of our Class B common stock) for shares of our Class A common stock on a one-for-one basis, subject to customary adjustments for stock splits, stock dividends and reclassifications. The
exchange provisions, however, provide that a Post-IPO Unit Holder will not have the right to exchange LLC Units if Adeptus Health Inc. determines that such exchange would be prohibited
by law or regulation. As a holder exchanges LLC Units for shares of Class A common stock, the number of LLC Units held by Adeptus Health Inc. will correspondingly increase
as it acquires the exchanged LLC Units.
The
purchase of LLC Units with the proceeds from this offering and any other exchanges are expected to result in increases in the tax basis of the assets of Adeptus
Health LLC that otherwise would not have been available. The tax basis of the assets of Adeptus Health LLC was also increased upon the acquisition of an interest in such assets in 2011
by funds affiliated with our Sponsor, and upon the deemed transfer (for U.S. federal income tax purposes) of LLC Units to Adeptus Health Inc. in connection with our initial public
offering, and will be increased upon the transfer of LLC Units to Adeptus Health Inc. in connection with this offering. These increases in tax basis may reduce the amount of tax that
Adeptus Health Inc. would otherwise be required to pay in the future. These
S-59
Table of Contents
increases
in tax basis may also decrease gains (or increase losses) on future dispositions of certain assets to the extent tax basis is allocated to those assets. In connection with our initial public
offering we entered a tax receivable agreement with the Post-IPO Unit Holders and the Merged Owner that provides for the payment by Adeptus Health Inc. to the Post-IPO Unit Holders and the
Merged Owner of 85% of the amount of the benefits, if any, that Adeptus Health Inc. is deemed to realize as a result of these increases in tax basis and certain other tax benefits related to
our entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. These payment obligations are obligations of Adeptus
Health Inc. and not of Adeptus Health LLC.
Voting Power and Ownership Following this Offering
Following this offering:
- •
- Adeptus Health Inc. will hold 13,274,046 LLC Units, representing 64.6% of the economic interest in Adeptus
Health LLC (or 13,536,854 LLC Units, representing 65.9% of the economic interest in Adeptus Health LLC, if the underwriters exercise in full their option to purchase additional
shares of Class A common stock). That interest will be allocated as follows:
- •
- public stockholders will collectively own 10,800,000 shares of our Class A common stock, representing 52.6% of the
economic interest in Adeptus Health LLC through Adeptus Health Inc. (or 11,212,500 shares of Class A common stock, representing 54.6% of the economic interest in Adeptus
Health LLC through Adeptus Health Inc., if the underwriters exercise in full their option to purchase additional shares of Class A common stock), as well as representing an equal
percentage of the voting power in Adeptus Health Inc.; and
- •
- the Merged Owner will own 2,474,046 shares of our Class A common stock, representing 12.0% of the economic
interest in Adeptus Health LLC through Adeptus Health Inc. (or 2,324,354 shares of Class A common stock, representing 11.3% of the economic interest in Adeptus Health LLC
through Adeptus Health Inc., if the underwriters exercise in full their option to purchase additional shares of Class A common stock), as well as representing an equal percentage of the
voting power in Adeptus Health Inc.; and
- •
- the Post-IPO Unit Holders will hold 7,263,314 LLC Units, representing 35.4% of the economic interest in Adeptus
Health LLC (or 7,000,506 LLC Units, representing 34.1% of the economic interest in Adeptus Health LLC, if the underwriters exercise in full their option to purchase additional
shares of Class A common stock), and will hold an equal number of shares of Class B common stock representing an equivalent percentage of the voting power in Adeptus Health Inc.
Funds
affiliated with our Sponsor, including the Merged Owner through its holdings of our Class A common stock and certain Post-IPO Unit Holders through their holdings
of LLC Units and our Class B common stock, will collectively own 28.2% of the economic interest in Adeptus Health LLC (or 26.5% of the economic interest in Adeptus
Health LLC, if the underwriters exercise in full their option to purchase additional shares of Class A common stock), as well as an equal percentage of the voting power in Adeptus
Health Inc.
S-60
Table of Contents
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following pro forma consolidated balance sheet as of March 31, 2015 and statement of operations for the year ended
December 31, 2014 and the three months ended March 31, 2015, present our consolidated financial position and consolidated results of operations to give pro forma effect to the
transactions identified below as if all such events had been completed as of (i) January 1, 2014, with respect to the unaudited pro forma consolidated statement of operations and
(ii) March 31, 2015, with respect to the unaudited pro forma consolidated balance sheet, excluding our initial public offering and the Reorganization Transactions, which are reflected in
our historical results as of March 31, 2015.
The
unaudited pro forma consolidated financial statements give effect to the Reorganization Transactions as described in "Organizational Structure," the completion of our initial public
offering on June 30, 2014 and the completion of the May 11, 2015 public offering of 1,572,296 shares of our Class A common stock, the proceeds of which were used to purchase, for
cash, an equivalent number of LLC Units from certain of our Post-IPO Unit Holders, and the sale of 842,704 shares of our Class A common stock sold by an affiliate of our Sponsor, which
we collectively refer to as the Secondary Offering. We refer to the initial public offering and the Secondary Offering, collectively, as the Historical Transactions. In addition, the adjustments to
the pro forma statements of operations and
balance sheet data also give effect to our pro forma adjustments for this offering, including:
- •
- the sale of shares of Class A common stock by us in this offering, assuming an offering price per share of $108.90, which was
the last reported sale price of our Class A common stock on the NYSE on July 24, 2015, after deducting the underwriting discounts and commissions and estimated offering expenses payable
by us in connection with this offering;
- •
- the application of the approximately $197.2 million in net proceeds from this offering, assuming an offering price per share of
$108.90, which was the last reported sale price of our Class A common stock on the NYSE on July 24, 2015, to purchase from the Post-IPO Unit Holders 1,906,229 LLC Units (and the
cancellation of the corresponding shares of Class B common stock); and
- •
- the recording of a deferred tax asset as a result of the increase in tax basis that is expected to result from the purchase by us of
an aggregate of 1,906,229 LLC Units held by the Post-IPO Unit Holders and the liability that is expected to be incurred as a result under the tax receivable agreement that requires us to pay
85% of such benefits to the Post-IPO Unit Holders selling in this offering.
The
pro forma financial statements are based upon available information and certain assumptions that management believes are reasonable, factually supportable, directly attributable to
either the Reorganization Transactions or this offering, and, in connection with pro forma adjustments related to the statements of operations, expected to have a continuing impact on our results of
operations.
We
believe that the pro forma consolidated financial statements provide a helpful perspective to better understand our results of operations and our financial position. The unaudited pro
forma financial statements do not purport to represent what our results of operations or financial position would have been had this offering actually occurred on the date or as of the date specified,
nor do they purport to project our results of operations for any future period. The unaudited pro forma financial statements and accompanying notes should be read together with the matters described
under the headings "Use of Proceeds" and "Organizational Structure" in this prospectus supplement, under the heading "Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as with our audited consolidated financial statements and related notes, in our Annual Report, and under the heading "Management's Discussion and Analysis of Financial Condition
and Results of
Operations," as well as with our unaudited condensed consolidated financial statements and related notes, in our Quarterly Report.
S-61
Table of Contents
Unaudited Pro Forma Consolidated Statements of Operations for the Year Ended
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except
per share data)
|
|
Adeptus
Health Inc. |
|
SCP III AIV
THREE-FCER
Blocker, Inc.(1) |
|
Historical
Transasctions
Adjustments |
|
As Adjusted
Before
Offering |
|
Offering
Adjustments |
|
Pro Forma
Adeptus
Health Inc. |
|
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient service revenue |
|
$ |
243,298 |
|
$ |
— |
|
$ |
— |
|
$ |
243,298 |
|
$ |
— |
|
$ |
243,298 |
|
Provision for bad debt |
|
|
(32,624 |
) |
|
— |
|
|
— |
|
|
(32,624 |
) |
|
— |
|
|
(32,624 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net patient service revenue |
|
|
210,674 |
|
|
— |
|
|
— |
|
|
210,674 |
|
|
— |
|
|
210,674 |
|
Management and contract services revenue |
|
|
20 |
|
|
|
|
|
|
|
|
20 |
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net operating revenue |
|
|
210,694 |
|
|
|
|
|
|
|
|
210,694 |
|
|
|
|
|
210,694 |
|
Equity in net loss of unconsolidated joint venture |
|
|
(900 |
) |
|
|
|
|
|
|
|
(900 |
) |
|
|
|
|
(900 |
) |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
|
|
136,498 |
|
|
— |
|
|
— |
|
|
136,498 |
|
|
— |
|
|
136,498 |
|
General and administrative |
|
|
37,604 |
|
|
— |
|
|
993 |
(2) |
|
38,597 |
|
|
850 |
(6) |
|
39,447 |
|
Other operating expenses |
|
|
27,329 |
|
|
— |
|
|
— |
|
|
27,329 |
|
|
— |
|
|
27,329 |
|
(Gain) loss from the disposal or impairment of assets |
|
|
(42 |
) |
|
— |
|
|
— |
|
|
(42 |
) |
|
— |
|
|
(42 |
) |
Depreciation and amortization |
|
|
15,037 |
|
|
— |
|
|
— |
|
|
15,037 |
|
|
— |
|
|
15,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
216,426 |
|
|
— |
|
|
993 |
|
|
217,419 |
|
|
850 |
|
|
218,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations |
|
|
(6,632 |
) |
|
— |
|
|
(993 |
) |
|
(7,625 |
) |
|
(850 |
) |
|
(8,475 |
) |
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(11,966 |
) |
|
— |
|
|
— |
|
|
(11,966 |
) |
|
— |
|
|
(11,966 |
) |
Unrealized gain on investment |
|
|
— |
|
|
5,633 |
|
|
(5,633) |
(3) |
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) |
|
|
(11,966 |
) |
|
5,633 |
|
|
(5,633 |
) |
|
(11,966 |
) |
|
— |
|
|
(20,441 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before (benefit) provision for income taxes |
|
|
(18,598 |
) |
|
5,633 |
|
|
(6,626 |
) |
|
(19,591 |
) |
|
(850 |
) |
|
(19,448 |
) |
(Benefit) provision for income taxes |
|
|
(1,326 |
) |
|
1,945 |
|
|
(3,531) |
(4) |
|
(2,912 |
) |
|
(192) |
(7) |
|
(3,104 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(17,272 |
) |
$ |
3,688 |
|
|
(3,095 |
) |
|
(16,679 |
) |
|
(658 |
) |
|
(17,337 |
) |
Less: Net (loss) income attributable to non-controlling interest |
|
|
(13,921 |
) |
|
|
|
|
5,174 |
(5) |
|
(8,787 |
) |
|
1,510 |
(8) |
|
(7,237 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Adeptus Health Inc. |
|
$ |
(3,351 |
) |
|
|
|
$ |
(8,269 |
) |
$ |
(7,932 |
) |
|
(2,167 |
) |
|
(10,100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of Class A common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.76) |
(8) |
Diluted |
|
$ |
(0.34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.76) |
(8) |
Weighted average shares of Class A common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
9,845,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,323,541 |
(8) |
Diluted |
|
|
9,845,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,323,541 |
(8) |
- (1)
- Represents
operations of this entity through March 31, 2014, the last date for which financial statements were available prior to the merger of this
entity with Adeptus Health Inc. See "Organizational Structure—Reorganization Transactions—Merger with Adeptus Health Inc."
- (2)
- Represents
expenses related to the Secondary Offering, the proceeds of which we used to purchase, for cash, 1,572,296 outstanding LLC Units from
certain of our Post-IPO Unit Holders.
- (3)
- Reflects
the adjustment to remove SCP III AIV THREE-FCER Blocker, Inc.'s unrealized gains on investment in First Choice ER, LLC.
- (4)
- Following
the Reorganization Transactions and the completion of our initial public offering, we became subject to U.S. federal income taxes, in addition to
state and local taxes, with respect to our allocable share of net taxable income of Adeptus Health Inc. Prior to these events, the holders of LLC Units were allocated 100% of the losses
of Adeptus Health LLC. Subsequent to these events, U.S. federal income taxes were only applicable to the proportion of Adeptus Health Inc. held by holders of our Class A common
stock (55.3%). This adjustment reflects the impact of U.S. federal income taxes being allocated to holders of our Class A common stock for the entire period.
S-62
Table of Contents
- (5)
- Following
the Historical Transactions, holders of our Class A common stock owned less than 100% of the economic interest in Adeptus
Health Inc. Immediately following these events, the non-controlling interest was 44.6%. Net loss attributable to non-controlling interest represents 44.6% ($8.7 million) of loss before
provision for income taxes ($19.6 million), net of its portion of state and local taxes.
- (6)
- Represents
expenses related to this offering, as all of the net proceeds from the sale of our Class A common stock will be used to purchase 1,906,229
outstanding LLC Units from certain of the Post-IPO Unit Holders.
- (7)
- As
noted in Note (3) above, U.S. federal income taxes are only applicable to the proportion of Adeptus Health Inc. held by holders of our
Class A common stock (64.6%, giving effect to this offering). This adjustment reflects the impact of U.S. federal income taxes being allocated to the holders of our Class A common stock
following this offering for the entire period.
- (8)
- Following
this offering, the holders of our Class A common stock will continue to own less than 100% of the economic interest in Adeptus
Health Inc. Immediately following this offering, the non-controlling interest will be 35.4%. Net loss attributable to non-controlling interest represents 35.4% ($7.2 million) of loss
before provision for income taxes ($20.4 million), net of its portion of state and local taxes.
- (9)
- The
basic and diluted pro forma net loss per share of Class A common stock represents net loss attributable to Adeptus Health Inc. divided by
the combination of the 2,474,046 shares owned by the Merged Owner, the 8,050,000 shares previously held by the public 49,494 shares granted under our equity incentive plan, and the 2,750,000 shares
sold in this offering.
