Welcome to the Adeptus Health Fourth Quarter and Year End 2014 Earnings Conference Call. Today’s call is being recorded. (Operator Instructions) At this time for opening remarks and introductions I would like to turn the call over to Tim Fielding, Chief Financial Officer of Adeptus Health. Please go ahead sir..

Thank you, operator. Welcome to the Adeptus Health fourth quarter and full year 2014 earnings call. On the call with me today is our Chairman, President and Chief Executive Officer, Tom Hall and our Chief Operating Officer, Graham Cherrington.

Before we begin I would like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including those identified in the Risk Factors section of our prospectus dating June 24, 2014 followed with the SEC pursuant to Rule 424-B of the securities act into June 25, 2014, and such factors may be updated from time to time in our filings with the SEC which are available on our website.

We assume no obligation to update any forward-looking statements. In today’s remarks all financial comparisons will compare to fourth quarter 2014 and full year 2014 to the same period in the prior year unless otherwise noted. In addition we will refer to certain non-GAAP financial measures.

Reconciliations of these non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available on the earnings release and supplemental disclosure on the Investor Relations portion of our website.

Following today’s call an archive recording of the replay will be available on Adeptus Health Investor Relations page for 30 days. With that I’ll introduce Adeptus Health’s Chairman, President and CEO, Tom Hall..

Thanks Tim. I’d like to welcome each of you and thank you for joining us for Adeptus Health’s fourth quarter and full year 2014 earnings call. We’re glad to have this opportunity to update you on our progress.

I’m going to make some comments then I’m going to pass it back over to Tim to take us through the financial and then I’ll close out the call off some few more comments and then we’ll open it up for questions. 2014 was a year of significant milestones and rapid expansion for Adeptus Health, as we continue to execute on our robust growth plan.

I’ll let Tim take you through the numbers but I'd like to let each and every one of you know we are pleased with our results. First getting started I am very proud of our team members and what we accomplished in 2014 and I want to thank each of them for all their contributions.

Everyone here worked really hard and did a great job, and I’m very appreciative. We literally are helping to change the delivery of emergency medical care in America. Our thesis remains the same, which is to bring access to the highest quality emerging medical care to the communities we serve. As everyone knows, the U.S. is significantly underserved.

The American College of emergency physicians gave ER’s a grade of D minus for access. In 2014 we opened 29 new emergency rooms. During our road show I am sure many of you questioned our ability to do this. Recently we were served certification from Medicare for Arizona General Hospital, our joint venture with Dignity Health in Arizona.

This JV shows our ability to be creative and come up with creative solutions to enter new markets. I’m pleased to announce the new facility is being received well in Phoenix and early patient volumes have exceeded our expectations. Dignity has been a great partner to work with.

In our press release today we note the construction of a new hospital in Dallas. This facility is projected to be completed in late 2015.

I want everyone to realize that the main goal of Adeptus Health is to allow all patients rather who they are, who their payer is have access to highest quality medical emergency care in the neighborhoods in which they live. This new facility will allow us to care for and get reimbursed for all patients in this market.

We’re also talking to many healthcare systems in many different cities in states and how we might help them bring better access to emergency care for their patients in their markets. You can expect to hear more from us on this trend in the future.

Regarding giving guidance, we’ve had quite a bit questions around guidance and we’re going to do or not do. Our desire is to give our shareholders and potential shareholders as much visibility to our growth plan and expected profitability as possible. The challenge is that we are inventing the space and emergency room volumes can be very lumpy.

As an example, and you saw my press release today Ebola hit hard in [indiscernible] in October. If you remember folks, we were Ground Zero here in Dallas for Ebola, the outbreak. It really affected our volumes as people just stayed home, they didn’t go anywhere. We ended the quarter with good numbers but the impact was definitely slow.

Our point here is that we're not a quarter-by-quarter company. If you believe in what we are doing investors need to appreciate that there may be some lumpiness in our numbers but realize folks, the slope of the line is definitely up. Going forward we expect to open 24 freestanding ERs in 2015 and two hospitals.

This includes Arizona General which recently got certification. As we have said to investors many times, we have good visibility to our growth over the next couple of years and are really excited about our futures.

