Adeptus Health (ADPT) Stock Down On Q2 Earnings Miss

Shares of Adeptus Health Inc. (NYSE:ADPT) declined 4.4% to close at $47.10 on Jul 22, following the dismal second-quarter 2016 results. The company reported adjusted earnings of 43 cents per share, up 2.4% from the year-ago quarter but missed the Zacks Consensus Estimate by a nickel.

Net operating revenues of $100.2 million beat the Zacks Consensus Estimate of $92.9 million and also increased 11.8% on a year-over-year basis.

The figure excludes revenues from 16 Colorado freestanding facilities, the Arizona hospital and its seven freestanding facilities, Dallas-Fort Worth hospital and its 30 freestanding facilities which were all accounted for as equity method investments.

Quarter Details

Net patient service revenues decreased 2.2% to almost $85 million. Management and contract services revenues were $15.3 million as compared with $2.7 million in the year-ago quarter.

System-wide net patient services increased 36% year over year to $142.4 million. The upside was driven by annual gross charge increases and stellar performance of some hospitals . Notably, number of freestanding facilities increased from 69 to 93.

System-wide same store volumes increased 4.3%. However, same store revenues decreased 2.8% in the quarter primarily due to softer volumes in the non- hospital outpatient departments (HOPD) markets in June.

Margin Details

Adjusted EBITDA decreased almost 2% to $22.5 million, primarily attributed to $1.2 million decline in equity in earnings of unconsolidated joint ventures and an increase of salaries, wages and benefits and other costs related to the company’s growth initiatives.

Salaries, wages and benefits, as a percentage of revenues, surged 500 basis points (bps) to 62% in the quarter. General and administrative expenses increased 30 bps to 13%. As a result, operating expenses, as a percentage of revenues, rose 170 bps in the second quarter of 2016.

Operating margin contracted 330 bps on a year-over-year basis to 11.9% due to lower EBITDA base and higher operating expenses.

Guidance

Adeptus Health reaffirmed its full-year guidance. For full-year 2016, the company expects revenue from its system-wide net patient services (including unconsolidated joint ventures) in the range of $640.0 million to $670.0 million.

Adjusted EBITDA is forecasted in the band of $110.0 million to $115.0 million. Adjusted earnings are estimated in the range of $2.55 to $2.65 per share.

Zacks Rank and Key Picks

Adeptus Health has a Zacks Rank #5 (Strong Sell).

Better-ranked stocks in the medical space are AMN Healthcare (NYSE:AHS) , Kindred Healthcare (NYSE:KND) and MEDNAX (NYSE:MD) . While AMN Healthcare sports a Zacks Rank #1 (Strong Buy), both Kindred and MEDNAX carry a Zacks Rank #2 (Buy).