S-63
Table of Contents
Unaudited Pro Forma Consolidated Statements of Operations for the Three Months Ended
March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except per share data)
|
|
Adeptus
Health Inc. |
|
Historical
Transactions
Adjustments |
|
Offering
Adjustments |
|
Pro Forma
Adeptus
Health Inc. |
|
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient service revenue |
|
$ |
95,902 |
|
$ |
— |
|
$ |
— |
|
$ |
95,902 |
|
Provision for bad debt |
|
|
(14,945 |
) |
|
— |
|
|
— |
|
|
(14,945 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net patient service revenue |
|
|
80,957 |
|
|
— |
|
|
— |
|
|
80,957 |
|
Management and contract services revenue |
|
|
496 |
|
|
|
|
|
|
|
|
496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net operating revenue |
|
|
81,453 |
|
|
|
|
|
|
|
|
81,453 |
|
Equity in net loss of unconsolidated joint venture |
|
|
(694 |
) |
|
|
|
|
|
|
|
(694 |
) |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
|
|
48,880 |
|
|
— |
|
|
— |
|
|
48,880 |
|
General and administrative |
|
|
10,464 |
|
|
— |
|
|
— |
|
|
10,464 |
|
Other operating expenses |
|
|
11,305 |
|
|
— |
|
|
— |
|
|
11,305 |
|
Depreciation and amortization |
|
|
4,756 |
|
|
— |
|
|
— |
|
|
4,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
75,405 |
|
|
— |
|
|
— |
|
|
75,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
5,354 |
|
|
— |
|
|
— |
|
|
5,354 |
|
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(3,274 |
) |
|
— |
|
|
— |
|
|
(3,274 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) |
|
|
(3,274 |
) |
|
— |
|
|
— |
|
|
(3,274 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before (benefit) provision for income taxes |
|
|
2,080 |
|
|
— |
|
|
— |
|
|
2,080 |
|
Provision for income taxes |
|
|
478 |
|
|
58 |
(1) |
|
89 |
(1) |
|
625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
1,602 |
|
|
(58 |
) |
|
(89 |
) |
|
1,455 |
|
Less: Net income attributable to non-controlling interest |
|
|
1,008 |
|
|
(82) |
(2) |
|
(192) |
(3) |
|
734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Adeptus Health Inc. |
|
$ |
594 |
|
|
24 |
|
|
103 |
|
|
721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of Class A common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.06 |
|
|
|
|
|
|
|
$ |
0.05 |
|
Diluted |
|
$ |
0.06 |
|
|
|
|
|
|
|
$ |
0.05 |
|
Weighted average shares of Class A common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
9,906,845 |
|
|
|
|
|
|
|
|
13,385,370 |
(4) |
Diluted |
|
|
9,906,845 |
|
|
|
|
|
|
|
|
13,385,370 |
(4) |
- (1)
- U.S.
federal income taxes are only applicable to the proportion of Adeptus Health Inc. held by holders of our Class A common stock (55.3%,
giving effect to the Secondary Offering and 64.7%, giving effect to this offering). These adjustments reflect the impact of U.S. federal income taxes being allocated to the holders of our
Class A common stock following the Secondary Offering and this offering, or collectively, the Secondary Offerings, for the entire period.
- (2)
- Following
the Secondary Offering, the holders of our Class A common stock owned less than 100% of the economic interest in Adeptus Health Inc.
Immediately following the Secondary Offering, the non-controlling interest was 44.5%. Net income attributable to non-controlling
S-64
Table of Contents
interest
represented 44.5% ($0.9 million) of income before provision for income taxes ($2.1 million), net of its portion of state and local taxes.
- (3)
- Following
this offering, the holders of our Class A common stock will continue to own less than 100% of the economic interest in Adeptus
Health Inc. Immediately following this offering, the non-controlling interest will be 35.3%. Net income attributable to non-controlling interest represents 35.3% ($0.7 million) of income
before provision for income taxes ($2.1 million), net of its portion of state and local taxes.
- (4)
- The
basic and diluted pro forma net loss per share of Class A common stock represents net income attributable to Adeptus Health Inc. divided
by the weighted average of the combination of the 2,474,046 shares owned by the Merged Owner, 111,323 shares granted under our equity incentive plan, the 8,050,000 shares previously held by the public
and the 2,750,000 shares sold in this offering.
S-65
Table of Contents
Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Adeptus
Health Inc. |
|
Historical
Transactions
Adjustments |
|
Offering
Adjustments |
|
Pro Forma
Adeptus
Health Inc. |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
13,872 |
|
$ |
(993) |
(1) |
$ |
(850) |
(1) |
$ |
12,029 |
|
Restricted cash |
|
|
7,868 |
|
|
— |
|
|
— |
|
|
7,868 |
|
Accounts receivable, less allowance for doubtful accounts of $25,931 and $13,068, respectively |
|
|
49,377 |
|
|
— |
|
|
— |
|
|
49,377 |
|
Other receivables and current assets |
|
|
16,028 |
|
|
— |
|
|
— |
|
|
16,028 |
|
Medical supplies inventory |
|
|
4,413 |
|
|
— |
|
|
— |
|
|
4,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
91,558 |
|
|
(993 |
) |
|
(850 |
) |
|
89,715 |
|
Property and equipment, net |
|
|
89,684 |
|
|
— |
|
|
— |
|
|
89,684 |
|
Investment in unconsolidated joint venture |
|
|
1,407 |
|
|
— |
|
|
— |
|
|
1,407 |
|
Deposits |
|
|
1,097 |
|
|
— |
|
|
— |
|
|
1,097 |
|
Deferred tax assets |
|
|
33,829 |
|
|
46,935 |
(2) |
|
94,137 |
(5) |
|
174,901 |
|
Intangibles, net |
|
|
19,570 |
|
|
— |
|
|
— |
|
|
19,570 |
|
Goodwill |
|
|
61,009 |
|
|
— |
|
|
— |
|
|
61,009 |
|
Other long-term assets |
|
|
4,133 |
|
|
— |
|
|
— |
|
|
4,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
302,287 |
|
$ |
45,942 |
|
$ |
93,287 |
(5) |
$ |
441,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
18,417 |
|
$ |
— |
|
$ |
— |
|
|
18,417 |
|
Accrued compensation |
|
|
14,064 |
|
|
— |
|
|
— |
|
|
14,064 |
|
Current maturities of long-term debt |
|
|
2,152 |
|
|
— |
|
|
— |
|
|
2,152 |
|
Current maturities of capital lease obligations |
|
|
86 |
|
|
— |
|
|
— |
|
|
86 |
|
Deferred rent |
|
|
696 |
|
|
— |
|
|
— |
|
|
696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
35,415 |
|
|
— |
|
|
— |
|
|
35,415 |
|
Long-term debt, less current maturities |
|
|
128,004 |
|
|
— |
|
|
— |
|
|
128,004 |
|
Payable to related parties pursuant to tax receivable agreement |
|
|
30,039 |
|
|
41,565 |
(2) |
|
85,339 |
|
|
156,943 |
|
Capital lease obligations, less current maturities |
|
|
4,032 |
|
|
— |
|
|
— |
|
|
4,032 |
|
Deferred rent |
|
|
2,780 |
|
|
— |
|
|
— |
|
|
2,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
200,270 |
|
|
41,565 |
|
|
85,339 |
|
|
327,174 |
|
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 March 31, 2015 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Class A common stock, par value $0.01 per share; 50,000,000 shares authorized, 9,985,500 shares issued and outstanding at March 31, 2015;
13,469,298 shares issued and outstanding, as adjusted for this offering |
|
|
100 |
|
|
16 |
(3) |
|
19 |
(3) |
|
135 |
|
Class B common stock, par value $0.01 per share; 20,000,000 shares authorized 10,781,153 shares issued and outstanding at March 31, 2015;
7,263,314 shares issued and outstanding, as adjusted for this offering |
|
|
108 |
|
|
(16) |
(3) |
|
(19) |
(3) |
|
73 |
|
Additional paid-in capital |
|
|
51,785 |
|
|
11,443 |
(2)(4) |
|
36,532 |
(4) |
|
99,760 |
|
Accumulated other comprehensive loss |
|
|
(88 |
) |
|
— |
|
|
— |
|
|
(88 |
) |
Accumulated deficit |
|
|
(2,757 |
) |
|
(993 |
) |
|
(850 |
) |
|
(4,600 |
) |
Non-controlling interest |
|
|
52,869 |
|
|
(6,073) |
(4) |
|
(27,734) |
(4) |
|
19,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity |
|
|
102,017 |
|
|
4,733 |
|
|
7,948 |
|
|
114,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
|
$ |
302,287 |
|
$ |
45,942 |
|
$ |
93,287 |
|
$ |
441,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- This
adjustment reflects the actual or estimated offering expenses required to be paid by the Company pursuant to the Registration Rights Agreement. The
Company will not retain any of the net proceeds from the offering. See "Use of Proceeds."
S-66
Table of Contents
- (2)
- Reflects
adjustments to the tax receivable agreement and other adjustments to give effect to the Secondary Offering, as set forth
below:
- •
- We recorded an increase of $46.9 million in deferred tax assets for the estimated income
tax effects of the increase in the tax basis of the assets owned by Adeptus Health Inc. and the impact of the tax receivable agreement based on current federal and state tax rates; and
- •
- We recorded 85% of the estimated realizable tax benefit as an increase of $41.6 million
as payable to related parties pursuant to the tax receivable agreement.
- The amounts recorded for both the deferred tax assets and the liability for our obligations under the tax receivable agreement
are based on our estimates. All of the effects of changes in any of our estimates after the date of the purchase will be included in net income. Similarly, the effect of subsequent changes in the
enacted tax rates will be included in net income.
- (3)
- Represents
the conversion of Class B common stock to Class A common stock as a result of the Secondary Offerings.
- (4)
- As
described under the heading "Organizational Structure," the holders of our Class A common stock will continue to own less than 100% of the
economic interest in Adeptus Health Inc. following this offering, but Adeptus Health Inc. will continue to have 100% of the voting power and control over the management of Adeptus
Health LLC. As a result, we will continue to consolidate the financial results of Adeptus Health LLC and will record an amount as non-controlling interest on our consolidated balance
sheet. These adjustments reflect the impact of the Secondary Offerings on the non-controlling interest ownership.
- (5)
- Reflects
adjustments to give effect to the tax receivable agreement and other adjustments based on the following
assumptions:
- •
- We will recorded an increase of $94.1 million in deferred tax assets (or
$107.5 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock) for the estimated income tax effects of the increase in the tax
basis of the assets owned by Adeptus Health Inc. and the impact of the tax receivable agreement based on current federal and state tax rates; and
- •
- We will record 85% of the estimated realizable tax benefit as an increase of
$85.3 million (or $97.0 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock) as payable to related parties pursuant to
the tax receivable agreement.
- The amounts to be recorded for both the deferred tax assets and the liability for our obligations under the tax receivable
agreement are based on our estimates. All of the effects of changes in any of our estimates after the date of the purchase will be included in net income. Similarly, the effect of subsequent changes
in the enacted tax rates will be included in net income.
S-67
Table of Contents
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables set forth the selected historical consolidated financial and other data as of the dates and for the periods
indicated. The selected consolidated statements of operations data presented below for the fiscal years ended December 31, 2014, 2013 and 2012 and the consolidated balance sheet data presented
below as of December 31, 2014 and 2013 have been derived from our audited consolidated financial statements included in our Annual Report, which is incorporated by reference herein. The
consolidated balance sheet data as of December 31, 2012 has been derived from our audited consolidated financial statements not included or incorporated by reference in this prospectus
supplement. The selected condensed consolidated statements of operations data presented below for the three months ended March 31, 2015 and 2014 and the consolidated balance sheet data
presented below as of March 31, 2015 has been derived from our unaudited consolidated financial statements included in our Quarterly Report, which is incorporated by reference herein. The
unaudited financial data presented has been prepared on a basis consistent with our audited consolidated financial statements. In the opinion of management, such unaudited financial data reflects all
adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the results for those periods. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year or any future period.