Based on that and base on our strong performance in 2014 and our growth plans we expect to generate system wide revenue which includes revenue from unconsolidated joint ventures up $367 million to $377 million for the full year 2015. We expect adjusted EBITDA of $49 million to $53 million for 2015.

With that I'd like to turn the call back to Tim Fielding our Chief Financial Officer to take us through the numbers for the quarter and the year. Tim..

Thanks Tom. For the fourth quarter 2014 the number of patient visits totaled 47,643, an increase of 91.1% year-over-year, Adeptus sales generated net revenue of $70.1 million, an increase of 108% from the fourth quarter of 2013. The growth was primarily due to higher pension volumes resulting from the increase in the number of freestanding facilities.

The number of freestanding facilities more than doubled first 26 at the end of Q4 2013 to 55 as of December 31, 2014. Adjusted EBITDA which is a key metric we use to gauge the performance of our business was $10.2 million for the quarter, a 54.5% increase from a year ago.

For the fourth quarter we reported a consolidated net loss of $1.5 million attributable to Class A and Class B shareholders compared to a net loss of $2 million in the fourth quarter of 2013.

The decrease in net loss was due an increase of $36.3 million in revenue partially offset by increases in salaries, wages and benefits and other costs related to our growth initiatives, including an increase in interest expense and fees of $1.2 million related to our long-term debt and increase of 2.2 million in pre-opening cost associated with new facility openings, which includes 900,000 related to our equity interest in Dignity Health in Arizona General Hospital and an increase of $2.1 million in depreciation and amortization expense.

Adjusted earnings per share was $0.09 and GAAP earnings per share was $0.03 for the quarter.

Adjusted earnings per share is calculated using a weighted average of both Class A and Class B common shares outstanding which was 20,626,169 common share at December 31, 2014, and for the quarter was adjusted for 4.4 million of pre-opening cost associated with new facility openings including the $900,000 for Dignity Health Arizona General Hospital.

$300,000 of stock compensation expense, $500,000 of other costs associated with our growth initiatives and adjustment for taxes in order to establish a normalized tax rate of 35% for comparison purposes. For the full year, patient volume increased 89.6% to 146,000 patients, net revenue for all of 2014 was $210.7 million up 104.8% from the prior year.

For the full year adjusted EBITDA totaled $28.2 million, an increase of 76.1% over 2013. The increase in adjusted EBITDA was largely due to the $107.8 million increase in net revenue.

This increase was partially offset by an increase in salaries, wages and benefits other costs as we continue to grow the number of facilities, as well as costs associated with our IPO and other public company costs.

We reported a net loss for the full year of $17.3 million attributable to the Class A and Class B shareholders compared to a net loss of $3 million for the prior year.

The increase in net loss was due to the increase in interest expense and fees of $9.1 million related to our long-term debt, an increase of $6.6 million in pre-opening cost associated with new facility openings, an increase of $6.4 million related to our IPO and other public company cost and an increase of $7.1 million in depreciation and amortization expense, which was partially offset by new facility operating income.

For the full year adjusted earnings per share was $0.04 and GAAP net loss per share was $0.34.

Adjustments for the year include $10.6 million of pre-opening costs associated with new facility openings including $900,000 for Dignity Health Arizona General Hospital, $1 million of stock compensation expense, $5.2 million of IPO cost, $8.3 million of other costs associated with our growth initiatives and an adjustment for taxes in order to establish a normalized tax rate of 35% for comparison purposes.

We continue to add facilities under our master lease agreements with MPT, Medical Properties Trust and as of December 31, 2014 we have 18 facilities operating under the lease agreements and we have $89.4 million available.

Turning to the balance sheet, accounts receivable increased to $37.4 million at December 31, 2014 compared to $15.9 million in the prior year. This increase is primarily attributable to patient visits which increased from 24,927 to 47,643. At the end of the year our total debt was $106.8 million and our total net debt was $104.8 million.

We have $84.2 million available under our existing credit facility, contingent upon on meeting certain debt requirements. With that let me turn the call back to Tom..

Thanks Tim. As we continue our extraordinary growth, our focus remains on patient care. Our patients have consistently rated our care among highest quality in the nation.

