The share price of Adeptus Health crashed 68% Wednesday after the operator of free-standing emergency departments waited until the markets closed Tuesday to announce a surprise $14.5 million loss from operations in the third quarter and emergency measures to avoid a cash crunch.
Investors pounded Adeptus from the opening bell Wednesday. Shares closed for the day at $8.60 per share, down $18.27, or 68%.
In its earnings release, Adeptus revealed that it had obtained $30 million in additional credit and lined up $27.5 million more in preferred stock from Sterling Partners, Adeptus CEO Tom Hall and co-founders Rick Covert and Dr. Jack Novak. The company now is working with investment bank Goldman Sachs to do a refinancing “that provides us with additional financial flexibility.”
In a note to investors, Jefferies analyst Brian Tanquilut called the credit addition and preferred stock deal “emergency financing” that was unexpected. He dropped his price target for Adeptus shares to $13 from $77.
Lewisville, Texas-based Adeptus is the largest player in a healthcare sector that has come under recent fire for usually operating in affluent suburban areas and for allegedly not providing its share of charity care.
A study published in Health Affairs in October found 400 free-standing EDs in 32 states, with two to four times that many projected in the future. But only 15 of the 32 states required a physician to be on-site during all hours of operation and only 11 required a certified emergency physician on premises.
In the third quarter, volumes at Adeptus facilities not owned in joint ventures with hospitals were lower than expected, Hall said. Additionally, Adeptus had collection issues with a third-party billing contractor and higher costs from opening three hospitals in Denver, Houston and Colorado Springs, Colo.
Revenue in the quarter fell 3% to $85.4 million from $88.2 million in the prior year period.
In 2016, Adeptus opened 21 free-standing EDs and two hospitals. That gave the company a total of 66 facilities, of which 24 are owned in conjunction with hospitals.
During the third quarter, the hospital-owned facilities performed better than those operated independently by Adeptus.
The company reported that patient volumes at the hospital-owned facilities increased to 32,086 patient visits in the third quarter, an increase of 39% from the 23,038 visits logged in the prior year quarter. Revenue from those visits increased to $40.3 million, a jump of 18% from the prior year.
Meantime, volumes at Adeptus' stand-alone centers deceased 19% in the third quarter to 24,243 patient visits. Revenue at those centers fell in a similar manner. It was down 23% to $50 million from $65 million in the year-earlier quarter.
In May, for example, Adeptus put 27 of its free-standing First Choice Emergency Rooms in North Texas into a joint venture with 25-hospital Texas Health Resources. Also included in the joint venture was Adeptus' Texas Health Hospital in Carrollton.