The
following selected historical consolidated financial data should be read in conjunction with the matters discussed under the headings "Use of Proceeds," "Organizational Structure,"
"Unaudited Pro Forma Financial Information" and "Capitalization" in this prospectus supplement, under the headings "Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," as well as with our audited consolidated financial statements and related notes, in our Annual Report, and under the heading "Management's Discussion and Analysis
of Financial Condition and Results of Operations," as well as with our unaudited condensed consolidated financial statements and related notes, in our Quarterly Report. The selected consolidated
financial data in this
S-68
Table of Contents
section
is not intended to replace the financial statements and is qualified in its entirety by the consolidated financial statements and the related notes thereto incorporated by reference herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Three months ended
March 31, |
|
(dollars in thousands, except per share data)
|
|
2014 |
|
2013 |
|
2012 |
|
2015 |
|
2014 |
|
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient service revenue |
|
$ |
243,298 |
|
$ |
114,960 |
|
$ |
80,977 |
|
$ |
95,902 |
|
$ |
44,529 |
|
Provision for bad debt |
|
|
(32,624 |
) |
|
(12,077 |
) |
|
(8,376 |
) |
|
(14,945 |
) |
|
(5,748 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net patient service revenue |
|
|
210,674 |
|
|
102,883 |
|
|
72,601 |
|
|
80,957 |
|
|
38,781 |
|
Management and contract services revenue |
|
|
20 |
|
|
— |
|
|
— |
|
|
496 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net operating revenue |
|
|
210,694 |
|
|
102,883 |
|
|
72,601 |
|
|
81,453 |
|
|
38,781 |
|
Equity in net loss of unconsolidated joint venture |
|
|
(900 |
) |
|
— |
|
|
— |
|
|
(694 |
) |
|
— |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
|
|
136,498 |
|
|
65,244 |
|
|
41,754 |
|
|
48,880 |
|
|
24,980 |
|
General and administrative |
|
|
37,604 |
|
|
17,436 |
|
|
12,805 |
|
|
10,464 |
|
|
6,220 |
|
Other operating expenses |
|
|
27,329 |
|
|
11,185 |
|
|
7,493 |
|
|
11,305 |
|
|
4,865 |
|
(Gain) loss from the disposal or impairment of assets |
|
|
(42 |
) |
|
207 |
|
|
652 |
|
|
— |
|
|
— |
|
Depreciation and amortization |
|
|
15,037 |
|
|
7,920 |
|
|
4,640 |
|
|
4,756 |
|
|
3,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
216,426 |
|
|
101,992 |
|
|
67,344 |
|
|
75,405 |
|
|
39,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations |
|
|
(6,632 |
) |
|
891 |
|
|
5,257 |
|
|
5,354 |
|
|
(341 |
) |
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(11,966 |
) |
|
(2,827 |
) |
|
(1,056 |
) |
|
(3,274 |
) |
|
(2,206 |
) |
Change in fair market value of derivatives |
|
|
— |
|
|
112 |
|
|
(533 |
) |
|
— |
|
|
— |
|
Write-off of deferred loan costs |
|
|
— |
|
|
(440 |
) |
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) |
|
|
(11,966 |
) |
|
(3,155 |
) |
|
(1,589 |
) |
|
(3,274 |
) |
|
(2,206 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before (benefit) provision for income taxes |
|
|
(18,598 |
) |
|
(2,264 |
) |
|
3,668 |
|
|
2,080 |
|
|
(2,547 |
) |
(Benefit) provision for income taxes |
|
|
(1,326 |
) |
|
720 |
|
|
467 |
|
|
478 |
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(17,272 |
) |
|
(2,984 |
) |
|
3,201 |
|
|
1,602 |
|
|
(2,767 |
) |
Less: Net (loss) income attributable to non-controlling interest |
|
|
(13,921 |
) |
|
(2,984 |
) |
|
3,201 |
|
|
1,008 |
|
|
(2,767 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Adeptus Health Inc. |
|
$ |
(3,351 |
) |
$ |
— |
|
$ |
— |
|
$ |
594 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of Class A common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.34 |
) |
$ |
— |
|
$ |
— |
|
$ |
0.06 |
|
$ |
— |
|
Diluted |
|
$ |
(0.34 |
) |
$ |
— |
|
$ |
— |
|
$ |
0.06 |
|
$ |
— |
|
Weighted average shares of Class A common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
9,845,016 |
|
|
— |
|
|
— |
|
|
9,906,845 |
|
|
— |
|
Diluted |
|
|
9,845,016 |
|
|
— |
|
|
— |
|
|
9,906,845 |
|
|
— |
|
Consolidated Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
2,002 |
|
$ |
11,495 |
|
$ |
3,455 |
|
$ |
13,872 |
|
$ |
1,127 |
|
Total assets |
|
|
282,818 |
|
|
183,292 |
|
|
120,367 |
|
|
302,287 |
|
|
186,034 |
|
Total debt and capital lease obligations |
|
|
110,935 |
|
|
79,411 |
|
|
23,604 |
|
|
134,274 |
|
|
86,404 |
|
Shareholders'/Owners' equity |
|
$ |
99,880 |
|
$ |
78,651 |
|
$ |
82,734 |
|
$ |
102,017 |
|
$ |
75,543 |
|
Cash Flow Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(24,698 |
) |
$ |
6,872 |
|
$ |
11,408 |
|
$ |
(11,961 |
) |
$ |
(6,963 |
) |
Investing activities |
|
|
(49,448 |
) |
|
(44,647 |
) |
|
(15,537 |
) |
|
572 |
|
|
(10,181 |
) |
Financing activities |
|
$ |
64,653 |
|
$ |
45,815 |
|
$ |
2,820 |
|
$ |
23,259 |
|
$ |
6,776 |
|
Other Financial Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(1) |
|
$ |
28,200 |
|
$ |
16,010 |
|
$ |
13,689 |
|
$ |
13,263 |
|
$ |
5,092 |
|
Systemwide same-store revenue(2) |
|
|
85,629 |
|
|
70,641 |
|
|
64,506 |
|
|
17,957 |
|
|
19,167 |
|
Capital expenditures |
|
$ |
47,429 |
|
$ |
46,048 |
|
$ |
11,504 |
|
$ |
1,620 |
|
$ |
10,297 |
|
Other Operational Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient volume (number of patient visits) |
|
|
146,058 |
|
|
77,044 |
|
|
58,434 |
|
|
46,155 |
|
|
27,698 |
|
Number of facilities |
|
|
55 |
|
|
26 |
|
|
14 |
|
|
62 |
|
|
32 |
|
- (1)
- We
define Adjusted EBITDA 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
S-69
Table of Contents
preopening
expenses, management recruiting expenses, stock compensation expense, costs associated with our public offerings and other non-recurring costs. Adjusted EBITDA is included or incorporated
by reference herein because it is a key metric used by management to assess our financial performance. We use Adjusted EBITDA to supplement GAAP measures of performance in order to evaluate the
effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures. Adjusted EBITDA is also frequently
used by analysts, investors and other interested parties to evaluate companies in our industry.
Adjusted
EBITDA is a non-GAAP measure of our financial performance and should not be considered as an alternative to net income (loss) as a measure of financial performance, or any other performance
measure derived in accordance with GAAP, nor should it be construed as an inference that our future results will be unaffected by unusual or other items. In evaluating Adjusted EBITDA, you should be
aware that in the future we will incur expenses that are the same as or similar to some of the adjustments in this presentation, such as preopening expenses, stock compensation expense, and other
adjustments. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for management's discretionary use, as it does not reflect certain cash requirements such as tax payments,
debt service requirements, capital expenditures, facility openings and certain other cash costs that may recur in the future. Adjusted EBITDA contains certain other limitations, including the failure
to reflect our cash expenditures, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized. Management compensates for these limitations by
supplementally relying on our GAAP results in addition to using Adjusted EBITDA. Our presentation of Adjusted EBITDA is not necessarily comparable to other similarly titled captions of other companies
due to different methods of calculation.
The
following table sets forth a reconciliation of our Adjusted EBITDA to net income (loss) using data derived from our consolidated financial statements for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Three months
ended
March 31, |
|
(dollars in thousands)
|
|
2014 |
|
2013 |
|
2012 |
|
2015 |
|
2014 |
|
Net (loss) income |
|
$ |
(17,272 |
) |
$ |
(2,984 |
) |
$ |
3,201 |
|
$ |
1,602 |
|
$ |
(2,767 |
) |
Depreciation and amortization |
|
|
15,037 |
|
|
7,920 |
|
|
4,640 |
|
|
4,756 |
|
|
3,057 |
|
Interest expense(a) |
|
|
11,966 |
|
|
3,155 |
|
|
1,589 |
|
|
3,274 |
|
|
2,206 |
|
(Benefit) provision for income taxes |
|
|
(1,326 |
) |
|
720 |
|
|
467 |
|
|
478 |
|
|
220 |
|
Advisory Services Agreement fees and expenses(b) |
|
|
293 |
|
|
559 |
|
|
553 |
|
|
— |
|
|
138 |
|
Preopening expenses(c) |
|
|
10,550 |
|
|
3,977 |
|
|
497 |
|
|
2,099 |
|
|
1,408 |
|
Management recruiting expenses(d) |
|
|
376 |
|
|
719 |
|
|
970 |
|
|
— |
|
|
99 |
|
Stock compensation expense(e) |
|
|
1,015 |
|
|
586 |
|
|
253 |
|
|
549 |
|
|
159 |
|
Initial public offering costs(f) |
|
|
5,157 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Other(g) |
|
|
2,404 |
|
|
1,358 |
|
|
1,519 |
|
|
505 |
|
|
572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments |
|
|
45,472 |
|
|
18,994 |
|
|
10,488 |
|
|
11,661 |
|
|
7,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
28,200 |
|
$ |
16,010 |
|
$ |
13,689 |
|
$ |
13,263 |
|
$ |
5,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (a)
- Consists
of interest expense and fees of $11.9 million, $2.8 million, and $1.1 million for the years ended December 31, 2014,
2013 and 2012, and $3.3 million and $2.2 million for the three months ended March 31, 2015 and 2014, respectively, a gain in fair market value of derivatives of
$0.1 million for the year ended December 31, 2013, a loss in fair market value of derivatives of $0.5 million for the year ended December 31, 2012, and a write-off of
deferred loan costs of $0.4 million for the year ended December 31, 2013.
- (b)
- Consists
of management fees and expenses paid to a significant shareholder under our Advisory Services Agreement. The Advisory Services Agreement was
terminated in connection with the consummation of our initial public offering in June 2014.
- (c)
- Includes
labor, marketing costs and occupancy costs prior to opening a facility and the equity in loss of our unconsolidated joint venture in 2014.
- (d)
- Third-party
costs and fees involved in recruiting our management team.
- (e)
- Stock
compensation expense associated with grants of management incentive units.
- (f)
- Consists
of costs incurred in conjunction with our initial public offering, including $2.4 million in bonuses for certain members of management,
$2.3 million in costs related to the termination of our Advisory Services Agreement and $0.5 million of other offering costs.
- (g)
- For
the year ended December 31, 2014, we incurred costs to develop long-term strategic goals and objectives totaling $1.7 million, real-estate
development costs associated with potential real estate projects that were
S-70
Table of Contents
terminated
totaling $0.6 million and board fees and travel expenses paid to members of the board of directors totaling $0.1 million. For the year ended December 31, 2013, we
incurred costs to develop long-term strategic goals and objectives totaling approximately $0.5 million, real-estate development costs associated with potential real estate projects that were
terminated totaling $0.4 million, board fees and travel expenses paid to members of the board of directors totaling $0.2 million and $0.25 million of termination costs paid to the
former CEO. For the year ended December 31, 2012, we incurred terminated real-estate development costs totaling $0.5 million, legal costs primarily associated with real estate
development and litigation for violation of our trademark totaling $0.8 million and board fees and travel expenses paid to members of the board of directors totaling approximately
$0.2 million. For the three months ended March 31, 2015, we incurred terminated real estate development costs totaling $32,000 and costs to develop long-term strategic goals and
objectives totaling $0.5 million. For the three months ended March 31, 2014, we incurred terminated real estate development costs of $0.2 million, costs to develop long-term
strategic goals and objectives totaling approximately $0.3 million and board fees and travel expenses paid to members of the board of directors totaling approximately $60,000.
- (2)
- Systemwide
same-store revenue includes revenue from our unconsolidated facilities as if they were consolidated. Systemwide same-store revenue is a non-GAAP
measure of our financial performance and should not be considered as an alternative to same-store revenue as a measure of financial performance, or any other performance measure derived in accordance
with GAAP. We believe the presentation of systemwide same-store revenue provides supplemental information regarding our financial performance as it includes revenue earned by all of our affiliated
facilities, regardless of consolidation. There are no amounts attributable to unconsolidated joint ventures for the periods presented. We begin including revenue for a new facility as same store
revenue from the first day of the 16th full fiscal month following the facility's opening, which is when we believe same store comparison becomes meaningful. When a facility is relocated, we
continue to include revenue from that facility in same store revenue. Same store revenue allows us to evaluate how our facility base is performing by measuring the change in period over period net
revenue in facilities that have been open for 15 months or more. Various factors affect same store revenue, including outbreaks of illnesses, changes in marketing and competition.
S-71
Table of Contents
SELLING STOCKHOLDER
The following table sets forth information regarding the beneficial ownership of our Class A common stock as of June 30,
2015 by (1) each person known to us to beneficially own more than 5% of our voting securities and whose ownership will be reduced as a result of the offering, (2) the selling
stockholder, (3) each of our directors, (4) each of our named executive officers and (5) all directors and executive officers as a group.
The
number of shares of Class A common stock outstanding and percentage of beneficial ownership before this offering set forth below are based on the number of shares issued and
outstanding immediately prior to the consummation of this offering. The number of shares of Class A common stock and percentage of beneficial ownership after the consummation of this offering
set forth below are based on the number of shares to be issued and outstanding immediately after the consummation of this offering.
Beneficial
ownership is determined in accordance with the rules of the SEC. In accordance with the rules of the SEC, beneficial ownership includes voting or investment power with respect
to securities
and includes shares issuable pursuant to exchange or conversion rights (including such rights of holders of LLC Units (together with a corresponding number of shares of our Class B
common stock) because they are exchangeable into shares of our Class A common stock at any time) that are currently exchangeable or exercisable or that are exchangeable or exercisable within
60 days of June 30, 2015.
To
our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment
power with respect to all shares of Class A common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock Beneficially Owned(2) |
|
Combined Voting Power(3)(4)(5) |
|
|
|
Class A
Common
Stock
Beneficially
Owned
Prior
to the
Offering(2) |
|
Shares of
Class A
Common
Stock
Offered(2) |
|
Shares of
Class A
Common
Stock
Subject to
Underwriters'
Option(2)(6) |
|
After the
Offering
Assuming
Underwriters'
Option
is Not
Exercised |
|
After the
Offering
Assuming
Underwriters'
Option is
Exercised
in Full |
|
Prior
to the
Offering |
|
After the
Offering
Assuming
Underwriters'
Option
is Not
Exercised |
|
After the
Offering
Assuming
Underwriters'
Option is
Exercised
in Full |
|
Name of Beneficial Owner(1)
|
|
Number |
|
Number |
|
Number |
|
Number |
|
Number |
|
% |
|
% |
|
% |
|
Funds affiliated with Sterling Partners(5) |
|
|
7,780,713 |
|
|
1,985,714 |
|
|
352,283 |
|
|
5,794,999 |
|
|
5,442,717 |
|
|
37.5 |
% |
|
28.0 |
% |
|
26.3 |
% |
5-N Investments, LLC |
|
|
1,647,778 |
|
|
— |
|
|
— |
|
|
1,447,778 |
|
|
1,447,778 |
|
|
7.9 |
% |
|
7.0 |
% |
|
7.0 |
% |
Named Executive Officers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas S. Hall |
|
|
631,872 |
|
|
— |
|
|
— |
|
|
452,996 |
|
|
421,262 |
|
|
3.4 |
% |
|
2.5 |
% |
|
2.4 |
% |
Graham B. Cherrington |
|
|
147,833 |
|
|
— |
|
|
— |
|
|
103,505 |
|
|
95,641 |
|
|
* |
|
|
* |
|
|
* |
|
Timothy L. Fielding |
|
|
76,001 |
|
|
— |
|
|
— |
|
|
47,927 |
|
|
42,946 |
|
|
* |
|
|
* |
|
|
* |
|
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard Covert |
|
|
1,650,295 |
|
|
— |
|
|
— |
|
|
1,450,295 |
|
|
1,450,295 |
|
|
8.0 |
% |
|
7.0 |
% |
|
7.0 |
% |
Daniel W. Rosenberg(5) |
|
|
7,780,713 |
|
|
1,985,714 |
|
|
352,283 |
|
|
5,794,999 |
|
|
5,442,717 |
|
|
37.5 |
% |
|
28.0 |
% |
|
26.3 |
% |
Gregory W. Scott |
|
|
17,010 |
|
|
— |
|
|
— |
|
|
9,294 |
|
|
7,925 |
|
|
* |
|
|
* |
|
|
* |
|
Ronald L. Taylor |
|
|
68,418 |
|
|
— |
|
|
— |
|
|
51,418 |
|
|
51,418 |
|
|
* |
|
|
* |
|
|
* |
|
Jeffery S. Vender |
|
|
44,333 |
|
|
— |
|
|
— |
|
|
31,917 |
|
|
29,714 |
|
|
* |
|
|
* |
|
|
* |
|
Stephen M. Mengert |
|
|
401 |
|
|
— |
|
|
— |
|
|
401 |
|
|
401 |
|
|
* |
|
|
* |
|
|
* |
|
Steven V. Napolitano |
|
|
4,221 |
|
|
— |
|
|
— |
|
|
4,221 |
|
|
4,221 |
|
|
* |
|
|
* |
|
|
* |
|
Directors and executive officers as a group (13 persons) |
|
|
10,549,331 |
|
|
2,516,751 |
|
|
407,996 |
|
|
8,032,580 |
|
|
7,624,585 |
|
|
51.8 |
% |
|
39.6 |
% |
|
37.7 |
% |
- *
- Less
than 1 percent of Class A common stock outstanding.