I'm pleased to tell you that for the second year in a row we received the prestigious Guardian of Excellence Award [ph] for patient satisfaction in the top 5% among all emergency departments in the nation. We actually scored in the top 1%.

This is the direct result of our outstanding team which is committed to delivering highest quality care to the communities we serve.

In closing I'd like to reiterate that we are successfully executing on our robust growth plan, probable milestones we have already achieved and confident in our ability to sustain our growth momentum and take advantage of our opportunities ahead of us.

We believe that our strategic approach of combining innovative and scalable emergency care delivery models and synergistic partnerships with leading healthcare systems enabled us to provide quality care and expand access while building long-term value for our shareholders.

As side note we will be in New York City next week participating in the RBC Capital Markets 2015 Healthcare Conference on February 24th and look forward to seeing some of you there. With that we’ll be pleased to answer any questions and open it up for questions at this time.

Operator?.

We will now begin the question-and-answer session. (Operator Instructions) The first question comes from Brooks O'Neil of Dougherty & Company. Please go ahead..

I have a couple of questions. I thought I would just ask you a little bit more about your plans for the Dallas hospital. It didn’t look to me like you had announced a joint venture partner for that facility.

What are you thinking as you continue to develop that property?.

Brooks, so, what’s going on there is much like we did in Arizona, we built the facility so that we could actually run it ourselves. It’s going to be called Dallas First Hospital. It’s kind of hard to come up with names sometimes and, of course, it will be located not too far from our headquarters.

That being said, I can tell you that we are having some conversations with folks. They may or may not end up in a joint venture and so I don’t want to create any expectations on that at this time but as you might imagine, the ability to JV with us in this market will probably be very appealing..

Great. Perhaps you could just talk a little bit more about your expansion plans in Arizona. Obviously in Texas and Colorado you’ve started opening large number of First Choice ER units. And in Arizona you’re starting with the hospital. So help us think about how we should look at Arizona over the next year or two..

So with Arizona, I mentioned in remarks, because this was the first time we’ve done this, I could imagine shareholders, analysts, including ourselves, everybody was very anxious to see how that hospital would be received. Brooks, it's overwhelming how well we’ve been received out there. And so it’s going very well.

Actually I have Graham Cherrington sitting to me right now, our COO. So, Graham, our plans, I don’t know that we’ve always said but just within a range how may ERs do you think we'll be opening out there this year..

In the coming year in 2015, in Phoenix approximately four to five new ERs..

So that’s the plan Brooks and it will be [indiscernible] hospital name. I can say that we’ve had the Dignity folks working with us. They've been great to work with. They've been just absolutely super. They've been extremely helpful and we could be more pleased with what’s going on out there. Regarding Texas and Colorado it goes back to what we said.

Our pipeline is very full. We have visibility to what we’re doing and what we’re going and we’re pretty confident that we’re going to execute. As I'm sure you've already seen, I we think noted this morning, we opened four facilities in January. Now Brooks, don’t take four, multiply it times 12 and think we're going to open 48.

That's not going to happen, okay. But we just want to get out of the box fast and get off to a good start. But our plan this year is start 24 freestanding emergency rooms and for two hospitals. One of those is the Arizona hospital which we mentioned we just got certification for. And so that actually went pretty quick, the certification process.

So things are good..

Great let me just ask you one more question. And by the way I wasn’t multiplying four times 12. I think you opened 10 facilities one month last year. So I think I multiplied 10 times four..

Brooks, let's just not get carried away.

Is it cold in Minnesota? Is that the problem?.

I don’t think so. Anyway last question. So, you mentioned the impact of Ebola particularly in October. I was hoping maybe you or Tim could give us just a little feel for how the monthly progressions might have gone October, November, December and maybe even into January and early February.

Just give us a sense for how they might of bounced back following the impact of Ebola..

Yes, Ebola was really -- it was an October, November phenomena.

If you remember, it was so bad on television that, for example, I can’t remember which football team it was, team Dallas or New York?.

New York..

New York. And they didn’t even bring their spouses with them. People – we’d be traveling around, people were just freaking out. And so what happened is people just stayed home, Brooks. They just didn’t go to emergency rooms.

