Adaptive Biotechnologies Corporation (ADPT) Q1 2015 Earnings Report, Transcript and Summary

Good morning, and welcome to the Adeptus Health First Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Tim Fielding, Chief Financial Officer of Adeptus Health. Please go ahead.

Thank you, operator. Welcome to the Adeptus Health first quarter a 2015 earnings call. On the call with me today is our Chairman and Chief Executive Officer, Tom Hall and Graham Cherrington, our President and Chief Operating Officer. 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 annual report on Form 10-K. Such factors might 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 first quarter 2015 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, and good morning, everybody. I’d like to welcome and thank all of you for joining us for Adeptus Health’s first quarter 2015 earnings call. We’re glad to have this opportunity to update you on our progress and results. Our strong momentum continued into the first quarter of 2015 with growth coming from both expansion of our network of freestanding emergency rooms and through partnerships with leading healthcare providers. We are very pleased with our result. Before letting Tim take you through the numbers, I’d like to touch on a few of the highlights. First, I want to thank all of our team members. Their accomplishments help drive our success. I am pleased to announce our team members who voted us among the 2015 best companies to work for in Texas. In fact, we were even number seven of the large company category. As we continue to grow rapidly, our core mission remains the same - to provide the communities we serve with greater access to the highest quality medical care. Emergency care remains significantly underserved in the U.S. and we are helping to transform the emergency and medical care in the U.S. We opened seven new emergency rooms during the first quarter bringing our total number of freestanding facilities to 62. Last week, we opened our 63rd site. During the quarter, we also opened Arizona General Hospital, our joint venture with partner, Dignity Health in Arizona. The hospitals have been very well-received by the Phoenix community with more than 5,000 patients being treated in the first quarter. This is above our initial expectations. Construction is progressing in our new hospital in the Dallas area. And it is expected to open in the late 2015. Earlier this week, we announced an exciting new partnership with the University of Colorado Health to expand our high quality emergency care in Colorado. Under the partnership, UC Health will hold the majority stake in our 12 existing and 200 construction facilities amphis [ph] and emergency rooms in Colorado. The facilities, which we will continue to operate - which will continue to be operated by Adeptus Health will be renamed UC Health ER and be integrated in the UC Health electronic medical record system, facilitating seamless care between the freestanding emergency rooms and UC Health Hospital. The partnership also includes planned hospital locations in Colorado Springs and Denver. The Dignity Health and UC Health partnerships reflect the approach we are taking to further expand access to high quality emergency care in the communities we serve. We are continuously talking to other healthcare systems in cities and states around the country and how we can help them bring improved access to emergency care at the community they serve. These partnerships, together with continued expansion of our First Choice Emergency Room network are the key drivers of our strategic growth plan which remains on track. As we have previously told you, we expect 24 new freestanding facilities this year and expect to have two hospitals in operation by the end of 2015. To help fund this continued growth, we were able to secure access to an additional $250 million in capital to be funded under agreement with Medical Properties Trust. Based on our strong performance in the first quarter of 2015 and full year growth plans including 24 freestanding facilities and two new hospitals, we are raising our guidance. We expect to generate system-wide net patient services revenue, which include revenue from our consolidated and joint venture of $388 million to $393 million for the full year 2015. We expect adjusted EBITDA of $59 million to $61 million and adjusted earnings per share of $0.82 to $0.91 for 2015. Now, I’d like to turn the call back over to our Chief Financial Officer, Tim Fielding, who will walk you through our first quarter financial results. Tim?