- (1)
- Unless
otherwise indicated below, the address of each beneficial owner in the table above is c/o Adeptus Health Inc., 2941 Lake Vista Drive,
Lewisville, Texas 75067. The address for funds affiliated with Sterling Partners is Sterling Partners, 401 North Michigan Avenue, Suite 3300, Chicago, Illinois 60611.
- (2)
- Subject
to the exchange provisions of the Amended and Restated Limited Liability Company Agreement, each LLC Unit (together with a corresponding
number of shares of our Class B common stock) held by the Post-IPO Unit Holders is exchangeable for shares of our Class A common stock on a one-for-one basis. See "Organizational
Structure." Beneficial ownership of LLC Units has also been reflected as beneficial ownership of shares of our Class A common stock for which such LLC Units may be exchanged.
S-72
Table of Contents
- (3)
- If
the underwriters' option to purchase additional shares is exercised in full, the selling stockholder will sell an additional 149,692 shares of
Class A common stock, and the Company will purchase, for cash, 202,590 LLC Units from a fund affiliated with Sterling Partners. Assuming full exercise of this option as set forth above,
funds affiliated with Sterling Partners will hold a combined voting power in Adeptus Health Inc. of 26.3% after this offering.
- (4)
- The
number of shares reported under "Combined Voting Power" represents the holder's (a) Class A common stock beneficially owned (determined as
set forth above), as well as (b) unvested shares of Class B common stock (and a corresponding number of unvested LLC Units) that will not vest within 60 days of
June 30, 2015. See "Description of Capital Stock—Common Stock" in the accompanying prospectus.
- (5)
- According
to information known to the Company, represents (a) 3,317,817 shares of Class A common stock held by SCP III AIV THREE-FCER
Conduit, L.P. ("Sterling AIV Conduit"), as to which Sterling AIV Conduit has sole voting and dispositive power, (b) 4,458,674 shares of Class B common stock (and a corresponding
number of LLC Units) held by SCP III AIV THREE-FCER, L.P. ("Sterling AIV") convertible into shares of Class A common stock, as to which Sterling AIV has sole voting and
dispositive power and (c) an aggregate of 4,222 shares of Class A common stock granted to certain designees of funds affiliated with Sterling Partners, Messrs. Daniel J. Hosler (a
former member of our board of directors) and Rosenberg, which shares are held on behalf of Sterling Fund Management, LLC, which acts as an advisor to Sterling AIV Conduit and Sterling AIV.
Sterling Capital Partners III, LLC is the general partner of SC Partners III, L.P., which is the general partner of each of Sterling AIV Conduit and Sterling AIV and, as a
result, each of Sterling Capital Partners III, LLC and SC Partners III, L.P. may be deemed to beneficially own the securities beneficially owned by each of Sterling AIV
Conduit and Sterling AIV. Steven M. Taslitz, Merrick M. Elfman, Douglas L. Becker and R. Christopher Hoehn-Saric, as the managers of Sterling Capital Partners III, LLC and the managers of the
general partner of the sole owner of Sterling Fund Management, LLC, may be deemed to beneficially own the securities held by Sterling AIV Conduit and Sterling AIV and held on behalf of Sterling
Fund Management LLC. Sterling AIV Conduit is the selling stockholder in this offering.
- (6)
- Of
the 412,500 shares of Class A common stock subject to the underwriters' option, 149,692 will be sold by the selling stockholder and 262,808 will
be sold by the Company, with the proceeds used to purchase an equivalent number of LLC Units from certain of our Post-IPO Unit Holders.
S-73
Table of Contents
DESCRIPTION OF INDEBTEDNESS
Senior Secured Credit Facility
On October 31, 2013, First Choice ER, LLC, certain of its subsidiaries, Fifth Street Finance Corp., as administrative
agent and L/C Arranger, and the lenders from time to time party thereto, entered into a Senior Secured Credit Facility for a $75.0 million term loan which matures on October 31, 2018.
The Senior Secured Credit Facility includes an additional $165.0 million delayed draw term loan commitment, of which the unused portion expired on April 30, 2015, and matures on
October 31, 2018 with respect to amounts previously drawn, and a $10.0 million revolving commitment that terminates on October 31, 2018.
On
March 31, 2014, we amended the Senior Secured Credit Facility to, among other things, increase the maximum aggregate amount permitted to be funded by MPT under the Initial MPT
Agreement to $255.0 million.
On
June 11, 2014, we entered into a second amendment to the Senior Secured Credit Facility to, among other things, provide for a delayed draw term loan in an aggregate principal
amount of up to $75.0 million, up to $60.0 million in principal amount of which will be used to make specified distributions and up to $10.0 million in principal amount of which
will be used to repay certain revolving loans.
As
of March 31, 2015, we had $56.2 million and approximately $4.0 million available under the delayed draw term commitment and the revolving commitment,
respectively, subject to certain debt covenants.
Interest Rate and Payments Generally
Borrowings under the Senior Secured Credit Facility bear interest, at our option, at a rate equal to an applicable margin over
(a) a base rate determined by reference to the highest of (1) the prime rate, (2) the federal funds effective rate plus 0.50% and (3) LIBOR for an interest period of one
month plus 1%, or (b) LIBOR for the applicable interest period. The margin for the Senior Secured Credit Facility is 6.50% in the case of base rate loans and 7.50% in the case of LIBOR loans.
The Senior Secured Credit Facility includes an unused line fee of 0.50% per annum on the revolving commitment and delayed draw term loan commitment, and a draw fee of 1.0% of the principal amount of
each borrowing on the delayed draw term loan. The original principal amount of the term loan will be repaid in consecutive quarterly installments of $0.5 million on the last day of each fiscal
quarter commencing with the fiscal quarter ending December 31, 2015 and escalating to $0.9 million for each fiscal quarter ending after December 31, 2016. If drawn, the delayed
draw term loan will be repaid in consecutive quarterly installments in an amount based on the repayment calculation contained in the Senior Secured Credit Facility on the last day of each fiscal
quarter commencing with the fiscal quarter ending December 31, 2015. We will repay the aggregate principal amount of all revolving loans outstanding on the maturity date, October 31,
2018.
Prepayments and Reduction of Commitments
The Senior Secured Credit Facility requires us to prepay loans, subject to certain exceptions and reinvestment rights, in an amount
equal to 100% of the aggregate net cash proceeds of asset dispositions, recovery events, debt issuances, equity issuances and extraordinary
receipts received or contributed to First Choice ER, LLC or its subsidiaries. We are also required by the Senior Secured Credit Facility to prepay loans in an amount equal to 50% of excess cash
flow (or if our leverage ratio is less than 3.00 to 1.00, 25% of excess cash flow) less any optional repayments of term loans (and revolving loans if the commitment is reduced by a corresponding
amount) during the relevant year. A customary prepayment is also required to the extent credit exposure under the Senior Secured Credit
S-74
Table of Contents
Facility
exceeds the commitments thereunder. From time to time and at any time, we may also voluntarily request to prepay any loans under the Senior Secured Credit Facility following specified
notification periods.
Term
loans (including delayed draw term loans) are subject to prepayment premiums with respect to any voluntary prepayment, any mandatory prepayment resulting from an incurrence of
indebtedness not permitted by the Senior Secured Credit Facility or any other mandatory prepayment if the events giving rise to such mandatory prepayment constitute or result in an event of default or
upon acceleration of the obligations under the Senior Secured Credit Facility. The prepayment premium is equal to: (a) 2.00% of the amount prepaid if such prepayment occurs after the closing of
the Senior Secured Credit Facility and on or prior to the first anniversary thereafter, (b) 1.00% of the amount prepaid if such prepayment occurs after the first anniversary after the closing
of the Senior Secured Credit Facility and on or prior to the second anniversary thereof, and (c) 0.00% of the amount prepaid if such prepayment occurs thereafter; provided, that notwithstanding the
foregoing, if any such prepayment occurs in connection with a Change of Control, the applicable Prepayment Premium
shall only be: (a) 1.00% of the amount prepaid if such prepayment occurs after the closing of the Senior Secured Credit Facility and on or prior to the second anniversary thereof, and
(b) 0.00% of the amount prepaid if such prepayment occurs on or after the second anniversary of the Closing Date; provided further, that solely
with respect to each delayed draw term loan, whether before or after an event of default or upon acceleration of the obligations under the Senior Secured Credit Facility, the applicable prepayment
premium shall be equal to: (a) 2.00% of the amount prepaid if such prepayment occurs after the date such delayed draw term loan is made and on or prior to the first anniversary of the date such
delayed draw term loan is made, (b) 1.00% of the amount prepaid if such prepayment occurs after the first anniversary of the date such delayed draw term loan is made and on or prior to the
second anniversary of the date such delayed draw term loan is made, and (c) 0.00% of the amount prepaid if such prepayment occurs on or after the second anniversary of the date such delayed
draw term loan is made.
Guarantees and Security
The obligations under the Senior Secured Credit Facility are irrevocably and unconditionally guaranteed by, subject to certain
exceptions, Adeptus Health LLC and its existing and future domestic subsidiaries. In addition, and subject to certain exceptions and qualifications, the Senior Secured Credit Facility is
secured by a first priority lien over substantially all the assets of Adeptus Health LLC, First Choice ER, LLC and the guarantors.
Certain Covenants and Events of Default
The Senior Secured Credit Facility contains a number of significant negative covenants. Such negative covenants, among other things and
subject to certain exceptions, restrict First Choice ER, LLC and its subsidiaries' ability to:
- •
- incur additional indebtedness, make guarantees and enter into hedging agreements;
- •
- create liens on assets;
- •
- enter into sale and leaseback transactions;
- •
- engage in mergers or consolidations;
- •
- transfer assets;
- •
- pay dividends and distributions;
- •
- change the nature of our business;
S-75
Table of Contents
- •
- make investments, loans and advances, including acquisitions;
- •
- engage in certain transactions with affiliates;
- •
- amend certain material agreements, including the MPT Agreements and organizational documents;
- •
- enter into certain joint ventures;
- •
- enter into certain restrictive agreements; and
- •
- make certain changes to our accounting practices.
In
addition, the Senior Secured Credit Facility contains financial covenants that, among other things, require us to maintain:
- •
- a consolidated leverage ratio of at most 7.00 to 1.00 (decreasing to 3.50 to 1.00 as of December 31, 2016 and thereafter);
- •
- a consolidated interest charge coverage ratio of at least 2.00 to 1.00 (increasing to 2.75 to 1.00 as of June 30, 2015 and
thereafter); and
- •
- a consolidated capital expenditures amount ranging from $30.0 million (for the fiscal year ended December 31, 2014) to
$15.0 million (for the fiscal year ended December 31, 2015 and thereafter).
The
financial covenant calculations are based on First Choice ER, LLC and its subsidiaries as a consolidated group. In addition, the Senior Secured Credit Facility includes
certain limitations on intercompany indebtedness.
In
addition, our Senior Secured Credit Facility contains customary representations and warranties, affirmative covenants and events of default. If an event of default occurs, the lenders
will be entitled to take a number of actions, including the acceleration of amounts due under the Senior Secured Credit Facility and all actions permitted to be taken by a secured creditor.
As
of June 30, 2015, we were in compliance with all covenant requirements.
S-76
Table of Contents
SHARES ELIGIBLE FOR FUTURE SALE
The sale of substantial amounts of our Class A common stock in the public market, or the perception that such sales could occur,
could harm the prevailing market price of our Class A common stock.
Upon
completion of this offering, we will have a total of 13,469,298 shares of our Class A common stock outstanding, or 13,732,106 shares assuming the underwriters exercise in
full their option to purchase additional shares. Of these shares, 10,822,555 or 11,235,055 assuming the underwriters exercise in full their option to purchase additional shares of Class A
common stock, will be freely tradable without restriction or further registration under the Securities Act by persons other than our "affiliates." Under the Securities Act, an "affiliate" of a company
is a person that directly or indirectly controls, is controlled by or is under common control with that company.
In
addition, upon consummation of this offering, the Merged Owner will beneficially own 2,474,046 shares of our Class A common stock and the Post-IPO Unit Holders will
beneficially own 7,263,314 LLC Units in Adeptus Health LLC. Pursuant to the terms of the Amended and Restated Limited Liability Company Agreement and our amended and restated certificate
of incorporation, the Post-IPO Unit Holders will be able, from time, to time exchange their vested LLC Units (together with a corresponding number of shares of our vested Class B common
stock) for shares of our Class A common stock on a one-for-one basis, subject to customary adjustments for stock splits, stock dividends and reclassifications.
Shares
of our Class A common stock held by the Merged Owner are considered "restricted securities," as defined in Rule 144. As a result, absent registration under the
Securities Act or compliance with Rule 144 thereunder or an exemption therefrom, these shares of Class A common stock are not freely transferable to the public. In connection with our
initial public offering, we entered into a registration rights agreement with the Pre-IPO Unit Holders, including the Merged Owner, pursuant to which we granted the Pre-IPO Unit Holders registration
rights that would require us to register under the
Securities Act the resale of these shares of Class A common stock (including shares of our Class A common stock received in exchange for a corresponding number of LLC Units and
shares of Class B common stock). Such securities registered under any registration statement will be available for sale in the open market unless restrictions apply.
In
addition, on June 24, 2014, we filed a registration statement on Form S-8 under the Securities Act registering 1,033,500 shares of Class A common stock to be
issued or reserved for issuance under our 2014 Omnibus Incentive Plan. Accordingly, shares registered under such registration statement will be available for sale in the open market, unless such
shares are subject to vesting restrictions with us or lock-up restriction described below.
Rule 144
In general, under Rule 144, as currently in effect, a person who is not deemed to be our affiliate for purposes of the
Securities Act or to have been one of our affiliates at any time during the three months preceding a sale and who has beneficially owned the shares of our Class A common stock proposed to be
sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares of our Class A common stock without complying with the
manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned
the shares of our Class A common stock proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person is entitled to sell
those shares of our Class A common stock without complying with any of the requirements of Rule 144. In general, under Rule 144 as currently in effect, our affiliates or persons
selling Class A common stock on behalf of our affiliates are entitled to sell, within any three-month period, a number of shares that does not exceed the greater
S-77
Table of Contents
of
(1) 1% of the number of shares of our Class A common stock then outstanding and (2) the average weekly trading volume of the shares of our Class A common stock during
the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale. Sales under Rule 144 by our affiliates or persons selling Class A common stock on
behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
Rule 701
In general, under Rule 701 under the Securities Act, an employee, consultant or advisor who acquired shares of our
Class A common stock from us prior to our initial public offering in connection with a compensatory stock or option plan or other written agreement relating to compensation is eligible to
resell those shares in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period restriction, contained in Rule 144.
