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TABLE OF CONTENTS Prospectus
INDEX TO FINANCIAL STATEMENTS

Table of Contents

Filed Pursuant to Rule 424(b)(4)
Registration No. 333-196142

4,900,000 Shares

LOGO

Adeptus Health Inc.

Class A Common Stock



        This is an initial public offering of shares of Class A common stock of Adeptus Health Inc.

        We are offering all 4,900,000 of the shares to be sold in the offering.

        Prior to this offering, there has been no public market for our common stock. The initial public offering price per share will be $22.00. Our common stock has been approved for listing, subject to official notice of issuance, on the New York Stock Exchange, or the NYSE, under the symbol "ADPT." See "Underwriting" for a discussion of the factors to be considered in determining the initial offering price.

        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 and future filings. See "Summary—Implications of Being an Emerging Growth Company."

        Investing in our common stock involves significant risks. See "Risk Factors" beginning on page 21 to read about factors you should consider before buying shares of our 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. Any representation to the contrary is a criminal offense.



       
 
 
  Per Share
  Total
 

Initial public offering price

  $22.00   $107,800,000
 

Underwriting discount(1)

  $1.54   $7,546,000
 

Proceeds, before expenses to Adeptus Health Inc. 

  $20.46   $100,254,000

 

(1)
We have agreed to reimburse the underwriters for certain Financial Industry Regulatory Authority, or FINRA, related expenses. See "Underwriting."

        To the extent that the underwriters sell more than 4,900,000 shares of our Class A common stock, the underwriters have the option to purchase up to an additional 735,000 shares from us and SCP III AIV THREE-FCER Conduit, L.P., or the selling stockholder, at the initial public offering price less the underwriting discount.



        The underwriters expect to deliver the shares of Class A common stock on or about June 30, 2014.



Joint Book-Running Managers

Deutsche Bank Securities   Goldman, Sachs & Co.

Evercore

 

Morgan Stanley

Co-Managers

Piper Jaffray   RBC Capital Markets   Dougherty & Company



The date of this prospectus is June 24, 2014.


GRAPHIC


Table of Contents



TABLE OF CONTENTS

Prospectus

 
  Page

Market and Industry Data

  ii

Presentation of Certain Financial Measures

  ii

About This Prospectus

  iii

Summary

  1

Risk Factors

  21

Special Note Regarding Forward-Looking Statements

  51

Use of Proceeds

  53

Dividend Policy

  54

Capitalization

  55

Dilution

  56

Organizational Structure

  58

Unaudited Pro Forma Financial Information

  63

Selected Historical Consolidated Financial Data

  71

Management's Discussion and Analysis of Financial Condition and Results of Operations

  75

Business

  98

Management

  123

Executive Compensation

  129

Principal and Selling Stockholders

  141

Certain Relationships and Related Party Transactions

  143

Description of Indebtedness

  148

Description of Capital Stock

  151

Shares Eligible for Future Sale

  156

Material United States Federal Income and Estate Tax Consequences to Non-U.S. Holders

  158

Underwriting

  162

Legal Matters

  167

Experts

  167

Change in Independent Registered Public Accounting Firm

  167

Where You Can Find More Information

  168

Index to Financial Statements

  F-1



        Through and including July 19, 2014 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.



        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 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 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 outside of the United States.

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MARKET AND INDUSTRY DATA

        This prospectus includes 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 are based on information derived from market studies and research reports cited above and elsewhere in this prospectus. Although some of the companies that compete in our markets are publicly held as of the date of this prospectus, 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 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, 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 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 certain non-cash and other items 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 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.

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ABOUT THIS PROSPECTUS

        We and the underwriters (and any of our or their affiliates) have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses filed with the Securities and Exchange Commission. We and the underwriters (and any of our or their affiliates) take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

        Throughout this prospectus, we provide a number of key operating metrics used by management and that we believe are used by our competitors. These key operating metrics are discussed in more detail in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations—Overview—Key Performance Measures." We also reference certain non-GAAP financial measures. See "Presentation of Certain Financial Measures," "Summary—Summary Financial and Other Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Overview—Key Performance Measures" for a discussion of these measures, as well as a reconciliation of these measures to the most directly comparable financial measures required by, or presented in accordance with GAAP.

        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 this prospectus. We intend to "opt out" of the extended transition period with respect to new or revised accounting standards and, as a result, we will 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 is irrevocable.

        Certain monetary amounts, percentages and other figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the 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, the information in this prospectus gives effect to the Reorganization Transactions as described in "Organizational Structure."

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SUMMARY

        This summary highlights selected information contained elsewhere in this prospectus, 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 carefully, including "Risk Factors," "Organizational Structure," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Financial Information" and our financial statements and related notes, which are included elsewhere in this prospectus. Unless we state otherwise or the context otherwise requires, the terms "we," "us," "our" and the "Company" refer to Adeptus Health Inc. and its consolidated subsidiaries after giving effect to the Reorganization Transactions to be completed prior to the consummation of this offering, as described in "Organizational Structure" and elsewhere in this prospectus; prior to the consummation of Reorganization Transactions and this 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. Some of the statements in this prospectus constitute forward-looking statements. For more information, see "Special Note Regarding Forward-Looking Statements."

Company Overview

        We own and operate First Choice Emergency Rooms, the largest network of independent freestanding emergency rooms in the United States. 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 32 facilities as of March 31, 2014. Our facilities are currently located in the Houston, Dallas/Fort Worth, San Antonio and Austin, Texas markets, as well as in Colorado Springs and Denver, Colorado. By the end of 2014, we expect to be operating 53 facilities in our target markets, with each of our facilities to be opened in 2014 being 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 46.7%, from 90.8 million in 1992 to 133.2 million in 2012, while the number of emergency room departments decreased by 11.4% over the same period, from approximately 5,035 in 1992 to approximately 4,460 in 2012, 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 PPACA.

        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.

 

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What We Do and Why We are Different

        We focus exclusively 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 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 March 31, 2014, we contracted with approximately 260 Board-certified physicians with an average of 16 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.

 

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        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

GRAPHIC

Market Opportunity

        Freestanding emergency rooms remain the least penetrated alternate site provider segment in the U.S. healthcare sector. We believe this represents a significant opportunity to deliver quality care in the freestanding emergency room setting and transform this underpenetrated market. We have 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 twice 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.

        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

 

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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 Associates, Inc., or Press Ganey, an independent healthcare advisory services and consulting organization that specializes in the improvement of the patient experience, First Choice Emergency Room received the prestigious Guardian of Excellence Award in 2013 for exceeding the 95th percentile in patient satisfaction nationwide.

Our Value Proposition

        Based on our management team's experience and industry knowledge, we believe our compelling value proposition and the nature of our service offerings benefit patients, communities, physicians, payors and hospitals, thereby improving the quality of care and lowering overall healthcare costs.