Thanks, Tom. For the first quarter of 2015, Adeptus sales generated net operating revenue of $81.5 million, an increase of 110% from the first quarter of 2014. The growth was primarily due to higher pricing volumes resulting from the increase in the number of freestanding facilities, higher acuity levels and annual growth charge increases. The provision for bad debt was 15.6% of patient service revenue. Q1 typically has the highest bad debt percentage as healthcare plans over and deductibles have not been met. We estimate four-year provision for bad debt, to be between 14% and 15%. As Tom noted, the number of freestanding facilities nearly doubled from 32 at the end of Q1 of ’14 to 62 as of March 31st. Adjusted EBITDA which is the key metric we use to gauge a performance of our business was $13.3 million for the quarter, 360.4% increase from a year ago. For the first quarter, we reported net income of $1.6 million, of which $594,000 was attributable to Adeptus Health, compared to a net loss of $2.8 million for the first quarter of 2014. The increase in net income was due to an increase of $42.2 million in net 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 $1.1 million related to our long-term debt. An increase of $700,000 in preopening cost associated with new facility openings, including $100,000 related to our equity interest in Dignity Health in Arizona General Hospital. And an increase of $1.7 million in depreciation and amortization expense. Adjusted earnings per share was $0.16 and GAAP earnings per share was $0.06 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 $20,648,684 common shares at March 31st. And like adjusted EBITDA, it was adjusted for preopening cost associated with new facility openings, stock compensation expense, other costs associated with our growth initiatives. And in addition, adjusted for taxes in order to establish a normalized tax rate of 35% for comparison purposes. As you’re aware, the Dignity Health-Arizona General Hospital joint venture is accounted for using the equity method under GAAP. Results from the joint venture are thus reflected in two line items of our consolidated statement of operations, equity and net loss or income of the unconsolidated joint venture and management and contract services revenues. Our recently announced joint venture with UC Health will be accounted for in the same way beginning in the second quarter. To provide investors with a clear and more complete picture of our performance and growth over time, we are also reporting non-GAAP system-wide metrics such as system-wide net patient services revenue which includes a net patient services revenue around consolidated joint ventures. For the first quarter, system-wide net patient services revenue, including Dignity Health-Arizona General Hospital totaled $84 million, up 116.5% year-over-year. System-wide volume was 51,617 patients for the quarter. And our system-wide revenue per patient was $1,627. Turning to the balance sheet, accounts receivable increased to $49.5 million at March 31st compared to $18.2 million in the prior year. This increase is primarily associated with the new facility openings. At the end of the quarter, our debt was $130.2 million. And our total net debt at March 31st was $116.3 million. We continue to add facilities under our master lease agreements with Medical Properties Trust. And as Tom mentioned, we recently entered into an amendment of our existing lease agreements in which Medical Properties Trust committed to an additional $250 million of capital to support our continued growth. As of March 31st, we have 20 facilities that are operating under the lease agreements. With that, I want to turn the call back to Tom.

Thanks, Tim. As we continue our growth, we are maintaining our unrelenting focus on patient care. We are ranked among the top 1% of emergency departments nationwide in patient satisfaction. It’s testament to the outstanding quality of our team. Our patients rate our care as top in the nation. And it’s great to know that our team members also rate it up as a great place to work. In closing, I’d like to reiterate that we remain confident in our ability to sustain the growth momentum we’ve seen in the past and to maximize the opportunities ahead. Our combination of an innovative, scalable emergency care delivery model in partnerships with leading healthcare systems is enabling us to expand access to the highest quality emergency medical care. With that, I will pass this back over to the operator for questions. Operator?

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Andrew Schenker of Morgan Stanley. Please go ahead.

Thanks. Good morning. So maybe just to start, obviously a very impressive quarter and good raise to the year here on guidance. Maybe you could just talk about what gives you the confidence so early in the year to raise guidance by so much maybe? What I mean by that, what are the moving parts behind it? Is it better performance out of Arizona General? Better same-store at the existing facilities? Thanks.

Andrew, first of all, good morning. I think when we look at what gives us the confidence, what it really is that it’s seeing how our different facilities are performing and also having visibility, for example, as you saw UC Health coming online in the Colorado Forest. The fact that just a lot of positive things going on in our business right now. And so with that and with the performance that we had in the first quarter, we kind of felt like we needed to raise again to stay on track with what the Street expects and what we expect. And here was the timeline, we don’t want to over commit, but we also don’t want to under commit and have people question, you guys are just sandbagging or something. And so we’re just trying to keep it in the middle. [Indiscernible] but I will tell you that we feel very good of our performance. We’re excited about what’s going to happen in Arizona this year with our joint ventures, our new facilities coming online. We’re very pleased with the way that Arizona General is performing. You saw the UC Heath announcement. We think that it’ll have a very positive impact on our business this year. And then we have other things going on that we expect to unfold during the year. And so as we have visibility of those things, we just try to [indiscernible] as much visibility possible.

Okay. Well, thanks. Maybe following up a little bit more there on the [indiscernible] Colorado deal there. I mean how should we be thinking about the impact to consolidate EBITDA, right, of the 12 JV facility there? I mean, should we see maybe a - will there be a step down at first and then ramp over time that that deal gains traction. And similarly, if they’re going to be offsetting perhaps fees and revenues with social management revenue, associated with that and how should we think about bad line like related to the deal going forward. Thanks.