Lock-Up Agreements
We have agreed not to sell or transfer any of our Class A common stock or securities convertible into, exchangeable for,
exercisable for or repayable with our Class A common stock, for 90 days after the date of this prospectus supplement without first obtaining the written consent of certain of the
underwriters, subject to customary exceptions, except that such period will be 75 days after the date of this prospectus supplement for sales or transfers of our Class A common stock in
which the proceeds will be used solely to purchase outstanding LLC Units from certain executive officers, directors and certain other holders of our Class A common stock. Our executive
officers, directors and certain other holders of our Class A common stock, including the selling stockholder, have agreed not to sell or transfer any of our Class A common stock or
securities convertible into, exchangeable for, exercisable for or repayable with our Class A common stock, for 75 days after the date of this prospectus supplement without first
obtaining the written consent of certain of the underwriters, subject to customary exceptions. The lock-up agreements do not preclude holders of LLC Units from exchanging such units (together
with a corresponding number of shares of our Class B common stock) for shares of our Class A common stock, provided that shares of Class A common stock acquired in connection with
any such exchanges will be subject to the restrictions provided for in the lock-up agreements.
S-78
Table of Contents
CERTAIN MATERIAL UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a summary of certain material United States federal income and estate tax consequences to
non-U.S. holders, defined below, of the purchase, ownership and disposition of shares of our Class A common stock as of the date hereof. Except where noted, this summary deals only with shares
of Class A common stock purchased in this offering that are held as capital assets by a non-U.S. holder.
Except
as modified for estate tax purposes, a "non-U.S. holder" means a beneficial owner of shares of our Class A common stock that, for United States federal income tax purposes,
is not any of the following:
- •
- an individual who is a citizen or resident of the United States;
- •
- a corporation (or any other entity treated as a corporation for United States federal income tax purposes) created or organized in or
under the laws of the United States, any state thereof or the District of Columbia;
- •
- an estate the income of which is subject to United States federal income taxation regardless of its source; or
- •
- a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States
persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United
States person.
This
summary is based upon provisions of the United States Internal Revenue Code of 1986, as amended, or the Code, applicable United States Treasury regulations, rulings and judicial
decisions, all as of the date hereof. Those authorities are subject to different interpretations and may be changed, perhaps retroactively, so as to result in United States federal income and estate
tax consequences different from those summarized below. This summary does not address all aspects of United States federal income and estate taxes and does not deal with foreign, state, local,
alternative minimum or other tax considerations that may be relevant to non-U.S. holders in light of their particular circumstances. In addition, this summary does not represent a detailed description
of the United States federal income and estate tax consequences applicable to you if you are subject to special treatment under the United States federal income tax laws (including if you are a United
States expatriate, financial institution, insurance company, tax-exempt organization, trader, broker or dealer in securities, "controlled foreign corporation," "passive foreign investment company," a
partnership or other pass-through entity for United States federal income tax purposes (or an investor in such a pass-through entity)), a person who acquired shares of our Class A common stock
as compensation or otherwise in connection with the performance of services, or a person who has acquired shares of our Class A common stock as part of a straddle, hedge, conversion transaction
or other integrated investment). We cannot assure you that a change in law will not alter significantly the tax considerations that we describe in this summary.
We
have not and will not seek any rulings from the Internal Revenue Service, or the IRS, regarding the matters discussed below. There can be no assurance that the IRS will not take
positions concerning the tax consequences of the purchase, ownership or disposition of shares of our Class A common stock that are different from those discussed below.
If
any entity or arrangement treated as a partnership for United States federal income tax purposes holds shares of our Class A common stock, the tax treatment of a partner will
generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding shares of our Class A common stock, you should consult your
tax advisors.
S-79
Table of Contents
If you are considering the purchase of shares of our Class A common stock, you should consult your own tax advisors concerning the particular United States
federal income and estate tax consequences to you of the ownership and disposition of the shares of Class A common stock, as well as the consequences to you arising under the laws of any other
applicable taxing jurisdiction in light of your particular circumstances.
Dividends
Cash distributions on shares of our Class A common stock will constitute dividends for United States federal income tax purposes
to the extent paid from our current or accumulated earnings and profits, as determined under United States federal income tax principles. To the extent those distributions exceed both our current and
our accumulated earnings and profits, they will constitute a return of capital and will first reduce your tax basis in our Class A common stock (determined on a share by share basis), but not
below zero, and then will be treated as gain from the sale of stock.
Dividends
paid to a non-U.S. holder generally will be subject to withholding of United States federal income tax at a 30% rate, or such lower rate as may be specified by an applicable
income tax treaty. However, dividends that are effectively connected with the conduct of a trade or business by the non-U.S. holder within the United States (and, if required by an applicable income
tax treaty, are attributable to a United States permanent establishment) generally will not be subject to such withholding tax, provided certain certification and disclosure requirements are satisfied
(including the provision of a properly completed IRS form W-8ECI or other applicable forms). Instead, such dividends generally will be subject to United States federal income tax on a net
income basis in the same manner as if the non-U.S. holder were a United States person as defined under the Code. A corporate non-U.S. holder may be subject to an additional "branch profits tax" at a
30% rate (or such lower rate as may be specified by an applicable income tax treaty) on earnings and profits attributable to such dividends that are effectively connected with its United States trade
or business (and, if an income tax treaty applies, are attributable to its United States permanent establishment).
A
non U.S. holder of shares of our Class A common stock who wishes to claim the benefit of an applicable treaty rate and avoid backup withholding, as discussed below, for
dividends will be required (a) to complete IRS Form W-8BEN or W-8BEN-E (or other applicable form) and certify under penalty of perjury that such holder is not a United States person as
defined under the Code and is eligible for treaty benefits or (b) if shares of our Class A common stock are held through certain foreign intermediaries, to satisfy the relevant
certification requirements of applicable United States Treasury regulations. Special certification and other requirements apply to certain non U.S. holders that are pass through entities rather than
corporations or individuals.
A
non-U.S. holder of shares of our Class A common stock eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by timely filing an appropriate claim for refund with the IRS.
Gain on Disposition of Class A Common Stock
Subject to discussions below of the backup withholding tax and "FATCA" legislation, any gain realized by a non-U.S. holder on the
disposition of shares of our Class A common stock generally will not be subject to United States federal income tax unless:
- •
- the gain is effectively connected with a trade or business of the non-U.S. holder in the United States (and, if required by an
applicable income tax treaty, is attributable to a United States permanent establishment of the non-U.S. holder);
- •
- the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of that
disposition, and certain other conditions are met; or
S-80
Table of Contents
- •
- we are or have been a "United States real property holding corporation" for United States federal income tax purposes.
In
the case of a non-U.S. holder described in the first bullet point above, any gain will be subject to United States federal income tax on a net income basis generally in the same
manner as if the non-U.S. holder were a United States person as defined under the Code, and a non-U.S. holder that is a foreign corporation may also be subject to the branch profits tax equal to 30%
of its effectively connected earnings and profits attributable to such gain (or, if an income tax treaty applies, at such lower rate as may be specified by the treaty on its gains attributable to its
United States permanent establishment). Except as otherwise provided by an applicable income tax treaty, an individual non-U.S. holder described in the second bullet point above will be subject to a
30% tax on any gain derived from the sale, which may be offset by certain United States source capital losses, even though the individual is not considered a resident of the United States under the
Code.
We
do not believe we are, and we do not expect to become, a "United States real property holding corporation" for United States federal income tax purposes. If we are or become a "United
States real property holding corporation," so long as shares of our Class A common stock continues to be regularly traded on an established securities market, only a non-U.S. holder who holds
or held (at any time during the shorter of the five year period preceding the date of disposition or the holder's holding period) more than 5% of shares of our Class A common stock will be
subject to United States federal income tax on the disposition of shares of our Class A common stock.
Federal Estate Tax
Shares of our Class A common stock that are owned (or treated as owned) by an individual who is not a citizen or resident of the
United States (as specially defined for United States federal estate tax purposes) at the time of death will be included in such individual's gross estate for United States federal estate tax
purposes, unless an applicable estate or other tax treaty provides otherwise, and, therefore, may be subject to United States federal estate tax.
Information Reporting and Backup Withholding
We must report annually to the IRS and to each non-U.S. holder the amount of dividends paid to such holder and the tax withheld with
respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such dividends and withholding may also be made available to the tax authorities
in the country in which the non-U.S. holder resides under the provisions of an applicable income tax treaty or agreement.
A
non-U.S. holder will be subject to backup withholding for dividends paid to such holder unless such holder certifies under penalty of perjury that it is not a United States person as
defined under the Code (and the payor does not have actual knowledge or reason to know that such holder is a United States person as defined under the Code), or such holder otherwise establishes an
exemption.
Information
reporting and, depending on the circumstances, backup withholding will apply to the proceeds of a sale of shares of our Class A common stock within the United States
or conducted through certain United States-related financial intermediaries, unless the beneficial owner certifies under penalty of perjury that it is not a United States person as defined under the
Code (and the payor does not have actual knowledge or reason to know that the beneficial owner is a United States person as defined under the Code), or such owner otherwise establishes an exemption.
Backup
withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder's United States
federal income tax liability provided the required information is timely furnished to the IRS.
S-81
Table of Contents
Additional FATCA Withholding Requirements
Under Sections 1471 through 1474 of the Code (such Sections commonly referred to as "FATCA"), a 30% United States federal
withholding tax may apply to any dividends paid
on shares of our Class A common stock and, for a disposition of our Class A common stock occurring after December 31, 2016, the gross proceeds from such disposition, in each case
paid to (i) a "foreign financial institution" (as specifically defined in the Code) which does not provide sufficient documentation, typically on IRS Form W-8BEN-E, evidencing either
(x) an exemption from FATCA, or (y) its compliance (or deemed compliance) with FATCA (which may alternatively be in the form of compliance with an intergovernmental agreement with the
United States) in a manner which avoids withholding, or (ii) a "non-financial foreign entity" (as specifically defined in the Code) which does not provide sufficient documentation, typically on
IRS Form W-8BEN-E, evidencing either (x) an exemption from FATCA, or (y) adequate information regarding certain substantial United States beneficial owners of such entity (if
any). If a dividend payment is both subject to withholding under FATCA and subject to the withholding tax discussed above under the heading "—Dividends," the withholding under FATCA may be
credited against, and therefore reduce, such other withholding tax. You should consult your own tax advisor regarding these requirements and whether they may be relevant to your ownership and
disposition of shares of our Class A common stock.
S-82
Table of Contents
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the underwriters named below, through Goldman,
Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as their representatives, have severally agreed to purchase the following respective number of shares from us:
|
|
|
|
|
Underwriter
|
|
Number of
Shares |
|
Goldman, Sachs & Co. |
|
|
|
|
Merrill Lynch, Pierce, Fenner & Smith
Incorporated |
|
|
|
|
BMO Capital Markets Corp. |
|
|
|
|
Evercore Group L.L.C. |
|
|
|
|
Piper Jaffray & Co. |
|
|
|
|
Dougherty & Company LLC |
|
|
|
|
Total |
|
|
2,750,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
underwriting agreement provides that the obligations of the several underwriters to purchase the shares offered hereby are subject to certain conditions precedent and that the
underwriters will purchase all of the shares, other than those covered by the option to purchase additional shares described below, if any are purchased.
Shares
sold by the underwriters to the public will initially be offered at the price to the public set forth on the cover of this prospectus supplement. Any shares sold by the
underwriters to securities dealers may be sold at a discount of up to $ per share from the price to the public. After the initial offering of the shares, the representatives may
change
the offering price and the other selling terms. The offering
of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters' right to reject any order in whole or in part.
The
underwriters have an option to buy up to an additional 412,500 shares in aggregate from us (up to 262,808 shares) and the selling stockholder (up to 149,692 shares) to cover sales by
the underwriters of a greater number of shares than the total number set forth in the table above. They may exercise that option for 30 days. If any shares are purchased pursuant to this
option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.
The
following tables show the per share and total underwriting discounts and commissions to be paid by us to the underwriters. Such amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase 412,500 additional shares.
Paid by the Company
|
|
|
|
|
|
|
|
|
|
No
Exercise |
|
Full
Exercise |
|
Per Share |
|
$ |
|
|
$ |
|
|
Total |
|
$ |
|
|
$ |
|
|
Paid by the Selling Stockholder
|
|
|
|
|
|
|
|
|
|
No
Exercise |
|
Full
Exercise |
|
Per Share |
|
$ |
|
|
$ |
|
|
Total |
|
$ |
|
|
$ |
|
|
S-83
Table of Contents
The
Company estimates that its share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $0.9 million.
Adeptus
Health Inc. and the selling stockholder have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act.
Adeptus
Health Inc. has agreed, subject to certain specified exceptions, not to offer, sell, contract to sell or otherwise dispose of, or enter into any transaction that is
designed to, or could be expected to, result in the disposition of any shares of our Class A common stock or other securities convertible into or exchangeable or exercisable for shares of our
Class A common stock or derivatives of Class A common stock, or Class A common stock issuable upon exercise of options or warrants during the period from the date of this
prospectus supplement continuing through the date 90 days after the date of this prospectus supplement, except with the prior written consent of the representatives (except that such period
will be 75 days after the date of this prospectus supplement for such transactions where the proceeds will be used solely to purchase outstanding LLC Units from certain executive
officers, directors and certain other holders of our Class A common stock). The Company's executive officers and directors and certain other holders of our Class A common stock,
including the selling stockholder, have agreed, subject to certain specified exceptions, not to offer, sell, contract to sell or otherwise dispose of, or enter into any transaction that is designed
to, or could be expected to, result in the disposition of any shares of our Class A common stock or other securities convertible into or exchangeable or exercisable for shares of our
Class A common stock or derivatives of Class A common stock prior to this offering or Class A common stock issuable upon exercise of options or warrants during the period from the
date of this prospectus supplement continuing through the date 75 days after the date of this prospectus supplement, except with the prior written consent of the representatives.
The
underwriters may make a market in the shares after completion of the offering, but will not be obligated to do so and may discontinue any market-making activities at any time without
notice. No
assurance can be given as to the liquidity of the trading market for the shares or that an active public market for the shares will develop.