Value Proposition for Patients

        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.

Value Proposition for Communities

        We offer communities an attractive value proposition:

    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

        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.

 

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    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 13.3% in 2010, while our average inpatient admittance rate was approximately 3.4% for the year ended December 31, 2013. 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 by Sterling Partners in 2011, 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. We have 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 5,000 physicians and 11 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 new 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. As part of the relationship, we have enhanced the Concentra teams' awareness of First Choice Emergency Rooms in order to facilitate referrals of their after-hours and emergency patients to us.

        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 70 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 Arizona 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 $72.6 million in 2012 to $102.9 million in 2013, representing approximately 41.7% growth.

 

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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

        First Choice Emergency Room is the largest freestanding emergency room provider in the United States with 32 facilities as of March 31, 2014, of which six were opened in 2014. We are more than twice 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. 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, which 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. 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.

Scalable Service Model Well-Positioned for Growth

        We maintain the highest standards of clinical excellence, led by our 260 contracted Board-certified physicians who have an average of 16 years of medical experience. We have standardized, highly scalable clinical and operational infrastructure that we believe will support significant continued growth. 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. 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 32 facilities as of March 31, 2014. By the end of 2014, we expect to be operating 53 facilities in our target markets. We have a robust pipeline under development designed to support the addition of a similar number of facilities in 2015.

 

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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 16 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. Consequently, our facilities offer a positive work environment that leads to high retention rates and strong customer and provider relationships.

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.

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 including Dallas/Fort Worth, Houston, San Antonio and Austin, Texas as well as Colorado Springs and Denver, Colorado. 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 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 5,000 physicians and 11 hospitals in North Texas and approximately 3,300 physicians and 9 hospitals in the Houston area. In addition, we have a new 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. As part of the relationship, we have enhanced the Concentra teams' awareness of First Choice Emergency Rooms in order to facilitate referrals of their after-hours and emergency patients to us. 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.

 

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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 and plan to enter the Arizona market in 2015, where we expect to open Arizona General Hospital, a full-service general hospital in the Phoenix area that is expected to have 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 32 facilities as of March 31, 2014. By the end of 2014, we expect to be operating 53 facilities in our target markets. We have a robust pipeline under development designed to support the addition of a similar number of facilities in 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." 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;

    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

 

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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.

GRAPHIC

        Founded in 1983, Sterling Partners, who we refer to as our Sponsor, is a growth-oriented private-equity firm with an established track record of investing in a variety of economic and market environments. Over the past 30 years, Sterling Partners has invested in the healthcare services, education and business services markets and has utilized its broad base of specialized industry knowledge as a competitive advantage. Sterling Partners manages approximately $6 billion of institutional capital via offices in Chicago, Illinois; Baltimore, Maryland; and Miami, Florida.

Organizational Structure

        Our operations are presently conducted by Adeptus Health LLC, a Delaware limited liability company. We refer to the owners of Adeptus Health LLC prior to the consummation of this offering collectively as our "Existing Owners." We refer to the limited liability company units of Adeptus Health LLC as "LLC Units."

        Adeptus Health Inc. was incorporated in Delaware in March 2014 for the purposes of conducting this offering. Adeptus Health Inc. has not engaged in any business or other activities except in connection with its formation and the Reorganization Transactions. Prior to the completion of this offering, we will effect the Reorganization Transactions as described in "Organizational Structure." Following the Reorganization Transactions and this offering, Adeptus Health Inc. will be a holding company and its sole material asset will be a controlling equity interest in Adeptus Health LLC. Adeptus Health Inc. will operate and control all of the business and affairs and consolidate the financial results of Adeptus Health LLC and its consolidated subsidiaries. In addition, following the Reorganization Transactions and this offering, (i) SCP III AIV THREE-FCER Conduit, L.P., one of our Existing Owners and an affiliate of our Sponsor, which we refer to as the Merged Owner, will

 

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receive shares of Class A common stock and will no longer hold LLC Units following this offering and (ii) our other Existing Owners, including funds affiliated with our Sponsor, a fund affiliated with our founder and certain members of management and our board of directors, who we refer to collectively as the Post-IPO Unit Holders, will continue to hold LLC Units (along with Class B common stock, which will entitle the holders thereof to vote on all matters to be voted on by the stockholders generally). As part of the Reorganization Transactions and this offering, the Post-IPO Unit Holders will receive an equal number of LLC Units and Class B common stock, conferring an equivalent percentage of economic interest in Adeptus Health LLC and voting rights in Adeptus Health Inc., respectively. See "Organizational Structure."

        The diagram below depicts our organizational structure immediately following the Reorganization Transactions and this offering, assuming no exercise by the underwriters of their option to purchase up to 735,000 additional shares of Class A common stock from us and the Merged Owner, which we also refer to as the selling stockholder.

GRAPHIC

        The Post-IPO Unit Holders will have the right to exchange their 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. 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 initial purchase of LLC Units with the use of proceeds from the offering and any subsequent 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 will be increased upon the deemed transfer (for U.S. federal income tax purposes) 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

 

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required to pay in the future. Prior to the consummation of this offering we will enter a tax receivable agreement with the Post-IPO Unit Holders and the Merged Owner that will provide for the payment from time to time by Adeptus Health Inc. to such 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 such 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. See "Organizational Structure" and "Certain Relationships and Related Party Transactions."

Voting Power and Ownership Following the Reorganization Transactions

        As a result of the Reorganization Transactions described above:

    Adeptus Health Inc. will hold 9,374,107 LLC Units, representing 45.6% of the economic interest in Adeptus Health LLC (or 9,795,521 LLC Units, representing 47.7% 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:

    the investors in this offering will collectively own 4,900,000 shares of our Class A common stock, representing 23.8% of the economic interest in Adeptus Health LLC through Adeptus Health Inc. (or 5,635,000 shares of Class A common stock, representing 27.4% 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 4,474,107 shares of our Class A common stock, representing 21.8% of the economic interest in Adeptus Health LLC through Adeptus Health Inc. (or 4,160,521 shares of Class A common stock, representing 20.3% 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.;

    the Post-IPO Unit Holders will hold 11,163,253 LLC Units, representing 54.4% of the economic interest in Adeptus Health LLC (or 10,741,839 LLC Units, representing 52.3% of the economic interest in Adeptus Health LLC, if the underwriters exercise in full their option to purchase 735,000 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 51.1% of the economic interest in Adeptus Health LLC (or 47.5% 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.

Corporate Information

        Our principal executive offices are located at 2941 S. Lake Vista, 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 in this prospectus.

 

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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;

    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;

    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. Accordingly, the information contained herein may differ from the information provided by other public companies. We may avail ourselves of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1 billion in annual revenue, have more than $700 million in market value of our capital stock held by non-affiliates or issue more than $1 billion of non-convertible debt securities over a three-year period.