Okay. What happened there, as you might imagine, it was fairly complicated to pull this joint venture together. What we agreed upon is we read upon a waterfall. And what the waterfall means is that basically if there was a number, if there was a profit that we were making before this joint venture took place, we estimated what we thought our 2015 was going to look like. The joint venture part, you have two options. One is you can write us a big check. If you get to be on Square Market in that, that you’re going to take [indiscernible] that might be a very large number you can imagine. In Cambridge, we didn’t really have any interest in selling that earnings. Or two, or you can do what we did which basically create a waterfall. How the waterfall works is that this is not a real number. So please don’t quote me on this number. But just for example, if you said the profit was $10 million, what happens on the joint venture is we get the first $10 million of earnings. So we would not have a step back on our EBITDA going forward. EBITDA should maintain the same if we were independent this year. Above that waterfall, above that, where we thought we were going to perform this year, then we share that on the 50.1, 49.9 basis. Also, we have a management fee much like you’ve seen in the Dignity deal out in Arizona. We get paid for managing the business. And then we’re also staffing the business for the national medical professionals which is our doctor management group. And so with this, we’re very bullish on this. We’re really excited. UC Colorado is a wonderful system. I mean they have a great replication, really high quality folks. And we just couldn’t be happier to be partnered with them. They think that we think that it will improve our volumes. When we put their names on the building, we think that that will absolutely have a positive impact on our volumes. As we mentioned in the press release, also as we look to next year, you’ll see a couple of hospitals coming online out there, one in Colorado Springs and one in Denver. When we do that, that will allow us also to take Medicare, Medicaid and Tricare. There’s a lot of Tricare in that market. For example, in Colorado Springs, that’s the Air Force Academy is out there. And so we’re pretty bullish. We’re really excited about this joint venture. We think it’s going to have a very positive impact on our business. And I think our partners are really excited about it also. And they’re excited about bringing access to emergency care to their folks and their household. And so it’s just going to be a great opportunity for us. And hopefully it shows people our ability to be innovative in how we take our business to more of a joint venture model. And so hopefully I answered your question.

You did. I’m just going to slip one more in here real quick. Just thinking about the development of the 24 and 15 [ph], I just want to double-check my math here, you’ve done seven year-to-date. You guys have targeted four to five more in Arizona and as you mentioned, two more in Colorado, so kind of rolling all that up gets you to about 14. The other 10, I mean, should I be thinking we’re expecting those in Texas? Is that a safe way to think about that?

Correct, yes.

Okay. Thank you very much.

Thank you.

The next question comes from Brooks O’Neil of Dougherty & Company. Please go ahead. Brooks O’Neil: Good morning, guys, and congratulations on the terrific results. I just have a couple of questions. I guess just a little detail question first maybe for Tim. I’m curious, I guess I had a sense you had a 70-30 joint venture with Dignity down in Arizona and I’m curious why you’re accounting for that on the equity method.

No, that’s - the joint venture in Arizona is very similar to the joint venture in Colorado. It’s 50.1, 49.9. Brooks O’Neil: So Dignity has the majority interest there as well?

That’s correct. Brooks O’Neil: Is there a similar waterfall type arrangement there or probably not since I guess you started from scratch there?

Yes, that’s the difference between the two is that we started from scratch because there is not a waterfall in the Arizona market.

And Brooks, maybe where you’re getting your 70-30, as what we’ve said is, by the way that the model unfolds, we expect to get 65% to 70% of the economics. Brooks O’Neil: I see. Thanks a lot. That’s very helpful. So I guess another question I had, and I’m just curious about this. Obviously Tim went through the balance sheet metrics and it looked like the debt was up somewhat from the end of the year. And given the arrangement with the REITs, I’m just curious what is causing that to go up now and where do you see that going as the year goes on?

Yes. The debt did continue to rise a little bit as we finished up the non-MPT facilities and finished with those capital expenditures. Going forward, we don’t expect the debt numbers to rise as we continue to generate positive cash flow in 2015.

And we would actually expect debt to come down, correct?

At the end of the year, yes.