In
connection with the offering and any subsequent market-making activities, the underwriters may purchase and sell shares of Class A common stock in the open market. These
transactions may include stabilizing transactions, which consist of various bids for or purchases of shares of Class A common stock made by the underwriters in the open market prior to the
completion of the offering, or other purchases. In addition, the underwriters may engage in short sales and purchases to cover positions created by short sales in connection with any market-making
activities. Short sales would involve the sale by the underwriters of a greater number of securities than they then hold, and must be closed out by purchasing those securities in the open market.
Stabilizing transactions and purchases to cover a short position, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the
market price of our Class A common stock, and may stabilize, maintain or otherwise affect the market price of our Class A common stock. As a result, the price of our Class A
common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued at any time. These transactions may be effected on
the stock exchange on which our shares are listed, in the over-the-counter market or otherwise.
Relationships
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may
include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and
non-financial activities and services. Certain of the underwriters and their
S-84
Table of Contents
respective
affiliates have, from time to time, provided, and may in the future provide, various investment banking and financial advisory services to Adeptus Health Inc. for which they received
or will receive customary fees and expenses. An affiliate of one of the underwriters has issued letters of credit on behalf of one of our directors and one non-Sponsor stockholder.
In
the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and
equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and
short positions in such securities and
instruments. Such investments and securities activities may involve our securities and instruments. The underwriters and their respective affiliates may also communicate independent investment
recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to
clients that they should acquire, long and/or short positions in such assets, securities and instruments.
To
the extent that any underwriter that is not a U.S. registered broker- dealer intends to effect any sales of the shares in the United States, it will do so through one or more U.S.
registered broker-dealers as permitted by FINRA regulations. The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered.
Notice to Prospective Investors in the European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member
State), each underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant
Implementation Date) it has not made and will not make an offer of shares to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been
approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member
State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of shares to the public in that Relevant
Member State at any time:
- (a)
- to
legal entities which are qualified investors as defined in the Prospectus Directive;
- (b)
- to
fewer than 100, or, if the Relevant Member State has implemented the relevant provisions of the 2010 PD Amending Directive, 150, natural or legal persons
(other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives for any such offer;
or
- (c)
- in
any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided
that no such offer of shares shall require the Issuer or the representatives for any such offer to publish a prospectus pursuant to Article 3 of the Prospectus Directive.
For
the purposes of this provision, the expression an "offer of shares to the public" in relation to any shares in any Relevant Member State means the communication in any form and by
any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase or subscribe for any shares, as the same may be varied in
that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State, the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto,
including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in each Relevant Member State and the expression "2010
PD Amending Directive" means Directive 2010/73/EU.
S-85
Table of Contents
Notice to Prospective Investors in the United Kingdom
Each underwriter has represented, warranted and agreed that:
- (a)
- it
has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in
investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, or the FSMA, received by it in connection with the issue or sale of the shares in
circumstances in which Section 21(1) of the FSMA would not apply to the Issuer; and
- (b)
- it
has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or
otherwise involving the United Kingdom.
Notice to Prospective Investors in Hong Kong
The shares may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer
to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), (ii) to "professional investors" within the meaning of the Securities and Futures Ordinance
(Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a "prospectus" within the meaning of the Companies
Ordinance (Cap. 32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each
case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of
Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and
Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Notice to Prospective Investors in Singapore
This prospectus supplement has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this
prospectus supplement and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may
the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional
investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (ii) to a relevant person, or any person pursuant to Section 275(1A),
and in accordance with the conditions, specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of
the SFA.
Where
the shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of
which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an
accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the
beneficiaries' rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the shares under Section 275 except:
(1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified
in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.
S-86
Table of Contents
Notice to Prospective Investors in Japan
The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial
Instruments and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which
term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in
Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other
applicable laws, regulations and ministerial guidelines of Japan.
Notice to Prospective Investors in the Dubai International Financial Centre
This prospectus supplement relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services
Authority, or DFSA. This prospectus supplement is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on
by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus supplement nor taken steps to
verify the information set forth herein and has no responsibility for the prospectus supplement. The shares to which this prospectus supplement relates may be illiquid and/or subject to restrictions
on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus supplement you should
consult an authorized financial advisor.
S-87
Table of Contents
LEGAL MATTERS
The validity of the shares of Class A common stock offered by this prospectus supplement will be passed upon for us by Simpson
Thacher & Bartlett LLP, New York, New York. Certain legal matters relating to this offering will be passed upon for the underwriters by Cleary Gottlieb Steen &
Hamilton LLP.
EXPERTS
The consolidated financial statements of Adeptus Health Inc. and its subsidiaries as of December 31, 2014 and 2013, and
for each of the years in the three-year period ended December 31, 2014, have been incorporated by reference herein in reliance upon the report of KPMG LLP, independent registered public
accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
On October 22, 2013, the board of directors engaged KPMG LLP, or KPMG, as the independent registered public accounting
firm of First Choice ER, LLC and its consolidated subsidiaries. Concurrent with this appointment, we dismissed Grant Thornton LLP, or Grant Thornton, effective October 22, 2013.
The decision to change our principal independent registered public accounting firm was approved by our audit committee. Grant Thornton's report on the financial statements of First Choice
ER, LLC and its consolidated subsidiaries for the year ended December 31, 2012 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles. There were (i) no disagreements with Grant Thornton on any matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Grant Thornton, would have caused Grant Thornton to make reference to the subject matter of the disagreements
in connection with its reports and (ii) no reportable events of the type listed in
paragraphs (A) through (D) of Item 304(a)(1)(v) of Regulation S-K issued by the SEC, in connection with the audit of the financial statements of First Choice ER, LLC
and its consolidated subsidiaries for the 2012 period audited by Grant Thornton through the replacement of Grant Thornton with KPMG.
Neither
we nor anyone acting on our behalf consulted with KPMG at any time prior to their retention by us with respect to (i) the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the financial statements of First Choice ER, LLC and its consolidated subsidiaries,
and neither a written report nor oral advice was provided that KPMG concluded was an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting
issue or (ii) any matter that was the subject of a disagreement or a reportable event (as such terms are defined in Item 304(a)(1)(iv) and (v), respectively, of
Regulation S-K).
S-88
Table of Contents
INCORPORATION BY REFERENCE
The SEC allows us to incorporate certain information in this prospectus supplement by reference to other documents that we file with
them. This means that we can disclose information to you for purposes of this prospectus supplement by referring you to other documents on file with the SEC. The information incorporated by reference
is an important part of this prospectus supplement.
We
incorporate in this prospectus supplement by reference the documents listed below:
- •
- our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed on February 27, 2015;
- •
- our Quarterly Report on Form 10-Q for the three months ended March 31, 2015, filed on May 1, 2015;
- •
- our Current Reports on Form 8-K filed on February 26, 2015, April 21, 2015, April 23, 2015, May 11,
2015, May 22, 2015 and June 19, 2015; and
- •
- all other documents filed by us under sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus
supplement and before the termination of the offering to which this prospectus supplement relates (other than documents and information furnished and not filed in accordance with SEC rules, unless
expressly stated otherwise therein).
Notwithstanding
the foregoing, we are not incorporating by reference information furnished under Items 2.02 and 7.01 of any Current Report on Form 8-K (including any
Form 8-K itemized above), including the related exhibits, nor in any documents or other information that is deemed to have been "furnished" to and not "filed" with the SEC.
Any
statement contained in a document incorporated by reference in this prospectus supplement shall be deemed to be modified or superseded for purposes of this prospectus supplement to
the extent that a statement contained herein or in any other subsequently filed document that also is incorporated by reference in this prospectus supplement modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus supplement or any amendment or supplement to this prospectus
supplement.
We
will provide a copy of these filings (including certain exhibits that are specifically incorporated by reference therein) to each person, including any beneficial owner, to whom a
prospectus supplement is delivered. You may request these documents, at no cost, by writing or telephoning us at the following address:
Adeptus
Health Inc.
2941 Lake Vista Drive
Lewisville, Texas 75067
Telephone: (972) 899-6666
Copies
of certain information filed by us with the SEC, including our Annual Report and Quarterly Report, are also available on our website at ir.adeptushealth.com. Information contained on our website or that
can be accessed through our website is not incorporated by reference herein.
You
should rely only on the information incorporated by reference or provided in this prospectus supplement. Neither we nor the selling stockholder has authorized anyone else to provide
you with different information.
S-89
Table of Contents
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-3 under the Securities Act with respect to the shares of
Class A common stock covered by this prospectus supplement. This prospectus supplement and the accompanying prospectus, filed as part of the registration statement, together with the
information incorporated by reference herein, does not contain all of the information set forth in the registration statement and its exhibits and schedules, portions of which have been omitted as
permitted by the rules and regulations of the SEC. For further information about us and our Class A common stock, we refer you to the registration statement and to its exhibits and schedules.
Statements made in or incorporated by reference herein about the contents of any contract, agreement or other document are not necessarily complete and, in each instance, we refer you to the copy of
such contract, agreement or document filed as an exhibit to the registration statement, with each such statement being qualified in all respects by reference to the document to which it refers. Anyone
may inspect the registration statement and its exhibits and schedules without charge at the public reference facilities the SEC maintains at 100 F Street, N.E., Washington, D.C. 20549. You may
obtain copies of all or any part of these materials from the SEC upon the payment of certain fees prescribed by the SEC. You may obtain further information about the operation of the SEC's Public
Reference Room by calling the SEC at 1-800-SEC-0330. You may also inspect these reports and other information without charge at a website maintained by the SEC. The address of this site is http://www.sec.gov.
In
addition, we are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and as a result, file annual, quarterly and current reports, proxy
statements and other information with the SEC. You will be able to inspect and copy these reports, proxy statements and other information at the public reference facilities maintained by the SEC at
the address noted above or inspect them without charge at the SEC's website.
S-90
Table of Contents
PROSPECTUS
Adeptus Health Inc.
Class A Common Stock
We may offer and sell shares of our Class A common stock from time to time. We will determine when we sell our Class A common stock,
which may be sold on a continuous or delayed basis directly to or through agents, dealers or underwriters as designated from time to time, or through a combination of these methods. We reserve the
sole right to accept, and we and any agents, dealers and underwriters reserve the right to reject, in whole or in part, any proposed purchase of our Class A common stock. If any agents, dealers
or underwriters are involved in the sale of any of our Class A common stock, the applicable prospectus supplement will set forth any applicable commissions or discounts payable to them. Our net
proceeds from the sale of our Class A common stock also will be set forth in the applicable prospectus supplement. We also may provide investors with a free writing prospectus that includes
this information. In addition, one or more selling stockholders to be named in a prospectus supplement hereto may offer and sell our Class A common stock from time to time, together or
separately, in amounts, at prices and on terms that will be determined at the time of any such offering.
Each
time that we or any selling stockholders sell shares of our Class A common stock using this prospectus, we or any selling stockholders will provide a prospectus supplement
and attach it to this prospectus if required. The prospectus supplement or a free writing prospectus will contain more specific information about the offering and the Class A common stock being
offered, including the names of any selling stockholders, if applicable, the prices and our net proceeds from the sales of such shares of our Class A common stock. The selling stockholders will
receive all of the proceeds from any sales of our Class A common stock owned by them. We will not receive any proceeds from the sale of our Class A common stock by selling stockholders.
We may bear a portion of the expenses of the offering of our Class A common stock by one or more selling stockholders, except that the selling stockholders may pay any applicable underwriting
fees, discounts or commissions and certain transfer taxes. The prospectus supplement or free writing prospectus may also add, update or change information contained in this prospectus. This prospectus
may not be used to sell shares of our Class A common stock unless accompanied by a prospectus supplement describing the method and terms of the offering.
You
should carefully read this prospectus and any applicable prospectus supplement and free writing prospectus, together with any documents we incorporate by reference, before you invest
in shares of our Class A common stock.
Our
Class A common stock is listed on the New York Stock Exchange (the "NYSE") under the symbol "ADPT."
Investing in shares of our Class A common stock involves risks. You should refer to and consider the information included in the section
titled "Risk Factors" on page 2 of this prospectus and the risk factors described in any accompanying prospectus supplement or any documents we incorporate by reference.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The
date of this prospectus is July 20, 2015
Table of Contents
TABLE OF CONTENTS
You should rely only on the information contained or incorporated by reference in this prospectus, in any accompanying prospectus supplement or in any free
writing prospectuses related hereto that we have prepared. Neither we nor any selling stockholder has authorized anyone to provide you with different information and we and the selling stockholders
take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. You should not assume that the information contained or incorporated
by reference in this prospectus and any accompanying prospectus supplement or free writing prospectus is accurate as of any date other than the respective dates thereof. This prospectus and any
accompanying prospectus supplement do not
constitute an offer to sell or the solicitation of an offer to buy any securities other than the registered securities to which they relate, nor do this prospectus and any accompanying prospectus
supplement constitute an offer to sell or the solicitation of an offer to buy securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction.
i
Table of Contents
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we filed with the Securities and Exchange Commission, or
the SEC, using a "shelf" registration process. Under this shelf registration process, we and/or one or more selling stockholders, if applicable, may, from time to time, offer and/or sell shares of our
Class A common stock in one or more offerings or resales. This prospectus provides you with a general description of the Class A common stock that we and/or one or more selling
stockholders may offer. Each time we sell Class A common stock using this prospectus, we will provide a prospectus supplement and attach it to this prospectus and may also provide you with a
free writing prospectus. The prospectus supplement and any free writing prospectus will contain more specific information about the offering, including the names of any selling stockholders, if
applicable. The prospectus supplement may also add, update, change or clarify information contained in or incorporated by reference into this prospectus. Any statement that we make in this prospectus
will be modified or superseded by any inconsistent statement made by us in a prospectus supplement. If there is any inconsistency between the information in this prospectus and the information in the
prospectus supplement, you should rely on the information in the prospectus supplement.
The
rules of the SEC allow us to incorporate by reference information into this prospectus. This means that important information is contained in other documents that are considered to
be a part of this prospectus. Additionally, information that we file later with the SEC will automatically update and supersede this information. You should carefully read both this prospectus and the
applicable prospectus supplement together with the additional information that is incorporated or deemed incorporated by reference in this prospectus as described under the heading "Information
Incorporated by Reference" and any additional information described under the heading "Where You Can Find More Information" before making an investment in our Class A common stock. This
prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries
are qualified in their entirety by the actual documents. Copies of the documents referred to herein have been filed, or will be filed or incorporated by reference, as exhibits to the registration
statement of which this prospectus is a part. The registration statement, including the exhibits and documents incorporated or deemed incorporated by reference in this prospectus can be read on the
SEC website or at the SEC offices mentioned under the headings "Information Incorporated by Reference" and "Where You Can Find More Information."