Yes, some people maybe have seen more, I know if you talked to maybe some of the health systems, because PHR had the Ebola, some people with other people’s health systems but in general it really affects our line with the softness. We started to come back in November we had a good December. The reason -- so we had a good quarter.

The reason for bring that up is, I’ve been running this company now for three years Brooks and it’s amazing how the volumes move all around. The thing is over the course of 12 months they usually end up where you think they’re going to end up. But literally January can be good one year, bad the next year.

February could be good next year and bad in this year. The first quarter can be soft, first quarter can be great, they just move all over, but what I have seen through three cycles is that they always tend to come out where you think they’re going to come out.

And so part of what we saw a little bit on was we had a great third quarter and then of course then we had Ebola. So in the third quarter everybody says, oh my gosh these guys are killing it, they’re thinking, they are going to even beat anything more in the fourth quarter Ebola here, right. So the point is we gave guidance.

We're not going to give quarterly guidance but we're going to try to communicate with people you as much as possible, but I can tell you I think we feel pretty comfortable today with the numbers we gave and we plan to execute on those numbers and if something dramatically changes, then don't bring anything into this.

I am not trying to send any secret message to anybody. If you happen to have one quarter softer than other, don't think that's an indication what the year is going to be, because the next quarter can be even better. They just kind of move around on you. So I'm not sure how you guide to that.

I know you have a world that you have to deal with, but that's the reality of our business. But that being said, we're very bullish..

The next question comes from Kevin Ellich from Piper Jaffray. Please go ahead..

So did Ebola hit all of your facilities in Dallas or was it just a handful?.

All of them. Again, we tend to look back and it's easy to forget today but people were freaking out remember? They want to block access for the U.S. from Africa and they went through all that stuff. And so it was all over the TV non-stop. And we were in ground zero..

I remember you seeing media reports of cancer patients foregoing treatment but I thought it was just crazy.

So Tim did you give us same-store result this quarter and if not could you give us those numbers?.

Same-store for the quarter was 1.7 negative..

And that was same-store revenue or volume?.

That was revenue and volume was negative 8.3%..

And is that still a function of the clustering and a building up concentration in existing markets?.

Yes, it's that but it's also the Ebola impact..

Okay, is there any way for you to parse out excluding Ebola, what the impact would have been?.

No..

Okay. And then looking at -- it looks like you guys had a little management and content services revenue this quarter.

Is that coming from -- where did that come from? Is that from the hospital?.

That's coming from the JV..

Okay.

So we'll see that build I guess throughout the year as that hospital ramps up? Is that how we should think about it?.

Absolutely, and we'll also show -- going forward we'll start showing our system wide revenue which will include revenues generated through that joint venture..

Through the joint venture. Got it. And then, maybe for Graham, with the four to five freestanding that are going to open up in Arizona, what's the timing? Are we looking at first half, second half? I don't need anything too specific just want to get a sense how we should build that in..

More towards the second half Kevin. Obviously our emphasis here in the first quarter is in providing great care to the folks at the hospital locations moving our operations and again as Tom reiterated, we've been very well received in the community..

And then Tom, with pre-opening expenses with the hospital, do you see maybe a little bit more cost opening up those facilities than you do with the freestanding ER's? Or how should we think about that?.

I'll talk, Tim maybe needed a more color. The Arizona General was our first one, right. So we tried to be very careful. This is a long game and so we wanted to make sure we did it right and I'm pleased to tell you it went really well. That being said, going forward I expect for us to get better and better at it.

We have more resources now and experience all of that. And so with I don't know how much specifics you want to get into Tim..

I can give you in writing, it will be more than what our freestandings incur, which we estimate $250,000. So I would say the hospital is going to be in the three quarters of a million range..

And then lastly for me for now, you had some property up in Ohio. I'm just wondering if you've made a decision as to what you plan to do with that and if you're going to expand their or what sort of visibility do we have in the next states you're going to move into..

So it's interesting with Ohio. If you recall, when that first came out, I got a lot of questions from people, folks that went missing either going to Ohio, property in states all over the place, that we have a reported -- happened to grab a hold of that and really take off with it.

By contrast nobody in the world knew we had Dallas going on and there are things under construction. So nothing is under construction. So I guess December would ever mean. So you could see cite the names out of it, nobody figured it out.