Yes. Brooks O’Neil: Okay, good. That’s very helpful. I’m not sure you’re going to be willing to do this but can you just give us any update at all on how you’re coming along with the Dallas Hospital?

It’s coming nicely. It’s going nicely actually. We had our board meeting yesterday. We went over and they got a glimpse of it and it’s coming along nicely. Brooks O’Neil: Great. One last question. I don’t believe yours is a same-store revenue kind of model, but I don’t think I saw the number for same-store revenues in the press release. So I’m curious if you have any comments about that.

I’ll let Timmy answer it and I’ll give you some color on the -- Brooks O’Neil: Perfect.

So our same-store revenue for the quarter, based on 24 facilities out of our 63 is 11.3% positive and our same-store volume is 10.5% negative.

So what we saw there, Brooks, is we’ve done a lot of education to folks on the fact that we’re not emergent care. And we continue to do that. It was interesting, I actually met someone the other day that was - in a different board meeting - that spoke up because they were asking - what are they - are they just emergent care or are they really emergency [ph] - I mean, this person spoke up. So that was in one of their facilities the other day. And I heard them tell three different people we’re not emergent care, we’re in the emergency room. So we spend a lot of energy on that which affects our volumes. We also, because of that, we’re seeing the acuity go up. So average acuity goes up which means when the average acuity goes up, the average revenue per patient is going to go up. Brooks O’Neil: Yes.

And so with that, that’s why you see that - why it’s down - the volume is down. But actually same-store sale is 11.3% positive. As we move into these hospital joint ventures, we expect - we anticipate to see the volumes turn the other direction but also to be positive. And first, when we get online, like for example with the Texas Hospital and then when we get the hospitals online in Colorado, we expect it to be very positive. Brooks O’Neil: Yes, that’s great. I appreciate all that color. Just one last question. Since your experience with the hospital really relates right now to the Dignity Hospital, can you just give us a little I guess color on what kind of procedures you’re seeing there, particularly, obviously, if there’s any difference in the ER performance or what you’re seeing from the surgery suites and the real hospital portion of that building? Thanks a lot.

Brooks, Graham Cherrington, our COO is with me and I’d like him to answer that.

Great, thanks. So, Brooks, good morning. Our hospital in Levine [ph] continue to be very well received by the community. So we’re seeing quite good volumes in the emergency room with acuity what you’d expect at a community-based hospital. So we’re getting a wide swatch [ph] of people and we’re - again, acuity is what you’d expect at a community hospital. The surgical suites and the in-patient portion of the hospital are ramping up. Again, we only ever had our Medicare certification since January 30th but we’re pleased with the direction that those two business units inside the hospital are trending. Brooks O’Neil: Great. Thank you very much and congratulations again.

Thanks, Brooks.

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

Hi, good morning. This is Dana Nentin in for Darren. Just real quick on the Colorado JV, can you disclose how much - or have you disclosed how much run rate revenues is in the Colorado market now in your business?

We have not disclosed that, no.

No, that’s part of the run rate that Tom was talking to you about. The run rate is basically a proffered return that we get prior to the split, the 50-50 joint venture. But we’ve not disclosed what that is. And so what it is, is we actually did a pro forma for our 2015 because we had our facilities running but we also have new ones coming onboard that are almost done. And so the [indiscernible].

Got it. Okay. And then it sounds like some of the revenue growth was driven by increases to your charge master. Can you clarify sort of what the frequency of those charge increases? Are they once or twice a year? And then the timing of those and then I guess any color on the size of the increase this quarter.

Yes. The increase is really a function of - we look across our different payers and all that stuff. And we do annual increases, so annual would be your answer. But that being said, with the acuity levels changing and shifting, we had to really analyze that to make sure that what we were doing was just in market, right? And so it’s just a function of that. And we put that actually in place near the end of the quarter.

Okay. And then one quick housekeeping item. I think you gave the total number system-wide patients digits. But I wonder if you could give the break out between consolidated and not consolidated facilities?

As we go forward, because we are going to have additional JV partners, we’re going to stick with the system-wide revenue metrics and the volume metrics so that it’s all on a level playing field because as we convert to a JV model, it’s going to become more and more important that we stick with the system-wide metrics.

Okay. Thank you.

Thank you.

The next question comes from Paula Torch from Avondale Partners. Please go ahead.