THIS PROSPECTUS MAY NOT BE USED TO SELL ANY SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
Neither the delivery of this prospectus or any applicable prospectus supplement nor any sale made using this prospectus or any applicable
prospectus supplement implies that there has been no change in our affairs or that the information contained in, or incorporated by reference in, this prospectus or in any applicable prospectus
supplement is correct as of any date after their respective dates. You should not assume that the information contained in, or incorporated by reference in, this prospectus or any applicable
prospectus supplement or any free writing prospectus prepared by us is accurate as of any date other than the respective dates thereof. Our business, financial condition, results of operations and
prospects may have changed since those dates.
We are an "emerging growth company" as defined in Section 2(a)(19) of the Securities Act of 1933, or the Securities Act, and Section 3(a)(80) of the
Securities Exchange Act of 1934, as amended, or the Exchange Act. Pursuant to Section 102 of the Jumpstart Our Business Startups Act, or the JOBS Act, we have provided reduced executive
compensation disclosure and have omitted a compensation discussion and analysis from the documents incorporated by reference herein. We previously opted out of the extended transition period with
respect to new or revised accounting standards and, as a result, we comply with any such new or revised accounting standards on the relevant dates on which adoption
ii
Table of Contents
of
such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or
revised accounting standards was irrevocable. We may avail ourselves of these provisions until December 31, 2015, after which we will cease to be an emerging growth company.
Unless
we state otherwise or the context otherwise requires, the terms "Adeptus Health," "Adeptus," "we," "us," "our" and the "Company" refer to Adeptus Health Inc. and its consolidated
subsidiaries after giving effect to the Reorganization Transactions (as defined herein) completed in connection with our initial public offering, as described under "Our Company"; prior to the
consummation of the Reorganization Transactions and the completion of our initial public offering, these terms refer to Adeptus Health LLC, a Delaware limited liability company through which we are
currently conducting our operations and its consolidated subsidiaries.
iii
Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains and incorporates by reference "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 that reflect our current views as to future events, development and results with respect to, without limitation, conditions in our industry, our operations, our economic
performance and financial condition. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as "outlook," "aim,"
"anticipate," "are confident," "estimate," "expect," "will be," "will continue," "will likely result," "project," "intend," "plan," "believe," "see," "look to" and other words and terms of similar
meaning or the negative versions of such words in connection with a discussion of future operating or financial performance. Forward-looking statements speak only as of the date made. All statements
we make relating to our estimated and projected earnings, costs, expenditures, cash flows, growth rates and financial results are forward-looking statements. In addition, we, through our senior
management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to
risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we expected. We derive many of our forward-looking statements from our
operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of
known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our
expectations ("cautionary statements") are disclosed under the heading "Risk Factors" and elsewhere in this prospectus and under the heading "Risk Factors" in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2014 that we filed with the SEC on February 27, 2015, including, without limitation, in conjunction with the forward-looking statements included and
incorporated by reference herein. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the
cautionary statements. Some of the factors that we believe could affect our results include without limitation:
- •
- 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 and the 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;
iv
Table of Contents
- •
- 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 Internal Revenue Service, or the 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 Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability
Reconciliation Act of 2010, or PPACA, which represents a significant change to the healthcare industry; and
- •
- ensuring our continued compliance with the Administrative Simplification Provisions of the Health Insurance Portability and
Accountability Act of 1996, or HIPAA, which could require us to expend significant resources and capital.
Accordingly,
there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be
construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus and in the documents incorporated by reference herein. As a result
of these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements contained in this prospectus or incorporated by reference. We undertake no
obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, changes in our expectations, or otherwise, except as required by
law.
v
Table of Contents
OUR COMPANY
This summary highlights selected information contained elsewhere in this prospectus or documents incorporated
by reference herein, but it does not contain all of the information that you should consider before deciding to invest in our Class A common stock. You should read this entire prospectus, any
prospectus supplement and the documents incorporated herein or therein carefully, including the section entitled "Risk Factors" and the financial statements and the related notes incorporated by
reference into this prospectus, before you decide to invest in shares of our Class A common stock.
Company Overview
We are a patient-centered healthcare organization providing emergency medical care through the largest network of independent
freestanding emergency rooms in the United States and partnerships with leading healthcare systems. We have experienced rapid growth in recent
periods, growing from 14 freestanding facilities at the end of 2012 to 26 freestanding facilities at the end of 2013, and to 68 freestanding facilities as of June 30, 2015. We operate
facilities currently located in the: (i) Houston, Dallas/Fort Worth, San Antonio and Austin, Texas markets; (ii) Colorado Springs and Denver, Colorado markets; and (iii) Phoenix,
Arizona market, which includes a full service, licensed general hospital. Each of the facilities opened in 2014 and 2015 were newly constructed.
Since
our founding in 2002, our mission has been to address the need within our local communities for immediate and convenient access to quality emergency care in a patient-friendly,
cost-effective setting. We believe we are transforming the emergency care experience with a differentiated and convenient care delivery model which improves access, reduces wait times and provides
high-quality clinical and diagnostic services on-site. Our facilities are fully licensed and provide comprehensive emergency care with an acuity mix that we believe is comparable to hospital-based
emergency rooms.
For
a description of our business, financial condition, results of operations and other important information regarding Adeptus, we refer you to our filings with SEC incorporated by
reference in this prospectus. For instructions on how to find copies of these documents, see "Information Incorporated by Reference" and "Where You Can Find More Information."
Adeptus
Health Inc. was incorporated as a Delaware corporation on March 7, 2014 for the purpose of conducting our initial public offering, which was completed on June 30,
2014. In connection with the initial public offering, we completed a reorganization (the "Reorganization Transactions"), which among other things, resulted in Adeptus Health Inc. becoming a holding
company with its sole material asset being a controlling equity interest in Adeptus Health LLC. As the sole managing member of Adeptus Health LLC, Adeptus Health Inc. operates and controls all of the
business and affairs of Adeptus Health LLC and, through Adeptus Health LLC and its subsidiaries, conducts our business. Adeptus Health Inc. owns 100% of the voting rights of Adeptus Health LLC, and
therefore has control over Adeptus Health LLC.
1
Table of Contents
RISK FACTORS
The purchase and holding of our Class A common stock involves various risks. You should carefully consider each of the risks
described in the section entitled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 that we filed with the SEC on February 27, 2015,
which are incorporated by reference herein, as such factors may be updated from time to time in our periodic filings with the SEC, and all of the other information included or incorporated by
reference in this prospectus when acquiring or holding our Class A common stock. These risks could materially affect our business, results of operations or financial condition and cause the
value of our Class A common stock to decline. You could lose all or part of your investment.
2
Table of Contents
USE OF PROCEEDS
In the case of a sale of shares of our Class A common stock by us, the use of proceeds will be specified in the applicable
prospectus supplement. In the case of a sale of shares of our Class A common stock by any selling stockholders, we will not receive any of the proceeds from such sale.
3
Table of Contents
DIVIDEND POLICY
We do not currently plan to pay a dividend on our Class A common stock. The declaration, amount and payment of any future
dividends on shares of our Class A common stock will be at the sole discretion of our board of directors.
Adeptus
Health Inc. is a holding company and has no material assets other than its ownership of limited liability company units of Adeptus Health LLC, or LLC Units. In the event that we
do pay a dividend, we intend to cause Adeptus Health LLC to make distributions to us in an amount sufficient to cover such dividend. If Adeptus Health LLC makes such distributions to us, the other
holders of LLC Units will also be entitled to receive distributions pro rata in accordance with the percentages of their respective LLC Units.
Our
Senior Secured Credit Facility limits the ability of Adeptus Health LLC to pay distributions to us. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations—Liquidity and Capital Resources—Contractual Obligations and Commitments—Senior Secured Credit Facility" in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2014, which is incorporated by reference herein.
Any
financing arrangements that we enter into in the future may include restrictive covenants that limit our ability to pay dividends. In addition, Adeptus Health LLC is generally
prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of Adeptus Health LLC
(with certain exceptions) exceed the fair value of its assets. Subsidiaries of Adeptus Health LLC are generally subject to similar legal limitations on their ability to make distributions to Adeptus
Health LLC.
4
Table of Contents
SELLING STOCKHOLDERS
Information about selling stockholders, where applicable, will be set forth in a prospectus supplement, in a post-effective amendment
hereto or in filings we make with the SEC, which are incorporated by reference into this prospectus.
5
Table of Contents
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock is a summary and is qualified in its entirety by reference to our amended and restated
certificate of incorporation and amended and restated by-laws, the forms of which are incorporated by reference as exhibits to the registration statement of which this prospectus forms a part, and by
applicable law.
Our
authorized capital stock consists of 50,000,000 shares of Class A common stock, par value $0.01 per share, 20,000,000 shares of Class B common stock, par
value $0.01 per share, and 10,000,000 shares of preferred stock.
Unless
our board of directors determines otherwise, we will issue all shares of our capital stock in uncertificated form.
Common Stock
Holders of shares of our Class A common stock and Class B common stock vote together as a single class on all matters
presented to our stockholders for their vote or approval, except as otherwise required by applicable law. The holders of our common stock vote to elect our directors by a plurality of the votes cast.
On all other matters other than those specified in our amended and restated certificate of incorporation and amended and restated by-laws, where a 662/3% vote of the then outstanding
shares of our common stock is required, the affirmative vote of a majority in voting power of shares present at a meeting of the holders of our common stock is required.
Holders of shares of our Class A common stock are entitled to one vote for each share held of record on all matters submitted to
a vote of stockholders.
Holders
of shares of our Class A common stock are entitled to receive dividends when and if declared by our board of directors out of funds legally available therefor, subject to
any statutory or contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock.
Upon
our dissolution or liquidation or the sale of all or substantially all of our assets, after payment in full of all amounts required to be paid to creditors and to the holders of
preferred stock having liquidation preferences, if any, the holders of shares of our Class A common stock will be entitled to receive our remaining assets available for distribution.
Holders
of shares of our Class A common stock do not have preemptive, subscription or conversion rights. There are no redemption or sinking fund provisions applicable to our
Class A common stock. Subject to the transfer restrictions set forth in the Amended and Restated Limited Liability Company Agreement, certain of the owners of Adeptus Health LLC prior to the
consummation of our initial public offering, which we collectively refer to as the Post-IPO Unit Holders, may exchange their vested LLC Units (together with a corresponding number of shares of our
vested Class B common stock) for shares of our Class A common stock on a one-for-one basis, subject to customary adjustments for stock splits, stock dividends and reclassifications.
Holders of shares of Class B common stock shall be entitled to one vote for each share of record on all matters submitted to a
vote of stockholders.
Holders
of our Class B common stock do not have any right to receive dividends or to receive a distribution upon a liquidation or winding up of Adeptus Health Inc. However, if
Adeptus Health LLC makes distributions to Adeptus Health Inc., the other holders of LLC Units, including the Post-IPO
6
Table of Contents
Unit
Holders, will be entitled to receive distributions pro rata in accordance with the percentages of their respective LLC Units.
Holders
of shares of our Class B common stock do not have preemptive, subscription or, except as described below, conversion rights. There are no redemption or sinking fund
provisions applicable to our Class B common stock. Shares of Class B common stock will generally not be transferable other than in connection with an exchange of LLC Units for
Class A common stock.
Holders
of shares of Class B common stock have the right to exchange their vested LLC Units (together with a corresponding number of shares of our vested Class B common
stock) for shares of our Class A common stock on a one-for-one basis.
Preferred Stock
We do not currently have any preferred stock outstanding. However, our amended and restated certificate of incorporation authorizes our
board of directors to establish one or more series of preferred stock (including convertible preferred stock). Unless required by law or by any stock exchange, the authorized shares of preferred stock
are available for issuance without further action by you. Our board of directors is able to determine, with respect to any series of preferred stock, the terms and rights of that series,
including:
- •
- the designation of the series;
- •
- the number of shares of the series, which our board of directors may, except where otherwise provided in the preferred stock
designation, increase or decrease, but not below the number of shares then outstanding;
- •
- whether dividends, if any, will be cumulative or non-cumulative and the dividend rate of the series;
- •
- the dates at which dividends, if any, will be payable;
- •
- the redemption or repurchase rights and price or prices, if any, for shares of the series and any applicable restrictions;
- •
- the terms and amounts of any sinking fund provided for the purchase or redemption of shares of the series;
- •
- the amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the
affairs of our company;
- •
- whether the shares of the series will be convertible into shares of any other class or series, or any other security, of our company
or any other entity, and, if so, the specification of the other class or series or other security, the conversion price or prices or rate or rates, any rate adjustments, the date or dates as of which
the shares will be convertible and all other terms and conditions upon which the conversion may be made;
- •
- restrictions on the issuance of shares of the same series or of any other class or series; and
- •
- the voting rights, if any, of the holders of the series.
We
could issue a series of preferred stock that could, depending on the terms of the series, impede or discourage an acquisition attempt or other transaction that some, or a majority, of
you might believe to
be in your best interests or in which you might receive a premium for your shares of Class A common stock over the market price of the shares of Class A common stock.
7
Table of Contents
Authorized but Unissued Capital Stock
Delaware law does not require stockholder approval for any issuance of authorized shares. However, the listing requirements of the
NYSE, which would apply so long as the shares of Class A common stock remains listed on the NYSE, require stockholder approval of certain issuances equal to or exceeding 20% of the then
outstanding voting power or the then outstanding number of shares of Class A common stock. These additional shares may be used for a variety of corporate purposes, including future public
offerings, to raise additional capital or to facilitate acquisitions.
One
of the effects of the existence of unissued and unreserved common stock or preferred stock may be to enable our board of directors to issue shares to persons friendly to current
management, which issuance could render more difficult or discourage an attempt to obtain control of our company by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the
continuity of our management and possibly deprive the stockholders of opportunities to sell their shares at prices higher than prevailing market prices.
Anti-Takeover Effects of Our Amended and Restated Certificate of Incorporation and Amended and
Restated By-laws and Certain Provisions of Delaware Law.
Undesignated Preferred Stock
The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with super
majority voting, special approval, dividend or other rights or preferences on a discriminatory basis that could impede the success of any attempt to acquire us or otherwise effect a change in control
of us. These and other provisions may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of our company.
Requirements for Advance Notification of Stockholder Meetings, Nominations and Proposals
Our amended and restated by-laws provide that special meetings of the stockholders may be called only by or at the direction of a
majority of the board of directors, the chairman of our board of directors or chief executive officer. Our amended and restated by-laws prohibit the conduct of any business at a special meeting other
than as specified in the notice for such meeting. These provisions may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of our company.