So it's hard because Macy reported pickup stop, and that doesn't necessarily mean that we're going there, we're going there, we're going there tomorrow. What we've tried to do Tim is we've to be opportunistic, we've looked at lot of markets, which when we saw two pieces of property available, we try to get control of those pieces of property.

And it's a type of thing where, how we think about it is we talked about just kind of being able to find key sites and put them in our pocket until -- it was the kind of the thing that could be a growth plan for next year, it could be four years from now, five years from now. We mapped the United States.

We know where we want to go and we know where the opportunity is and we're just trying to be opportunistic and this person just happened to find it in Ohio when we did that. And so now we're trying to get a little smarter on our naming so people don't have visibility to it. But we have property in a lot of different markets.

I would tell you this year you probably expect to from us on few opportunities. There's a lot going out right now and we're really focused on picking the best opportunities. That's what we're doing..

The next question comes from Brian Zimmerman of Goldman Sachs. Please go ahead..

Hi, thanks and good morning.

Can you provide some additional details behind your 2015 guidance? And I guess more generally just how are you envisioning pricing versus same-store volumes versus maybe some on the expense side?.

We really haven’t broke that out Brian. I don’t think we’re going to do that today. We just really need to work through it and see how the world unfolds, but I can see that -- Tim was talking to me this morning, we’re talking about maybe we give an adjusted EPS guidance to give you guys a little more color on that.

We were just really focused on revenue and EBITDA. Tim, do you have a number like that..

Yes. So, adjusted earnings per share, our guidance would be $0.53 to $0.61..

All right, that’s helpful. And then your pricing looked pretty strong this quarter.

I was curious what -- and you have any insights on what’s driving that? Was that a pick up in acuity or was something else driving this?.

It’s interesting. We’re in a lot of different markets now and we have different payer contracts that are prepared and then we're also seeing different acuity levels. One of the things I talk to folks a lot about is that we spend a lot of time and energy educating people on the fact that we are in emergency, we are not in urgent care.

I’ve also mentioned that we have relationships with urgent cares where we refer patients to them. And so with that -- as we continue to do that, the negative thing is that impacts the volume slightly. The deposit fee truly goes up, revenue per patient goes up and it’s the right thing to do for our peers and our patients and everyone.

And so we’re focused on that. So it’s really a combination of lot of different factors going on, but no one single factor.

All right and then my final question is more of a modeling question. Just trying to figure out how much CapEx you're expecting to spend in 2015, if you have maybe a general ballpark, that would be helpful..

The range is 8 million to 10 million..

The next question comes from Andrew Schenker of Morgan Stanley. Please go ahead..

Maybe just going back to the guidance a little bit more here. So, just to be clear, it sounds like your revenue guidance was a system-wide number, so an unconsolidated one, but obviously EBITDA is going to account for the specific accounting around JVs and consolidated and unconsolidated.

Maybe if you could just give us big picture what you guys are expecting perhaps for revenues for the JVs for the year? So help us maybe model the split there? And just maybe a little bit more on how you are accounting for the Dignity JV and potentially others percentage of ownership, et cetera.

Just help us work down from that system-wide revenue down to the EBITDA and income guidance..

Andrew I will pass you over to Tim in a minute. But conceptually the reason we haven’t given that number is, is that it’s very complicated and what I mean by that and we talk about the Dallas hospital. Well if it's not a joint venture the revenue looks one way, if it’s a joint venture the revenue looks in other way.

The EBITDA -- if anything, the EBITDA will probably, if we have [indiscernible], we'd probably grow, not necessarily this year but in future years. We think it probably benefits to have a big brand name on it but the result would be fine. And so that’s what’s kind of complicated for us. Our desire is to give you guys as much visibility as possible.

It’s just rally difficult because the hospital it was too much later and it's close or whatever and there's so many things going on. We have so many de novos and all of that stuff that we tried to do by getting system wide revenue.

We just felt that was the best way to give everybody some sense of what’s going on, really continue to report it like that also. And so we’ll show GAAP and we'll show system-wide, so people can follow it.

And the same thing with the EBITDA, Tim?.