        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 are choosing to "opt 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 is irrevocable.

 

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The Offering

Class A common stock offered by Adeptus Health Inc. 

  4,900,000 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 to purchase up to 735,000 additional shares of Class A common stock, of which 313,586 will be sold by the selling stockholder and 421,414 sold by the Company, with the proceeds used to purchase an equivalent number of LLC Units from an affiliate of our Sponsor.

Class A common stock outstanding after this offering. 

 

9,374,107 shares (or 20,537,360 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.

 

11,163,253 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 will generally not be 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 $100.3 million (or $108.9 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock), based on the initial offering price per share of $22.00. We estimate that our expenses from this offering will be approximately $7.3 million, including approximately $2.3 million in initial public offering bonuses to certain members of management.

 

We intend to use all $93.0 million of these proceeds to purchase newly-issued LLC Units from Adeptus Health LLC, as described under "Organizational Structure—Reorganization Transactions—Offering Transactions."

 

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Prior to the offering, we will draw on First Choice ER, LLC's senior secured credit facility, or, as amended, the Senior Secured Credit Facility, to fund a dividend of $60.0 million to the Existing Owners to be paid in connection with the consummation of this offering. We intend to cause Adeptus Health LLC to use the net proceeds to us from this offering to repay some or all of the then outstanding indebtedness under the Senior Secured Credit Facility (with such facility remaining outstanding after such repayment and amounts repaid available for re-borrowing to further support our growth). Any remaining proceeds will be used for general corporate purposes, including working capital to support our facility expansion efforts.

 

We intend to cause First Choice ER, LLC, a subsidiary of Adeptus Health LLC, to use $2.0 million of these proceeds to make a one-time payment to Sterling Fund Management, or SFM, an affiliate of our Sponsor, in connection with the termination of an advisory services agreement, or the Advisory Services Agreement. Pursuant to the Advisory Services Agreement, which we entered into with SFM on September 30, 2011, SFM has provided management, consulting and financial services to us and our subsidiaries. The Advisory Services Agreement has a five-year term and is automatically renewable for successive one-year periods, until such time that our Sponsor or any of its affiliates, in the aggregate, no longer beneficially own greater than 10% of the then-outstanding voting securities of First Choice ER, LLC. Notwithstanding the foregoing, in connection with the consummation of this offering, the Advisory Services Agreement will be terminated. See "Certain Relationships and Related Party Transactions—Advisory Services Agreement."

 

If the underwriters exercise in full their option to purchase up to an aggregate of 735,000 additional shares of Class A common stock, we intend to purchase, for cash, an aggregate of 421,414 outstanding LLC Units from certain of the Existing Owners at a purchase price per unit equal to the initial public offering price per share of Class A common stock in this offering net of underwriting discounts and commissions, as described under "Organizational Structure—Reorganization Transactions—Offering Transactions." The remaining 313,586 shares of Class A common stock subject to the underwriters' option are expected to be Class A common stock to be held by the Merged Owner. We will not receive any of the proceeds from the sale of shares of Class A common stock by the selling stockholder.

 

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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, will give the Post-IPO Unit Holders (subject to the terms of the Amended and Restated Limited Liability Company Agreement) the right to exchange their 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 following the Reorganization Transactions. The Post-IPO Unit Holders will hold 11,163,253 LLC Units following this offering and the application of the net proceeds from this offering as described in "Use of Proceeds." See "Certain Relationships and Related Party Transactions—Amended and Restated Limited Liability Company Agreement of Adeptus Health LLC—Exchange Procedures."

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 the Reorganization Transactions, the Post-IPO Unit Holders will hold 11,163,253 shares of Class B common stock. The shares of Class B common stock have no economic rights but will entitle the holder to one vote per share on all matters to be voted on by stockholders generally. We expect that immediately following this offering, such Class B common stock will entitle the Post-IPO Unit Holders to 54.4% of the voting power of our outstanding capital stock. We expect that immediately following the offering, the Existing Owners will hold 76.2% of the voting power of our outstanding capital stock. See "Certain Relationships and Related Party Transactions—Stockholders' Agreement."

 

Holders of our Class A common stock and Class B common stock will 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."

Dividend policy

 

We do not currently plan to pay a dividend on our common stock following this offering. 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.

 

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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 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."

Risk factors

 

See "Risk Factors" for a discussion of risks you should carefully consider before deciding to invest in our Class A common stock.

NYSE ticker symbol

 

"ADPT."

Certain Material U.S. Federal Income and Estate Tax Considerations for Non-U.S. Holders of Shares of Our Common Stock

 

For a discussion of certain material U.S. federal income and estate tax considerations that may be relevant to certain prospective stockholders who are not individual citizens or residents of the United States, see "Material United States Federal Income and Estate Tax Consequences to Non-U.S. Holders."

        In this prospectus, 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                    additional shares of our Class A common stock from us and the selling stockholder;

    does not reflect 11,163,253 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;

    does not reflect 1,033,500 shares of Class A common stock that may be issued under our equity incentive plan to be in effect following this offering; and

    assumes the effectiveness of the Reorganization Transactions.

 

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Summary Financial and Other Data

        The following tables set forth the summary historical consolidated financial and other data for Adeptus Health LLC and pro forma financial data for Adeptus Health Inc. as of the dates and for the periods indicated. Adeptus Health Inc. is a recently formed holding company that has not engaged in any business or other activities except in connection with its formation and the Reorganization Transactions described in this prospectus. Accordingly, for the purpose of this prospectus all financial and other information herein relating to periods prior to the completion of the Reorganization Transactions is that of, or derived from, Adeptus Health LLC. The summary consolidated statements of operations data presented below for the fiscal years ended December 31, 2012 and 2013 and the consolidated balance sheet data presented below as of December 31, 2012 and 2013 have been derived from Adeptus Health LLC's audited consolidated financial statements, included in this prospectus. The summary consolidated statements of operations data presented below for the three months ended March 31, 2013 and 2014 and the consolidated balance sheet data presented below as of March 31, 2014 have been derived from Adeptus Health LLC's unaudited condensed consolidated financial statements, included in this prospectus. 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 included in this prospectus. The summary unaudited pro forma financial information for the year ended December 31, 2013 and as of and for the three months ended March 31, 2014 gives effect, in the manner described under "Unaudited Pro Forma Financial Information" and the notes thereto, to (i) the Reorganization Transactions and (ii) the offering of Class A common stock by us and the use of proceeds therefrom, as if all such events had been completed as of January 1, 2013 with respect to the unaudited pro forma consolidated statements of operations and as of March 31, 2014 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 "Organizational Structure," "Unaudited Pro Forma Financial Information," "Selected Historical Consolidated Financial Data," "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our historical financial statements and the accompanying notes included in this prospectus.