Thank you so much and congratulations on a very strong start to the year. I had a question on some of the clustering and some of the facilities in your current market. As you think about building facilities to fill in your markets, what in particular are you doing in these markets to solidify your market share? And is there anything different that you’re doing in terms of marketing? And those markets as well and have your advertising cost increased at all? If you could give us some color there, please.

From markets and clustering, so one of the things that we talked about is that we have our pipeline. And in our many presentations, I’m sure people have seen that our pipeline is about two years of pipeline. And so the facilities that are coming online right now are planned two years ago, 18 months ago. That being said, we absolutely have a market strategy and a market share strategy in all of that. The key with this business is it’s not even near maturity. And so when you think about - what I’ve told folks is that - to give you some perspective just in Colorado, Arizona and Texas, you get 150 facilities. And I think as we get into that more, that number might actually even be larger than that. And so when we think of where we are today at 63, we’re not even close that. Regarding the cluster specifically, we continue to cluster in Dallas and in our other markets. I want to think that I mentioned them the last conference call when we announced the hospital in Dallas, is that some of the clusters have hit us. It costs us, right? It absolutely costs us. We could easily see those patients and charge them a $1,000 or whatever and make a lot of money. But we don’t think it’s the right thing to do. We think it’s important that we give the right quality care to the folks that need it. And we got relationships with urgent cares and we actually send people over to them. What’s been interesting is, I can tell you I’ve been running the company now for three years. And three years ago the urgent care’s used to really fight with us, because they thought we’re just trying to steal their patients. In our board meeting yesterday actually we had a marketing showed a slide, where we are starting to get more referrals from urgent cares. They have actually realized that we don’t want their patients. We’re not trying to take their patients. And so with that they’re starting to send us patients. And so I don’t think the transparency hurts us at all, because I think we’re already there. Does it hurt others? I guess, time will tell and I can’t speak for how my competition is communicating that to our patients, but I think we feel good about it when we get up in the morning, how we communicate with people.

That’s great. Thank you. I think I would agree with you on that. And just lastly with the injection of the new capital announced today, do you foresee accelerating your growth plans perhaps into next year? I know we talked about 24 or 28 to 25, I guess the next couple of years, do you expect to keep that current pace or is there anything holding you back perhaps from opening more facilities?

I think what’s interesting is that from our press release with UCHealth, I’m not sure anybody has visibility besides we were going to build two new hospitals in Colorado next year and open them up. The impact we talked about it quite often. I know even analysts understand this, but I’m not sure if just the folks just listening to us, they don’t follow us every day. The impact of when we bring those hospitals online and then all of a sudden we can take Medicare and Medicare and Tricare is dramatic on our volumes and dramatic on in all of our numbers in a positive way. And so with that, we’ll continue to execute on the level that we’ve told folks you just got visibility to a couple of hospitals coming online next year alone with a 24 freestanding as emergency rooms. I think the impact in the numbers would be very dramatic as folks start to model this and figure it out. One thing though I want to make sure that the policy that everyone understand is, when we look at doing these hospitals we look at doing these joint ventures. The real driver for us and I tell our folks all the time and I tell the nurses all the time when I meet with them, folks that come to our facilities, they love them. They’re seen by a doctor in average under five minutes. We can run right up to the COO office and say, we can scan you head to toe and run lab test, now move back in 30 minutes. I mean, it’s an incredible experience. I’m pretty passionate. My mother is 83-years-old. She’s been in the emergency room lately. She’s been there for 8 hours, 10 hours waiting to be seen. And I would tell you that folks around here will tell you that, we’re all very passionate about the fact that, doesn’t everybody deserve access to these emergency rooms, doesn’t everybody really deserve to have that high quality care. We don’t charge more. I mean, it’s not one of these overcharging people more or doing more. It’s not that at all. We’re just really improving access to the highest quality emergency care. And as you see them from our announcement this morning we were ranked in the top 1% of emergency rooms in nation-wide and then our people rate this as seventh best company to work for in Texas, which means we’re not beaten logistics every day. We actually - we treat them great and it comes through with our patients, so I’m sorry, here I got my soapbox a little bit. But I get to do that, when I get up every day in the morning, I feel really good about what we’re doing, because we’re changing the rule of emergency care in America and work for people like my mom and people like dad through these systems and these hospitals and these joint ventures. And they all will be able to go there and they all will be able to have that same wonderful access to care. And that’s what we focus on. All that being said, it would dramatically drive the numbers far dramatically.