I think Tom is right, I think it’s little bit early to come out with those figures. Remember that we’re going to be take Medicare, Medicaid crack here and there as well. So that kind of inflates the volumes but then you got the lower pay on those particular patients. So at the present time we’re not ready to break that out..

Okay. Maybe following up on that last comment you just made though about -- and the Texas I hear are about taking government revenues.

When you finish your Texas hospitals, you get CMS sign off, which is hard to conceive you wouldn’t, but how many of your existing freestanding EDs would potentially fall under that umbrella so that you could actually start receiving government revenues for those sites?.

We need to -- we're developing the roll off here as we speak with Graham and the groups on how we would actually roll that out, but conceptually our Dallas facility is to take Medicare patients. It’s important for folks to understand this. I made a comment about it in my formal comments.

When we think about this folks, our business is focused on bringing high-quality -- the highest quality access emergency Medicare people, more than to live. We seeing people today. We’re trying to really be a huge solution to this problem of access to emergency care.

And so when we think about doing this hospital and taking Medicare and Medicaid type care patients, folks, it's really about doing the right thing. It’s really about having everybody access to high quality care.

How you treat everybody with dignity and really take care about the folks out the and that’s what we’re trying to do here, and that’s really what we’re trying to do and what we hope to start. And so with that we should be able to -- the new facility should be able to do that.

We’ll probably create a rollout schedule so that as we roll out across our facilities, because there will marketing involved and all that, and of course we have a joint venture partner that will add complexity to it. We'll handle it. We'll figure it out. That's what we do. But it's a little complicated..

But presumably that would -- as you kind of mentioned, as volumes go down, let's say maybe a little deflation revenue, per visit?.

That's correct. Those don't pay as much as the commercial patients. But if you remember we're basically a fixed cost model. So I want you to get above your breakeven even at a lower level, still it's profitable for us..

Would that offset some bad debt you may be receiving at facilities [ph] today, where you treat a patient like that without being able to be compensated?.

So it will definitely lower the percentage of bad debt..

Your next question comes from Darren Lehrich from Deutsche Bank. Please go ahead..

A couple of questions here. Just first of all going back to same-store question, Tim how many same-store facilities were there in the fourth quarter? Just wanted to track that number..

17..

Still 17.

And how many will there be by your definition, in the first quarter?.

I think we add approximately four to five in the first quarter to same-store..

And then just a couple of questions around the pre-opening expenses. You talked about $900,000 from the Arizona. I just want to square that, make sure I heard you right.

Did you say that hospitals will have pre-opening of around $750,000? And I just want to understand how the $900,000 fits into that?.

That's correct, when you think about the first hospital that we opened up and we wanted to make sure that we had everything, all of our ducks in a row for that..

But I want to speak just a little bit Darren, we've a sample set of one. So the right answer is to spend a million maximum. I'm not saying we're going to but I am saying that's what we'll do. In reality, that's not a huge number relative to what these things are going to perform like and we're going to do and the impact on our business.

But we need to get more clarity on that. We have simple set of one right now. It’s a good simple but we a got sample set of one. And so we need a little flexibility on that going forward..

And to put the $900,000 that you are adding back into perspective, does that mean you spent double that amount? So are you bearing all the pre-opening costs or is the partnership bearing that cost? Or did you expend all that before you had the partner? I guess I just want to understand the flows on this..

The $900,000 that you see on the income statement is reflective of some of the revenue that's associated with that joint venture as well. So it's not apples to apples..

But we do share pre-opening with our partners..

And then just stepping back from the $900,000, if we look at the overall pre-opening number, it has increased pretty considerably.

Just can you update us on your average pre-opening costs that you expect to be adding back per unit? And maybe a little bit of help on thinking about pre-opening costs in general, just an overall number for 2015 for the add back?.

We see the pre-opening on the freestandings in that 250,000 ballpark. What you saw in fourth quarter is that we opened up 13 facilities in 13 weeks in Q3. Four of those were at the very end of Q3. So you had some flow over into Q4. We also opened up five facilities in Q4. And then in January we opened up four facilities right at the beginning of January.

So some of those costs were incurred beforehand as well..

Okay. And this ties a little bit in the pre-opening discussion, but the treatment of your equity and earnings line, at some point, presumably you'll crossover to making money in Arizona with that hospital.