 

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  Unaudited
Pro Forma
Adeptus
Health Inc.
as of or for
the year
ended
December 31,
2013
  Unaudited
Adeptus
Health LLC
as of or
for the three
months ended
March 31,
   
 
 
  Adeptus
Health LLC
as of or
for the year ended
December 31,
  Unaudited
Pro Forma
Adeptus
Health Inc.
as of or for
the three
months ended
March 31, 2014
 
(dollars in thousands, except per share data)
  2012   2013   2013   2014  

Statement of Operations Data:

                                     

Revenue

                                     

Patient service revenue

  $ 80,977   $ 114,960   $ 114,960   $ 23,297   $ 44,529   $ 44,529  

Provision for bad debt

    (8,376 )   (12,077 )   (12,077 )   (2,261 )   (5,748 )   (5,748 )
                           

Net patient service revenue

    72,601     102,883     102,883     21,036     38,781     38,781  

Operating expenses:

                                     

Salaries, wages and benefits

    41,754     65,244     65,244     14,009     24,980     24,980  

General and administrative

    12,805     17,436     17,436     3,230     6,220     6,220  

Other operating expenses

    7,493     11,185     11,185     2,420     4,863     4,863  

Loss from the disposal or impairment of assets

    652     207     207     108     2     2  

Depreciation and amortization

    4,640     7,920     7,920     1,684     3,057     3,057  
                           

Total operating expenses

    67,344     101,992     101,992     21,451     39,122     39,122  
                           

Income (loss) from operations

    5,257     891     891     (415 )   (341 )   (341 )
                           

Other (expense) income:

                                     

Interest expense

    (1,056 )   (2,827 )   (3,684 )   (288 )   (2,206 )   (2,420 )

Change in fair market value of derivatives

    (533 )   112     112              

Write-off of deferred loan costs

        (440 )   (440 )            
                           

Total other expenses

    (1,589 )   (3,155 )   (4,012 )   (288 )   (2,206 )   (2,420 )
                           

Income (loss) before provision for income taxes

    3,668     (2,264 )   (3,121 )   (703 )   (2,547 )   (2,761 )

Provision for income taxes

    467     720     (35 )   132     220     (337 )
                           

Net income (loss)

  $ 3,201   $ (2,984 )   (3,086 ) $ (835 ) $ (2,767 )   (2,424 )
                               
                               

Less: net income (loss) attributable to the non-controlling interest

                (1,698 )               (1,502 )
                                   

Net income (loss) attributable to Adeptus Health Inc. 

              $ (1,388 )             $ (922 )
                                   
                                   

Pro forma net income (loss) per share of Class A common stock:

                                     

Basic

              $ (0.15 )             $ (0.10 )

Diluted

              $ (0.15 )             $ (0.10 )

Pro forma weighted average shares of Class A common stock:

                                     

Basic

                9,374,107                 9,374,107  

Diluted

                9,374,107                 9,374,107  

Balance Sheet Data:

                                     

Cash

  $ 3,455   $ 11,495               $ 1,127   $ 35,231  

Total assets

    120,367     183,292                 186,034     254,388  

Total debt and capital lease obligations

    23,604     79,411                 86,404     91,404  

Owners' equity

    82,734     78,651                 75,543      

Total stockholders' equity attributable to Adeptus Health Inc. 

                                  53,440  

Non-controlling interest. 

                                  59,075  

Total stockholders' equity. 

                                  112,515  

Cash Flow Data:

                                     

Cash flows provided by (used in):

                                     

Operating activities

  $ 11,408   $ 6,872         $ (757 ) $ (6,963 )      

Investing activities

    (15,537 )   (44,647 )         (5,329 )   (10,181 )      

Financing activities

    2,820     45,815           4,118     6,776        

Other Financial Data:

                                     

Adjusted EBITDA(1)

  $ 13,689   $ 16,010         $ 2,525   $ 5,092        

Same-store revenue(2)

    64,506     70,641           18,652     17,591        

Capital expenditures

    11,504     46,048           5,269     10,297        

Other Operational Data:

                                     

Patient volume (number of patient visits)

    58,434     77,044           17,044     27,697        

Number of facilities

    14     26           17     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 certain non-cash and other items 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 because it is a key metric used by management to assess our financial performance. We use

 

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    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)
  2012   2013   2013   2014  

Net income (loss)

  $ 3,201   $ (2,984 ) $ (835 ) $ (2,767 )

Depreciation and amortization

    4,640     7,920     1,684     3,057  

Interest expense(a)

    1,589     3,155     288     2,206  

Provision for income taxes

    467     720     132     220  

Advisory Services Agreement fees and expenses(b)

    553     559     131     138  

Preopening expenses(c)

    497     3,977     940     1,408  

Management recruiting expenses(d)

    970     719         99  

Stock compensation expense(e)

    253     586     95     159  

Other(f)

    1,519     1,358     90     572  
                   

Total adjustments

    10,488     18,994     3,360     7,859  
                   

Adjusted EBITDA

  $ 13,689   $ 16,010   $ 2,525   $ 5,092  
                   
                   

(a)
Consists of interest expense of $1.1 million and $2.8 million for the years ended December 31, 2012 and 2013, and $0.3 million and $2.2 million for the three months ended March 31, 2013 and 2014, respectively, a loss in fair market value of derivatives of $0.5 million and a gain in fair market value of derivatives of $0.1 million for the years ended December 31, 2012 and 2013, respectively, 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 our Sponsor under our Advisory Services Agreement.

 

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(c)
Includes labor, marketing costs and occupancy costs prior to opening a facility.

(d)
Third-party costs and fees involved in recruiting our management team.

(e)
Stock compensation expense associated with grants of management incentive units.

(f)
For the year ended December 31, 2013, we incurred costs to develop long-term strategic goals and objectives totaling $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 $0.2 million.

For the three months ended March 31, 2013, we incurred costs to develop long-term strategic goals and objectives totaling approximately $45,000 and board fees and travel expenses paid to members of the board of directors totaling approximately $45,000. 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)
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.

 

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RISK FACTORS

        An investment in our Class A common stock involves a high degree of risk. You should carefully consider the risks described below, together with the other information in this prospectus, before deciding whether to purchase our Class A common stock. If any of the risks described below 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 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 2014, 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 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

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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 the planned opening of a full-service general hospital in Arizona 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" below. 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 March 31, 2014, we had 32 facilities in operation. Our 2014 expansion strategy includes opening 21 additional facilities by the end of 2014, for an expected total of 53 facilities operating by year-end. We have 18 locations currently under construction and three locations in the building permit process, with construction scheduled to commence in the second quarter of 2014. Based on our typical development timeline we believe that these facilities will be completed and operational by December 31, 2014. With respect to the 21 additional openings, 14 of the facilities will be funded by Medical Properties Trust under the Master Funding and Development Agreement and seven will be funded by working capital and funds available under our Senior Secured Credit Facility. Even though our 2014 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;

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    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.