Great, thank you. And I’m sorry I just have a quick follow-up. You talked about the two hospitals in Colorado next year. Can you give us any sense on how we should be modeling them? Is it a first-half, second-half, between the two, if you can give us that now, I’m sure you have that?

I think we’ll have to come back to you on that. You know what, it came all in the press release. It needs to be in the press release, but we originally looked at doing the joint venture. We thought we’d probably announce that later in this year. UCHealth was really excited about this and wanted to see if we can put it in place sooner, so we did, it’s great, it’s wonderful, all this and that. Well, hospitals are under-construction and mostly under-construction, but as it gets a few more months go by I’ll be able to give you much better clarity on when we expect them to come online. But they’ll definitely come online next year.

Great. Thank you so much and good luck for the next quarter.

Thank you.

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

Good morning. Obviously, a lot of good things happening in terms of your growth, but I’m just curious if you could give us an update on has your growth influenced any of your competitors in the marketplace or are you seeing any change in any of your bigger markets with regard to competitor development? I know part of your strategy was to be a first mover and get out there early, so just an update on that front?

Yes, I think, Frank, first of all, good morning. We see competition. We see a lot of small mom and pop competition in Texas. And so we see him come and we see him go actually if we go. So I would tell you probably the biggest difference between our model and their model is, they don’t have our real estate expertise. And so these folks tend to pick places, land locations that to the normal eye would appear pretty good and it is not. And so we’ve actually washed a few of the smaller players close some operations, because they were just on the wrong location. And the bigger players, I don’t follow, we see that closely, which is another building a bunch of them. We are seeing other folks building them really in more competition in Texas than in Colorado and Arizona, I mean, they exit out there, but because in those states you have to be an outpatient department in the hospital system. It doesn’t really allow for that just total free for that just total freestanding, in Colorado, you can, but it’s a little more complicated. And so we are not seeing the - we are seeing competition, but not to the extent this year in Texas.

Gotcha. And then maybe a Tim question. When I look at your bad debt, I think you’ve said that you thought that first quarter was the highest. But you also said and you thought that’s what it would be for the year, did I understand that correctly?

I think for the year it would be between 14% and 15%, and for the first quarter, it was 15.6%.

Okay. So maybe a slight reduction, but not a whole lot sort of balance through…

That’s right. I agree.

Okay. And then secondly and final question just on looking at cash flows, obviously huge growth in revenue, but also even bigger growth in AR. And I’m curious when you think about and when you look at the model with all the growth, how do you see the cash flow in that DSO number over time and what do you think certainly driving that? Thanks.

Yes. So obviously with our growth comes the growth in the AR, we don’t see the same growth in our AP, because what we talked about is that we are fixed cost model, so that’s one of the dynamics that you have going there. And so over the course of the remainder of the year, we actually expect, there will be cash flow positive.

Gotcha. Thanks.

Thank you.

[Operator Instructions] The next question comes from Kevin Ellich of Piper Jaffray. Please go ahead.

Actually, guys, good morning. Thanks for taking the questions, jumped on a little late. So I apologize if I’m repetitive here. But Tom, first of all with your management fee, just wanted to get quick clarity on the management fee for both UCHealth and Dignity. Is that based on revenue, or is that based on profit?

Revenue.

Revenue, great. Thank you.

That’s correct.

And then I guess, as we think about the evolution of your model and strategy, will all of your facilities eventually be partnered, or are there some that it makes more sense for you guys to just keep them for yourself?

I think as that evolves, we just have to see how it evolves. I will tell you in the major markets, we look to partner with people in the large markets.

Okay, okay. And then I guess going back to…

Let me rephrase that Kevin, so I said that.

Okay.

The flip side of that is that, for example, is Dallas hospital. If we need to go alone, we’re moving forward right now on the basis that we’re just going to go alone, because we have created our own brand, which is first Texas hospital, and we actually had a evening to recruit people in the night and then we had over 200 people show up. So it’s nice for us especially everywhere, but especially in Texas as people know that First Rate brand, and so even though it’s involving to the hospital and other things, there is a lot of interest from its clinician there to be part of it, people are excited about it. But that being said, we are having a lot of conversations going on with a lot of healthcare systems on how we can help them, really extend the access to emergency care for their folks, and so it’s all about continuum of care.