But just from an operational standpoint, now that there's not pre-opening costs associated with that facility, it's licensed and open; what's going to be the treatment of the equity in earnings in your adjusted EBITDA number and how should we be thinking about that in terms of it crossing over into profitability?.

So in the first quarter we did not receive CMS certification until January 30th. So we will treat the hospital as though it were in the preopening stage for January. And then from February 1st forward we will treat it just like we would any other freestanding that's open and operating..

And then the last question I have, as it relates to the volume I know you obviously had some market impact in Dallas.

Just broadly speaking flu -- is flu helpful to you and have you seen much activity around flu, December, January, given what we're all seeing in terms of the national numbers?.

So here is what I would say. In December we saw flu, but flu I think at least in our world flu has been a little misstated. And let me talk -- what people are talking about, what we're talking about is the severity of the flu and what that means it was actually the severity of the strain of the flu that people had.

So the people we saw were actually sicker but there wasn’t as many of them and in Texas, you can look at the Texas trend and it was actually below what it was the prior year. In January flu was very soft very, very soft, from that perspective what we see, and so that just kind of is what it is. Flu is one of the things that moved all around you.

It definitely impacts your business when you see it but it was very soft. And looking by the same-store that Tim just talked about, so I realize and I appreciate everyone’s patience for this on the same-store volume. In fairness we have about clusters.

Where you don’t know and what you didn’t know because we weren’t willing to talk about it was, no one knew we were going to have a Dallas hospital. So we did some things that really hit our same-store negatives, but we knew we were going to open a hospital.

So we knew it was the right thing to do and it’s going to pay-off handsomely for us when we do that.

There are just things like that going on, Darren, we can’t talk about but that on the face it looks like what the heck are you guys doing? And in the reality, when this whole game plays out I believe you'll think we look pretty smart and looking what we’re doing. And so that’s what you’re going to continue to see in same store.

We have a lot of activity right now and it's really positioning ourselves and create these clusters, own these markets and then when these hospitals, the [indiscernible] hospitals, we’ll be very well positioned. And so that’s -- there's some of that in there..

The next question comes from Frank Morgan of RBC Capital Markets. Please go ahead..

You’d mentioned a certification on the hospital and I’m just curious from a cash flow perspective and the timing, when do you actually -- will you start receiving Medicare receipts from that opening, now that presumably -- you're billing Medicare now that you’ve got the provider number? How long does that cash cycle typically take on a new start up hospital?.

We actually just received our Medicare number. So we will be billing and we can bill back to January 30th..

Okay.

And then I guess a typical cycle on that is what maybe 25, 30 days for Medicare?.

Correct..

All right. And then also you look, you highlighted the growth in your AR, just given the natural growth in the top line. How do you feel from a financial standpoint about liquidity to fund this growth going forward? Because clearly as you add more that’s going to be a bigger number.

And how would that vary between say the freestanding versus a hospital? Thanks..

So in terms of the hospital, it’s going to have a longer ramp associated with it. We actually anticipate drag on cash flows for approximately 12 months as oppose to the three months for free standings..

But we feel well positioned from a cash perspective?.

Absolutely..

(Operator Instructions) The next question comes from Paul Karos from Whitebox Advisors. Please go ahead..

Can I just go back to the capital spending, the $8 million to $10 million. And I take it that’s the on-balance sheet capital spending.

Is there an estimate for the off-balance sheet capital spending as well?.

I’m not sure what you mean by that question. All of our real estate facilities are operating leases with NPT and so that’s how we’re [indiscernible] on a go forward basis..

I guess I’m thinking more that’s a value of the operating leases. There’s usually a -- in terms of a value that’s -- like if an airline buys an aircraft, a operating leases, but you know what the value of the aircraft is. So the $8 million to $10 million is what you'll see on-balance sheet, right? That’s what we should point at for on-balance sheet.

But I was thinking is there a number that takes into account what the final net present value of the operating leases are, however you might look at it financially?.

That’s not how we follow the operating leases we have with NPT..

Okay. And then the second question is just on the comment about the choppiness of the quarters and whatnot, which totally makes sense.

Are you trying to signal that the first quarter is a little bit soft, given the flu comment that you made?.