        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 be profitable or achieve operating results similar to those of our existing facilities. 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 may 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 could adversely affect the revenues of those 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.

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

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capital expenditures totaled $11.5 million and $46.0 million, and $5.3 million and $10.3 million, for the years ended December 31, 2012 and 2013 and the three months ended March 31, 2013 and 2014, 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 Agreement 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 32 facilities as of March 31, 2014. By the end of 2014, we expect to be operating 53 facilities in our target markets. We have a robust pipeline under development designed to support the addition of a similar number of facilities in 2015. A major source of financing we have and employ to open new facilities is derived from a Master Funding and Development Agreement, which we refer to as the MPT Agreement, with an affiliate of Medical Properties Trust, or MPT, a public healthcare real estate investment trust. Under the terms of the MPT Agreement, MPT will acquire parcels of land, fund the ground-up construction of new freestanding emergency room facilities and lease 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 25 facilities with a maximum aggregate funding of $100.0 million, of which $10.4 million remained available as of March 31, 2014. 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 in our facilities, and we must protect and grow the value of our brand to continue to be successful in

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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 year ended December 31, 2013 and the three months ended March 31, 2014 resulted in costs of approximately $5.9 million and $1.9 million, respectively. Our marketing activities are principally focused on increasing brand awareness and awareness of our service capabilitites 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, physician open houses, 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.

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.

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        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 98.1% and 98.8%, and 98.3% and 98.1%, of our net patient service revenue for the years ended December 31, 2012 and 2013 and the three months ended March 31, 2013 and 2014, 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. During 2011, we experienced an increase in reimbursement from certain third-party commercial payors. This increase was the result of increasing our base rates, while keeping consistent contracted discounts, cancelling a contract with a large third-party commercial payor, which led to more favorable out-of-network reimbursements, and entering into a contract with another large third-party payor at a discount to our base rates. In 2012, we entered into a contract with another large third-party payor and implemented a price increase in May 2013 under

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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 or Medicaid reimbursements, which we currently do not 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 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.

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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 percentage of self-pay or Medicare, Medicaid or other government reimbursement program patients, 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.

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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 systems, and others, as part of 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 new 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 payors 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. See "Business—Government Regulation—Anti-Kickback Statute and—State Laws Regarding Prohibition of Corporate Practice of Medicine and Fee Splitting Arrangements."

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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 Agreement 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, 2013 and March 31, 2014, we had 25 and 31 leased facilities, 24 and 30 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 included in this prospectus. For the year ended December 31, 2013 and the three months ended March 31, 2014, our operating lease expense was approximately $4.5 million and $2.0 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 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 income statement, 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 March 31, 2014, through Conjugate, PLLC, or Conjugate, an affiliated professional limited liability company owned and operated by our Executive Medical Director, we contracted with approximately 260 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, Conjugate does 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 Conjugate 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

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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 net losses of approximately $3.0 million and $2.8 million for the year ended December 31, 2013 and the three months ended March 31, 2014, 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.

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 Hall, our President and Chief Executive Officer, Timothy Fielding, our Chief Financial Officer, and Graham Cherrington, our 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.

We rely on our private equity sponsor whose interests may differ from yours and who has the ability to control us.

        We have in recent years depended on our relationship with our Sponsor to help guide our business plan. Our Sponsor has significant expertise in the healthcare market. This expertise has been available to us through the representatives our Sponsor has had on our board of directors and as a result of our Advisory Services Agreement with an affiliate of our Sponsor. Pursuant to the stockholders' agreement to be executed in connection with the closing of this offering, representatives of our Sponsor will have the ability to appoint a majority of the seats on our board of directors. In addition, after the consummation of this offering, our Sponsor will beneficially own in the aggregate, approximately 51.1% (or 47.5% if the underwriters exercise in full their option to purchase additional shares of Class A common stock) of the voting interest in Adeptus Health Inc. As a result of its ownership, our Sponsor may have the ability to control the outcome of matters submitted to a vote of stockholders and, through our board of directors, the ability to control decision-making with respect to our business direction and policies. Conversely, after the offering, our Sponsor may elect to reduce its ownership in our company or reduce its involvement on our board of directors, which 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 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

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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 only in Texas and Colorado, make us particularly sensitive to regulatory, economic and other conditions in those states.

        Our facilities are currently located in Texas and Colorado. If there were an adverse regulatory, economic or other development in either state, 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 "Risk Factors—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 business is seasonal, which impacts 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. 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.

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 2013 53.7% 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.

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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 March 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 estimates reflected in our consolidated financial statements. As of December 31, 2013 and March 31, 2014, we had a reserve of approximately $0.7 million and $0.6 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.

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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 and 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 mutiple interpretations. Any action against us for violation of these laws or regulations, even if we successfully defend against it, 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 planned facilities in Arizona, are subject to many laws and regulations, particularly at the state and local

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government levels. These laws and regulations require our freestanding emergency rooms 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;

    facility licensure;

    maintenance and protection of medical records;

    environmental protection, 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;

    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 a freestanding 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.

State law regulation of construction or expansion of emergency rooms could prevent us from developing additional freestanding emergency rooms or other facilities.

        Thirty-six 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 (or soon will be) 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 analysis 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.

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        In addition, there is a significant risk of additional state legislation restricting our ability to obtain licensure for new facilities. As described above, 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.

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 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. 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.

        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.

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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 recently ended legislative session, members of the Colorado legislature proposed a bill which would significantly reduce 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. It is possible that this bill will be re-introduced during the Colorado legislature's next regular session commencing on January 7, 2015. It is also possible that the Colorado legislature could hold a special session of the legislature prior to January 7, 2015, during which the bill may be re-introduced. This change, if enacted, would effectively prohibit our current model within the state. We cannot predict the outcome of this legislation, nor can we assure you that if this law does not pass, the Colorado legislature or another state where we operate would not pass another law that damages our ability to operate under our current model.

        Additionally, 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 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 PPACA, such as the establishment of the Independent Payment Advisory Board, could cause us to face negative reimbursement rates that would adversely affect our business model.

        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 PPACA, we cannot quantify or predict with any certainty the likely impact of PPACA on our business model, prospects, financial condition or results of operations. We also anticipate that Congress and state legislatures may continue to review and assess alternative healthcare delivery and payment systems and may in the future propose and adopt legislation 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.

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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 and 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 non-professional or business interests. Approximately 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 and Texas) 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.

        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.

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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 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

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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. Both Texas and Colorado have privacy regulations that are more restrictive than HIPAA and impose additional requirements. 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.