Sure. Okay, great. And then with UCHealth and increased brand awareness that comes with the local partner. How should we think about you, staffing the facilities, and I guess using the staffing business that you guys have within the company, is that going to be a revenue driver and are there other opportunities you are looking at?

So regarding just staffing, you expect our staffing model to remain the same to one, one, one, one. If our volumes go up dramatically, which we hope they do. If the volumes go up dramatically, we’ll adjust the staffing, where it might add some mid-levels in our facilities and things like that. But the margin and revenue would be so substantial that you won’t notice it, it will disappear. Regarding the actual staffing business itself, we have a contract with both UCHealth and Dignity two staff these facilities, and it’s a long-term contract. So we will staff the facilities in that business, we’ll do everything that you’d normally expect to doing by staff, it only means that doctors of the doctors staffing business in middle level, I guess. And so we will staff those and then that’s been run as a normal staffing business, so when you think about how you evolve the team now sort of remember this world are [Technical Difficulty].

Okay. That’s helpful. And then, I guess that Frank’s point, question about the competition. I think both recently we saw HCA announced a opening in the Kansas City area. But it sounds like their facility when you incoming and the rooms. Can you explain that dynamic because your facilities can?

You know, it’s interesting. Graham was talking to us a lot about in Arizona. We may take them about an ambulance in Arizona, because we’re under this hospital partner, not share what we’ll do in Colorado or not. It’s interesting they announced that, because my understanding and I could be wrong, well, my understanding was in Dallas. They had inbound ambulance and they stopped doing that in their freestanding and it wasn’t for any other reason in that. But maybe more of their facilities were. I really probably set too much on these. I’m not HCA expert, I don’t probably see, but that was my understanding. When we think about that as it evolves, we’ll just happen to see how it evolves through. And but I can say there is only general, will we taken in by the ambulances and all that, and that will be pretty significant impact on our business positively, we do that.

Okay. And then question for Tim. So you gave a good detail on the same store growth. And I just want to make sure I got it right. Same store revenue up 11%, volume down 10%. It was the pricing besides acuity, are you guys seeing any changes or improvement in the commercial contracts. And I guess that also goes to with UCHealth, Tom. What do you think the ability to waive your rates are - couldn’t we see a big increase in that $1,400 per visit going up to like $1,600 or $1,700? Thanks.

Earlier in the call, our revenue per patient right now, for this quarter was what, Tim?

$1,627.

$1,627. Okay. To give you a little visibility to that. I would tell you from a pricing perspective, it was the acuity and can be acuity. What I mentioned earlier is we spend a lot of energy on educating people that were emergent care. So as those folks fall off and our acuity level goes up we’ve been re-visiting our old charge master and all that to make sure that everything is appropriate and everything is where it used to be. And so we actually put a price increase through in the end of Q1. We don’t know what it’s going to look like going forward with these partners. We are probably having a little more visibility to Arizona than we do to Colorado. I can tell you that it’s never been our ambition, but that doesn’t - I can’t tell you whether we will or we won’t, I mean, because here you got, when each of these deals would stand on its own. But my guess is that you won’t see our revenue per patient match that of the hospital, which we believe is in the $2,200 to $2,400 range. But it’s probably reasonable to expect that our revenue per patient will go up, very significantly over where that $1,400 number you’ve seen historically. As we’ve been focused more on higher acuities, less of the urgent care type of business, it’s just rational to think that would happen, to an emergency than your higher acuity patients. And the more that you run more test and for radiology and all that stuff then the cost go up because it’s more complex patient. And so both, I guess, in general I would say - I would anticipate that our revenue per patient will go up as we do these joint ventures.

Okay. Great. Thanks.

For commercial Medicare.

Okay.

Operator, any other questions?

Well, I guess, we have a…

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

Well, I’d like to thank you all for joining us this morning. We appreciate your time and we also appreciate your support. We very much appreciate your support, lot of exciting things going on here in Adeptus Health. It’s all good and most importantly, and I think this is how we feel about it. What we focus on everyday is basically improving access to high quality emergency care where folks live and really developing this model that we think will help transform emergency care in America. And so we’re focused on that, we’re focused on partnering with premier healthcare systems in the country. Once again, I thank all our folks because they do wonderful job and without them we just wouldn’t be here. And so with that I’ll let you all go and thank you for joining us today. I look forward to seeing you soon. Bye.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.