I’m not trying to signal anything. I’m just trying to educate people the fact that this business is an incredible growth machine but we're literally inventing this space. And so with that I mean -- perfect example is fourth quarter. We had Ebola. October was very soft and November came back, December was strong, and we had a good quarter.

It’s just in general people need to think about it like that understanding what we’re going and what we're doing. I think most people do. The thing -- when you think about our organization, what you have to realize is that I’ve talked to many folks about this.

We think the potential market is somewhere between 5,000 to 10,000 freestanding emergency rooms. There is about 400 out there today in which today we have 459 or whatever the number is on any given day. One of the things we told people and our shareholders many times is we have over 60% facilities in our pipeline.

We have lot of visibility to our prices and now we just talked about our new hospital in Dallas. So we just have a lot of visibility. We have a lot of good stuff going on here and I'm not trying to signal anything to anybody, but much like I just said on the startup cost to Darren, we're going to do what's right for the business.

Because the opportunity is just enormous. And so if we need to spend $300,000 more for preopening for some hospitals, because it's the right thing to do, I am going to do it. And the point of it for shareholders and for analysts, everybody is, is that it's going to be okay. This still looks good and we have a huge opportunity in front of us.

For those who don't know me, a lot of folks who know me for a long time. We're a public company that try to really be open with people and really give in as much information that I can. And so that's really what's driving that..

The next question comes from Kevin Ellich from Piper Jaffray. Please go ahead..

Just a couple quick follow-ups. Tom, first off, just wondering if you have any opinion on the Texas Senate Committee Bill SB 425.

Do you think that has any legs or is it possible that that gets through?.

I'll let Graham answer that question for you..

We're aware of Senate bill 425 and first choice here in Texas participates in [indiscernible] which is a trade association here in Texas. So we are working closely on that.

We reviewed it and are working with the senators staff to first of all gain further clarification his goals and objectives with the bill and then making sure we do what's right for the industry..

We're not alarmed by it Kevin..

What sort of impact do you think pricing disclosure would have for you guys? Would that be good? I've seen the chart from Blue Cross Blue Shield of Texas that shows that freestanding ER costs are lower than hospital ER..

Only time would tell how that would impact us but one of the things, as it is we spend a lot of energy educating people on the fact that we're an emergency room. And so I can't speak for people that are competitors in the space. But my guess is that we see less urgent care in the range. We're less dependent on that.

And so if that's the case then we shouldn't invest nearly as much, because when we see people, they're emergent, they need to be seen..

Sure and then just lastly. Can you talk a little bit about the competitive landscape? It sounds like there's a property out there, small chain, that might be looking to do -- I don't know if they use a financial sponsor behind it. That's looking good to raise some capital or sell.

Just wondering if you see increased competition or maybe some times getting out of the business?.

We're seeing everything. We tend to see more mom and pop stuff, people, doctor-owned stuff, onesies, twosies show up. I realize there is small changes out there that people are talking to. Candidly since our IPO, the interest levels kind of went up, as you might imagine. As people see what we're doing. We're seeing more competition in some markets.

I can see it some places it affects us and then there is other places where we recently had a couple of markets where a couple of them closed. And so that helped us from our minds perspective. So it's competitive market but there is a lot of opportunity in Texas.

We don't see as much competition in Colorado and of course as we move to other states with our new model, there is a barrier to entry. You just can't go up in just freestanding. And so if anything, that should take a lot, the volatility on a remodel..

And then just to clarify, Tom.

When you were talking about the Carrollton, Texas, hospital, when that opens up, and whether you partner or not, all of your free-standing ERs are within a 35 mile radius of that hospital right? So they, in theory, could become satellites?.

They are all within 35 miles from a hospital that is correct..

So that really could be a driver of same-store growth, yes?.

It could be very substantial..

This concludes our question-and-answer session. I would like to turn the conference back over to Thomas Hall, Chairman, President and CEO for any closing remarks..

I would like to thank everybody for joining us in this morning's call. We really appreciate your support, we appreciate your questions, because it gives us an opportunity to tell our story and once again thank you for your support, for your interest in Adeptus Health.

And we look forward to seeing you on the road as well at come conferences here in the next few months. So once again thank you very much for joining us. Have a good day..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..