We do not currently participate in the federal Medicare program or any state Medicaid programs, and any effort to serve patients relying on these programs may require us to comply with a number of additional federal regulatory schemes, require significant changes to our operations, and subject our facilities to potentially adverse financial impacts from federal legislative or regulatory changes.

        Our facilities do not currently participate as providers in the federal Medicare, Medicaid or Tricare programs. By not participating in these programs, many potential consumers of our services in our target markets may choose to receive services from other providers. Because we do not currently participate as Medicare or Medicaid providers, we are not directly subject to certain federal regulatory schemes. For example, the federal physician self-referral law, or the Stark Law, and the Anti-Kickback Statute apply only to the provision of healthcare services and supplies to Medicare and Medicaid patients. While we have sought to organize our operations to comply with both the Stark Law and Anti-Kickback Statute, we cannot assure you that, if we joined these government programs, we would not have to reorganize our existing relationships with our physicians, referral sources and other partners, or that we would not be subject to government investigation for failure to comply with these laws.

        In addition, these programs, particularly Medicare, have substantial statutory and regulatory requirements that would likely require us to modify our current operational model 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, 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 or Medicare conditions of participation or Medicaid requirements for hospitals.

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        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. PPACA reduces annual payment updates for certain providers, including hospitals, and reduces Medicare payments for certain procedures, such as 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 would impact our facilities if we entered the Medicare program.

        Enrolling as a Medicaid provider could also subject a portion of our revenue to fluctuations and limitations in state budgets. Many states legislatures 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 waivers from the Centers for Medicare & Medicaid Services 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 facilities, if our facilities participate in state Medicaid programs.

        We currently intend that the hospital we plan to open in Arizona in 2015 will operate as a general hospital under Arizona law, and we currently intend for the hospital to be Medicare certified. There is no guarantee that this hospital will participate in the Medicare or Medicaid programs.

Our facilities, billing practices, relationships with healthcare providers and third parties, and our marketing practices may become subject to the Anti-Kickback Statute, Stark Law, False Claims Act and similar state laws.

        Our facilities do not currently participate in the federal Medicare, Medicaid, or Tricare programs. In the event we enroll in any of these programs, however, our facilities would be 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 "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.

        Although the company does 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

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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. 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, 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

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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 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, 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. As of March 10, 2014, the OIG has reviewed 28 of these and determined that 14 of these 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.

Recovery Audit Program of the Centers for Medicare & Medicaid Services

        We believe that the Centers for Medicare & Medicaid Services will continue to operate its Recovery Audit Program, which could randomly audit us if we enroll in the Medicare, Medicaid, or Tricare program. 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 Centers for Medicare & Medicaid Services can implement actions that will prevent future improper payments in all 50 states.

The Emergency Medical Treatment and Labor Act

        If we participate in Medicare, Medicaid or Tricare, we may become subject 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.

        Our facilities are subject to state requirements similar to those of EMTALA, regardless of whether our facilities enroll 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.

        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

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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.

        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 facilities.

        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. 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. These provisions do not currently apply to our facilities since our facilities are not hospital emergency departments. Without PPACA's protections, there is risk that insurance providers may respond to the costs of these new federal mandates by reducing payment to non-covered freestanding emergency departments, such as our operating facilities. Further, many states previously enacted prudent layperson standards that may benefit our facilities. For instance, Texas requires insurers to reimburse services that meet its prudent layperson standard in all out-of-network emergency rooms, including our freestanding emergency room facilities. With the federal changes, states may be less willing to protect non-hospital emergency room services or to maintain their own prudent layperson standard laws. We cannot guarantee that such changes caused by PPACA will not disadvantage our facilities in a way that materially changes our revenue or operations.

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, 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

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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 could be an emerging growth company for up to five years following the date of this prospectus, although circumstances could cause us to lose that status earlier, including if our total annual gross revenue exceeds $1.0 billion, if we issue more than $1.0 billion in non-convertible debt securities during any three-year period, or if the market value of our Class A common stock held by non-affiliates exceeds $700.0 million as of any June 30 before that time. 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 for so long as we are an "emerging growth company."

        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. However, 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." We could be an "emerging growth company" for up to five years.

        Furthermore, at such time as we cease to be an "emerging growth company," 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 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.

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Adeptus Health Inc.'s only material asset after completion of this offering will be 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 will be formed in connection with this offering and will have 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, 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. will be 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.

        We will enter into a tax receivable agreement with the Post-IPO Unit Holders and the Merged Owner 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" and "Certain Relationships and Related Party Transactions—Tax Receivable Agreement."

        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 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 common stock at the

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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 will increase our costs and may disrupt the regular operations of our business.

        This offering will have a significant transformative effect on us. Our business historically has operated as a privately owned company and we will incur significant additional legal, accounting, reporting and other expenses as a result of having publicly-traded Class A common stock. We will also incur costs that we have not incurred previously, particularly 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.

Our Sponsor will continue to have significant influence over us after this offering, including in connection with decisions that require the approval of stockholders, which could limit your ability to influence the outcome of key transactions, including a change of control.

        We will not qualify as a "controlled company" under applicable New York Stock Exchange listing standards and will be required to appoint a board of directors comprised of a majority of independent members within one year, which will necessitate a transition in our existing governance structure. However, our Sponsor will hold approximately 51.1% of the voting power of our outstanding capital stock upon consummation of this offering (or 47.5% if the underwriters exercise in full their option to purchase additional shares of Class A common stock). In addition, our Sponsor will have the right to

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designate certain of the members of our board of directors, as well as members of our nominating and corporate governance committee and compensation committee. Our Sponsor will also 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. As a result, our Sponsor potentially has the ability to influence or effectively control our decisions to enter into any corporate transaction (and the terms thereof) and the ability to prevent any change in the composition of our board of directors and certain transactions that require stockholder approval regardless of whether others believe that such change or transaction is in our best interests. See "Certain Relationships and Related Party Transactions—Stockholders' Agreement."

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 will 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."

Risks Related to this Offering and Our Class A Common Stock

There is no existing market for our Class A common stock, and we do not know if one will develop to provide stockholders with adequate liquidity.

        Prior to this offering, there has not been a public market for our Class A common stock. We cannot predict whether investor interest in our company will lead to the development of an active trading market on the NYSE or otherwise or how liquid any market that does develop might become. The initial public offering price for the shares of our Class A common stock will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering.

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 9,374,107 outstanding shares of Class A common stock. This number includes shares of our Class A common stock we are selling in this offering, which

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may be resold immediately in the public market. In addition, after the consummation of this offering, the Merged Owner will hold 4,474,107 shares of Class A common stock and the Post-IPO Unit Holders will hold 11,163,253 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 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. 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. See "Certain Relationships and Related Party Transactions—Amended and Restated Limited Liability Company Agreement of Adeptus Health LLC—Exchange Procedures."

        We, our executive officers, directors and holders of our 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 180 days after the date of this prospectus without first obtaining the written consents of certain of the underwriters.