Our
amended and restated by-laws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than
nominations made by or at the direction of the board of directors or a committee of the board of directors. In order for any matter to be "properly brought" before a meeting, a stockholder will have
to comply with advance notice requirements and provide us with certain information. Additionally, vacancies and newly created directorships may be filled only by a vote of a majority of the directors
then in office, even though less than a quorum, and not by the stockholders. Our amended and restated by-laws allow the presiding officer at a meeting of the stockholders to adopt rules and
regulations for the conduct of meetings which may have the effect of precluding the conduct of certain business at a meeting if the rules and regulations are not followed. These provisions may also
defer, delay or discourage a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or otherwise attempting to obtain control of our company.
Amendment of By-laws
Our amended and restated certificate of incorporation provides that the board of directors is expressly authorized to make, alter or
repeal our amended and restated by-laws and that our
8
Table of Contents
stockholders
may only amend our amended and restated by-laws with the approval of the majority of all of the outstanding shares of our capital stock entitled to vote.
No Cumulative Voting
The General Corporation Law of the State of Delaware, or the DGCL, provides that stockholders are not entitled to the right to cumulate
votes in the election of directors unless our amended and restated certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation does not expressly provide for
cumulative voting.
Stockholder Action by Written Consent
Pursuant to Section 228 of the DGCL, any action required to be taken at any annual or special meeting of the stockholders of a
company may be taken without a meeting, without prior notice and without a vote if a consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of our stock entitled to vote thereon were present and voted,
unless the company's certificate of incorporation provides otherwise.
Delaware Anti-Takeover Statute
We have opted out of Section 203 of the DGCL. Section 203 provides that, subject to certain exceptions specified in the
law, a publicly-held Delaware corporation shall not engage in certain "business combinations" with any "interested stockholder" for a three-year period after the date of the transaction in which the
person became an interested stockholder. These provisions generally prohibit or delay the accomplishment of mergers, assets or stock sales or other takeover or change-in-control attempts that are not
approved by a company's board of directors.
However,
our amended and restated certificate of incorporation and by-laws provide that in the event Sterling Partners, a significant stockholder, ceases to beneficially own at least 5%
of the total voting power of all the then outstanding shares of our capital stock, we will automatically become subject to Section 203 of the DGCL. In general, Section 203 prohibits a
publicly-held Delaware corporation from engaging, under certain circumstances, in a business combination with an interested stockholder for a period of three years following the date the person became
an interested stockholder unless:
- •
- prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
- •
- upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (1) shares owned by persons
who are directors and also officers and (2) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer; or
- •
- on or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or
special meeting of stockholders, and not by written consent, by the affirmative vote of at least 662/3% of the outstanding voting stock which is not owned by the interested stockholder.
Generally,
a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder
is a person who,
9
Table of Contents
together
with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation's outstanding voting stock. If
Section 203 were to apply to us, we expect that it would have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. In such event, we would
also anticipate that Section 203 could discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders.
Under
certain circumstances, Section 203 makes it more difficult for a person who would be an "interested stockholder" to effect various business combinations with a corporation
for a three-year period. The provisions of Section 203 may encourage companies interested in acquiring our company to negotiate in advance with our board of directors because the stockholder
approval requirement would be avoided if our board of directors approves either the business combination or the transaction that results in the stockholder becoming an interested stockholder. These
provisions also may make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
Choice of Forum
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the
exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by our
directors, officers, employees or agents, (iii) any action asserting a claim against us arising under the Delaware General Corporation Law, the amended and restated certificate of incorporation
and the amended and restated by-laws or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine. It is possible that a court could rule that this
provision is not applicable or is unenforceable. We may consent in writing to alternative forums. Stockholders will be deemed to have notice of and consented to this provision of our amended and
restated certificate of incorporation.
Transfer Agent and Registrar
Computershare Trust Company, N.A., is the transfer agent and registrar for our Class A common stock.
Listing
Our Class A common stock is listed on the NYSE under the symbol "ADPT."
10
Table of Contents
PLAN OF DISTRIBUTION
We and/or one or more selling stockholders, if applicable, may sell the shares of Class A common stock covered by this
prospectus in any of the following ways (or in any combination):
- •
- directly to one or more purchasers;
- •
- to or through underwriters or dealers; or
- •
- through agents.
We
will prepare a prospectus supplement or supplements, if required, that will describe the method of distribution and disclose the terms and conditions of any offering of shares of
Class A common stock, including:
- •
- the name or names of any underwriters, dealers or agents and the amounts of Class A common stock underwritten or purchased by
each of them;
- •
- the offering price of the shares of Class A common stock and the proceeds to us and/or any selling stockholders, if applicable,
and any underwriting discounts, commissions, concessions or agency fees allowed or reallowed or paid to dealers; and
- •
- any options under which underwriters may purchase additional shares of Class A common stock from us and/or any selling
stockholder.
Any
offering price and any discounts, commissions, concessions or agency fees allowed or reallowed or paid to dealers may be changed from time to time. We may determine the price or
other terms of the shares of Class A common stock offered under this prospectus by use of an electronic auction. We will describe how any auction will determine the price or any other terms,
how potential investors may participate in the auction and the nature of the obligations of the underwriter, dealer or agent in the applicable prospectus supplement.
Pursuant
to our registration rights agreement with our sponsor and certain other stockholders, we will pay certain registration expenses of such selling stockholders.
We
and/or any selling stockholders, if applicable, may distribute the Class A common stock from time to time in one or more transactions
at:
- •
- a fixed price or prices, which may be changed from time to time;
- •
- market prices prevailing at the time of sale;
- •
- prices relating to such prevailing market prices; or
- •
- negotiated prices.
Underwriters,
dealers or any other third parties described above may offer and sell the offered Class A common stock from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. If underwriters or dealers are used in the sale of any shares of Class A common
stock, the Class A common stock will be acquired by the underwriters or dealers for their own account and may be resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined at the time of sale. The Class A common stock may be either offered to the public through underwriting syndicates
represented by managing underwriters, or directly by underwriters. Generally, the underwriters' obligations to purchase the shares of Class A common stock will be subject to certain conditions
precedent. The underwriters will be obligated to purchase all of the shares of Class A common stock if they purchase any of the shares of Class A common stock (other than any shares of
Class A common stock purchased upon exercise of any overallotment option), unless otherwise specified in the prospectus supplement. We and/or one or more
11
Table of Contents
selling
stockholders may use underwriters with whom we and/or such selling stockholders have a material relationship. We will describe the nature of any such relationship in the prospectus supplement,
as required, naming the underwriter.
We
and/or one or more selling stockholders, if applicable, may sell the Class A common stock through agents from time to time. The prospectus supplement will name any agent
involved in the offer or sale of the Class A common stock and any commissions paid to them. Generally, any agent will be acting on a best efforts basis for the period of its appointment. We may
engage in "at the market" offerings into an existing trading market in accordance with Rule 415(a)(4) under the Securities Act. We may authorize underwriters, dealers or agents to solicit
offers by certain purchasers to purchase the shares of Class A common stock from us at the public offering price set forth in the prospectus supplement pursuant to delayed delivery contracts
providing for payment and delivery on a specified date in the future. These contracts will be subject only to those conditions set forth in the prospectus supplement, and the prospectus supplement
will set forth any commissions to be paid for solicitation of these contracts. Any underwriters, dealers and agents that participate in the distribution of the Class A common stock may be
deemed to be "underwriters" as defined in the Securities Act. Any commissions paid or any discounts or concessions allowed to any such persons, and any profits they receive on resale of the
Class A common stock, may be deemed to be underwriting discounts and commissions under the Securities Act. We will identify any underwriters or agents and describe their compensation in a
prospectus supplement.
The
applicable prospectus supplement will set forth whether or not underwriters may over-allot or effect transactions that stabilize, maintain or otherwise affect the market price of the
shares of Class A common stock at levels above those that might otherwise prevail in the open market, including, for example, by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids.
If
at the time of any offering made under this prospectus a member of FINRA participating in the offering has a "conflict of interest" as defined in FINRA Rule 5121
("Rule 5121"), that offering will be conducted in accordance with the relevant provisions of Rule 5121.
We
and/or any selling stockholders may agree to indemnify an underwriter, dealer or agent against certain liabilities related to the selling of the Class A common stock, including
liabilities arising under the Securities Act. Under our registration rights agreement with the Sponsors and certain other stockholders, we have agreed to indemnify certain selling stockholders against
certain liabilities that may arise under the Securities Act.
The
specific terms of the lock-up provisions in respect of any given offering will be described in the applicable prospectus supplement.
Selling
stockholders may also sell securities under Rule 144 under the Securities Act, if available, or pursuant to other available exemptions from the registration requirements
under the Securities Act, rather than under this prospectus. Registration of the shares of Class A common stock covered by this prospectus does not mean that any shares of Class A common
stock will be offered or sold.
12
Table of Contents
LEGAL MATTERS
The validity of the Class A common stock will be passed upon for us by Simpson Thacher & Bartlett LLP, New York,
New York.
EXPERTS
The consolidated financial statements of Adeptus Health Inc. and subsidiaries as of December 31, 2014 and 2013, and for each of
the years in the three year period ended December 31, 2014, have been incorporated by reference herein in reliance upon the report of KPMG LLP, independent registered public accounting
firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.
CHANGE IN INDEPENDENT REGISTERED ACCOUNTING FIRM
On October 22, 2013, the board of directors engaged KPMG LLP, or KPMG, as the independent registered public accounting
firm of First Choice ER, LLC and its consolidated subsidiaries. Concurrent with this appointment, we dismissed Grant Thornton LLP, or Grant Thornton, effective October 22, 2013. The decision to
change our principal independent registered public accounting firm was approved by our audit committee. Grant Thornton's report on the financial statements of First Choice ER, LLC and its consolidated
subsidiaries for the year ended December 31, 2012 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting
principles. There were (i) no disagreements with Grant Thornton on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which
disagreements, if not resolved to the satisfaction of Grant Thornton, would have caused Grant Thornton to make reference to the subject matter of the disagreements in connection with its reports and
(ii) no reportable events of the type listed in paragraphs (A) through (D) of Item 304(a)(1)(v) of Regulation S-K issued by the SEC, in connection with the audit of the
financial statements of First Choice ER, LLC and its consolidated subsidiaries for the 2012 period audited by Grant Thornton through the replacement of Grant Thornton with KPMG.
Neither
we nor anyone acting on our behalf consulted with KPMG at any time prior to their retention by us with respect to (i) the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the financial statements of First Choice ER, LLC and its consolidated subsidiaries, and
neither a written report nor oral advice was provided that KPMG concluded was an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issue or
(ii) any matter that was the subject of a disagreement or a reportable event (as such terms are defined in Item 304(a)(1)(iv) and (v), respectively, of Regulation S-K).
13
Table of Contents
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate certain information in this prospectus by reference to other documents that we file with them. This
means that we can disclose information to you for purposes of this prospectus by referring you to other documents on file with the SEC. The information incorporated by reference is an important part
of this prospectus.
We
incorporate in this prospectus by reference the documents listed below:
- •
- our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed on February 27, 2015;
- •
- our Quarterly Report on Form 10-Q for the three months ended March 31, 2015, filed on May 1, 2015;
- •
- our Definitive Proxy Statement on Schedule 14A, filed on April 14, 2015 (solely those portions that were incorporated by
reference into Part III of our Annual Report on Form 10-K for the year ended December 31, 2014);
- •
- our Current Reports on Form 8-K filed on February 26, 2015, April 21, 2015, April 23, 2015, May 11,
2015, May 22, 2015 and June 19, 2015;
- •
- the description of our Class A common stock contained in our Registration Statement on Form 8-A filed on June 25,
2014, including all amendments and reports filed for the purpose of updating such description; and
- •
- all other documents filed by us under sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus
supplement and before the termination of the offerings to which this prospectus supplement relates (other than documents and information furnished and not filed in accordance with SEC rules, unless
expressly stated otherwise therein).
Notwithstanding
the foregoing, we are not incorporating by reference information furnished under Items 2.02 and 7.01 of any Current Report on Form 8-K (including any
Form 8-K itemized above), including the related exhibits, nor in any documents or other information that is deemed to have been "furnished" to and not "filed" with the SEC.
Any
statement contained in a document incorporated by reference in this prospectus shall be deemed to be modified or superseded for purposes of this prospectus to the extent that a
statement contained herein or in any other subsequently filed document that also is incorporated by reference in this prospectus modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus or any prospectus supplement.
We
will provide a copy of these filings (including certain exhibits that are specifically incorporated by reference therein) to each person, including any beneficial owner, to whom a
prospectus is delivered. You may request these documents, at no cost, by writing or telephoning us at the following address:
Adeptus
Health Inc.
2941 Lake Vista Drive
Lewisville, Texas 75067
Telephone: (972) 899-6666
Copies
of certain information filed by us with the SEC, including our Annual Report and Quarterly Report, are also available on our website at ir.adeptushealth.com. Information contained on our website or that
can be accessed through our website is not incorporated by reference herein.
You
should rely only on the information incorporated by reference or provided in this prospectus. Neither we nor any selling stockholder has authorized anyone else to provide you with
different information.
14
Table of Contents
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-3 under the Securities Act with respect to the shares of
Class A common stock covered by this prospectus. This prospectus, filed as part of the registration statement, together with the information incorporated by reference herein, does not contain
all of the information set forth in the registration statement and its exhibits and schedules, portions of which have been omitted as permitted by the rules and regulations of the SEC. For further
information about us and our Class A common stock, we refer you to the registration statement and to its exhibits and schedules. Statements made in or incorporated by reference herein about the
contents of any contract, agreement or other document are not necessarily complete and, in each instance, we refer you to the copy of such contract, agreement or document filed as an exhibit to the
registration statement, with each such statement being qualified in all respects by reference to the document to which it refers. Anyone may inspect the registration statement and its exhibits and
schedules without charge at the public reference facilities the SEC maintains at 100 F Street, N.E., Washington, D.C. 20549. You may obtain copies of all or any part of these materials from the
SEC upon the payment of certain fees prescribed by the SEC. You may obtain further information about the operation of the SEC's Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also
inspect these reports and other information without charge at a website maintained by the SEC. The address of this site is http://www.sec.gov.
In
addition, we are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and as a result, file annual, quarterly and current reports, proxy
statements and other information with the SEC. You will be able to inspect and copy these reports, proxy statements and other information at the public reference facilities maintained by the SEC at
the address noted above or inspect them without charge at the SEC's website.
15
Table of Contents
2,750,000 Shares
Class A Common Stock
Prospectus Supplement
Joint Book-Running Managers
|
|
|
| Goldman, Sachs & Co. |
|
BofA Merrill Lynch |
Lead Manager
BMO Capital Markets
Co-Managers
|
|
|
|
|
| Evercore ISI |
|
Piper Jaffray |
|
Dougherty & Company |