        We will also enter into a registration rights agreement pursuant to which the Post-IPO Unit Holders, their affiliates and certain of their transferees will have the ability to cause us to register the shares of our Class A common stock they acquire in connection with the Reorganization Transactions 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 the initial public offering price. 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 will depend 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.

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If you purchase shares of our Class A common stock in this offering, you will experience substantial and immediate dilution.

        If you purchase shares of our Class A common stock in this offering, you will experience substantial and immediate dilution of $20.53 per share, based on the initial offering price per share of $22.00, because the price that you pay will be substantially greater than the net tangible book value per share of the common stock that you acquire. This dilution is caused in large part because our Existing Owners paid substantially less than the initial public offering price when they purchased their LLC Units. You will also experience additional dilution upon the exercise of options to purchase Class A common stock under our equity incentive plans, if we issue restricted stock to our employees under these plans or if we otherwise issue additional shares of our Class A common stock. See "Organizational Structure," "Dilution" and "Shares Eligible for Future Sale."

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains certain forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by, and information currently available to, us. These statements include, but are not limited to, statements about our strategies, plans, objectives, expectations, intentions, expenditures and assumptions and other statements contained in this prospectus that are not historical facts. When used in this document, words such as "anticipate," "believe," "estimate," "expect," "intend," "plan" and "project" and similar expressions as they relate to us are intended to identify forward-looking statements. These statements reflect our current views with respect to future events, are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate.

        The forward-looking statements in this prospectus are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. We believe that these factors include, but are not limited to, the following:

    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 Agreement;

    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;

    significant changes in our payor mix or case mix resulting from fluctuations in the types of cases treated at our facilities;

    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;

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    the impact on us of 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.

        These forward-looking statements involve known and unknown risks, inherent uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. Actual results and the timing of certain events may differ materially from those contained in these forward-looking statements.

        Many of these factors are macroeconomic in nature and are, therefore, beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from those described in this prospectus as anticipated, believed, estimated, expected, intended, planned or projected. We discuss many of these risks in greater detail under the heading "Risk Factors." Unless required by United States federal securities laws, we neither intend nor assume any obligation to update these forward-looking statements, which speak only as of their dates.

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USE OF PROCEEDS

        The net proceeds to us from this offering, based on the initial public offering price per share of $22.00, after deducting underwriting discounts and commissions, will be approximately $100.3 million (or $108.9 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock). We estimate that our expenses from this offering will be approximately $7.3 million, including approximately $2.3 million in initial public offering bonuses to certain members of management.

        We intend to use all $93.0 million of these proceeds to purchase newly-issued LLC Units from Adeptus Health LLC, as described under "Organizational Structure—Reorganization Transactions—Offering Transactions."

        Prior to the offering, we will draw on the Senior Secured Credit Facility to fund a dividend of $60.0 million to the Existing Owners to be paid in connection with the consummation of this offering. We intend to cause Adeptus Health LLC to use the net proceeds to us from this offering to repay some or all of the then outstanding indebtedness under the Senior Secured Credit Facility (with such facility remaining outstanding after such repayment and amounts repaid available for re-borrowing to fund the construction of new facilities, purchase new medical equipment and for general corporate purposes). Any remaining proceeds will be used for general corporate purposes, including working capital to support our facility expansion efforts. The amounts currently outstanding under the Senior Secured Credit Facility were utilized to repay preexisting indebtedness, construct new facilities and support our working capital needs in relation to our growth efforts. As of March 31, 2014, we had approximately $82.0 million outstanding under the Senior Secured Credit Facility, excluding letters of credit and guarantees, with a weighted average interest rate of 8.5%. The Senior Secured Credit Facility matures on October 31, 2018.

        We intend to cause First Choice ER, LLC, a subsidiary of Adeptus Health LLC, to use $2.0 million of these proceeds to make a one-time payment to Sterling Fund Management, or SFM, an affiliate of our Sponsor, in connection with the termination of the Advisory Services Agreement. Pursuant to the Advisory Services Agreement, which we entered into with SFM on September 30, 2011, SFM has provided management, consulting and financial services to us and our subsidiaries. The Advisory Services Agreement has a five-year term and is automatically renewable for successive one-year periods, until such time that our Sponsor or any of its affiliates, in the aggregate, no longer beneficially own greater than 10% of the then-outstanding voting securities of First Choice ER, LLC. Notwithstanding the foregoing, in connection with the consummation of this offering, the Advisory Services Agreement will be terminated. See "Certain Relationships and Related Party Transactions—Advisory Services Agreement."

        If the underwriters exercise in full their option to purchase up to an aggregate of 735,000 additional shares of Class A common stock, we intend to purchase, for cash, an aggregate of 421,414 outstanding LLC Units from certain of the Existing Owners at a purchase price per unit equal to the initial public offering price per share of Class A common stock in this offering net of underwriting discounts and commissions, as described under "Organizational Structure—Reorganization Transactions—Offering Transactions." The remaining 313,586 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 Merged Owner. We will not receive any of the proceeds from the sale of shares of Class A common stock by the selling stockholder.

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DIVIDEND POLICY

        We do not currently plan to pay a dividend on our common stock following this offering. 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.

        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.

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CAPITALIZATION

        The following table sets forth the cash and cash equivalents and capitalization as of March 31, 2014 of Adeptus Health LLC on an actual basis and of Adeptus Health Inc. on a pro forma basis to reflect:

    the Reorganization Transactions as described in "Organizational Structure";

    the sale of 4,900,000 shares of our Class A common stock in this offering at the initial public offering price per share of $22.00, after deducting underwriting discounts, commissions and estimated offering expenses;

    the borrowing of $65.0 million aggregate principal amount of our Senior Secured Credit Facility in conjunction with our dividend payment to Existing Owners of $60.0 million; and

    the application of the net proceeds as described in "Use of Proceeds."

        You should read the information in this table in conjunction with our financial statements and the notes to those statements appearing in this prospectus, as well as the information under the headings "Organizational Structure," "Selected Historical Consolidated Financial Data," "Unaudited Pro Forma Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 
  As of March 31, 2014  
 
   
  Adeptus Health Inc.  
 
  Adeptus Health LLC  
 
  Pro Forma
(unaudited)
 
(in thousands, except for share amounts)
  Actual  

Cash and cash equivalents

  $ 1,127   $ 35,231  
           

Short-term debt:

             

Insurance financing agreement

    336     336  

Current maturities of capital lease obligations

    66     66  
           

Total short-term debt

    402     402  

Long-term debt:

             

Senior Secured Credit Facility-term loan(1)

    82,000     87,000  

Capital lease obligations

    4,002     4,002  
           

Total long-term debt

    86,002     91,002  

Owners' / Stockholders' equity:

             

Owners' equity

    75,543      

Class A common stock: par value $0.01 per share; 50,000,000 shares authorized; 9,374,107 shares issued and outstanding, as adjusted for this offering

        94  

Class B common stock: par value $0.01 per share; 20,000,000 shares authorized; 11,163,253 shares issued and outstanding, as adjusted for this offering

        112  

Additional paid-in capital

        57,534  

Accumulated other comprehensive income (loss)

         

Retained earnings

        (4,300 )

Non-controlling interest

        59,075  
           

Total owners' / stockholders' equity

    75,543     112,515  
           

Total capitalization

  $ 161,947   $ 203,919  
           
           

(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."

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DILUTION

        If you invest in shares of our Class A common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of Class A common stock and the pro forma net tangible book value per share of Class A common stock after this offering. Dilution results from the fact that the per share offering price of the shares of Class A common stock is substantially in excess of the pro forma net tangible book value per share attributable to our Existing Owners.

        Our pro forma net tangible book value (deficit) as of March 31, 2014, would have been approximately $(62.8) million, or $(4.02) per share of Class A common stock. Pro forma net tangible book value represents the amount of total tangible assets less total liabilities after giving effect to our reorganization into a holding company structure, a $65.0 million draw on our Senior Secured Credit Facility, and funding of a $60.0 million dividend to the Existing Owners prior to consumation of this offering. Pro forma net tangible book value per share of Class A common stock represents pro forma net tangible book value divided by the number of shares of Class A common stock outstanding and assumes that all of the Post-IPO Unit Holders exchanged their LLC Units (together with a corresponding number of shares of our Class B common stock) for newly-issued shares of Class A common stock on a one-for-one basis.

        After giving effect to the sale of 4,900,000 shares of Class A common stock in this offering at the initial public offering price per share of $22.00 and the other transactions described under "Organizational Structure" and "Unaudited Pro Forma Financial Information," repayment of $65.0 million drawn on our Senior Secured Credit Facility to fund the $60.0 million dividend to the Existing Owners and assuming that all of the Post-IPO Unit Holders exchanged their LLC Units (together with a corresponding number of shares of our Class B common stock) for newly-issued shares of Class A common stock on a one-for-one basis, our pro forma as adjusted net tangible book value as of March 31, 2014, would have been $30.2 million, or $1.47 per share of Class A common stock. This represents an immediate increase in net tangible book value of $5.49 per share of Class A common stock to our Existing Owners and an immediate dilution in net tangible book value of $20.53 per share of Class A common stock to investors in this offering.

        The following table illustrates this dilution on a per share of Class A common stock basis assuming the underwriters do not exercise their option to purchase additional shares of Class A common stock:

Initial public offering price per share of Class A common stock

  $ 22.00  

Pro forma net tangible book value per share of Class A common stock as of March 31, 2014

  $ (4.02 )

Increase in pro forma net tangible book value per share of Class A common stock attributable to the Reorganization Transactions

  $ 5.49  

Pro forma net tangible book value per share of Class A common stock as of December 31, 2013 prior to this offering

  $ 1.47  

Dilution in pro forma net tangible book value per share of common stock to investors in this offering

  $ 20.53  

        The pro forma information discussed above is for illustrative purposes only. Our net tangible book value following the completion of the offering is subject to adjustment based on the actual offering price of our Class A common stock and other terms of this offering determined at pricing.

        The following table summarizes, on the same pro forma basis as of March 31, 2014, the total number of shares of Class A common stock purchased from us, the total cash consideration paid to us and the average price per share of Class A common stock paid by our Existing Owners and by new investors purchasing shares of Class A common stock in this offering, assuming that all of the Post-IPO

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Unit Holders exchanged their LLC Units (together with a corresponding number of shares of our Class B common stock) for newly-issued shares of Class A common stock on a one-for-one basis.

 
  Shares of Class A
Common Stock
Purchased
  Total
Consideration
  Average
Price per
Share
of Class A
Common Stock
 
 
  Number   Percent   Amount   Percent  

Existing Owners

    15,637,360     76.1 % $ 82,605,403     43.4 % $ 5.28  

Investors in this offering

    4,900,000     23.9 % $ 107,800,000     56.6 % $ 22.00  
                       

Total

    20,537,360     100.0 % $ 190,405,403     100.0 % $ 9.27  
                       
                       

        If the underwriters' option to purchase additional shares is exercised in full, (i) the number of shares of Class A common stock held by Existing Owners would be 14,902,360, or 72.6%, and the number of shares of Class A common stock held by new investors would increase to 5,635,000, or 27.4%, of the total number of shares of our Class A common stock outstanding after this offering, respectively, and (ii) the number of LLC Units (together with a corresponding number of shares of our Class B common stock) held by the Post-IPO Unit Holders would be 10,741,839, or 52.3% of the total number of LLC Units outstanding after this offering.

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ORGANIZATIONAL STRUCTURE

        Adeptus Health Inc. was incorporated as a Delaware corporation in March 2014 for the purposes of this offering. Adeptus Health Inc. has not engaged in any business or other activities except in connection with its formation.

Organizational Structure Following this Offering

        Immediately following this offering, Adeptus Health Inc. will be a holding company and its sole material asset will be a controlling equity interest in Adeptus Health LLC. As the sole managing member of Adeptus Health LLC, Adeptus Health Inc. will operate and control all of the business and affairs of Adeptus Health LLC and, through Adeptus Health LLC and its subsidiaries, conduct our business. Adeptus Health Inc. will own 100% of the voting rights of Adeptus Health LLC, and therefore will have control over Adeptus Health LLC. Adeptus Health Inc. will consolidate Adeptus Health LLC and its subsidiaries in its consolidated financial statements. Adeptus Health Inc. will report a noncontrolling interest related to the LLC Units held by certain of our Existing Owners, including funds affiliated with our Sponsor, a fund affiliated with our founder and certain members of management and our board of directors, who we refer to collectively as the Post-IPO Unit Holders, in its consolidated statements of financial condition, operations, cash flows and comprehensive income (loss).

        The post-offering organizational structure will allow the Post-IPO Unit Holders who will continue to hold LLC Units after the consummation of this offering 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 will, 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. will incur United States federal, state and local income taxes on its share of any taxable income of Adeptus Health LLC.

        SCP III AIV THREE-FCER Conduit, L.P., one of our Existing Owners and an affiliate of our Sponsor, which we refer to as the Merged Owner, will receive 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 will amend and restate 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 will continue to hold LLC Units along with Class B common stock. The shares of Class B common stock, which will be issued concurrently with the Class A common stock, will have no economic rights, but each will allow the holder to exercise voting power at Adeptus Health Inc., the managing member of Adeptus Health LLC, and will 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 shall be entitled to one vote for each share of Class B common stock held by such holder. Holders of Class B common stock will 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.

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        The diagram below depicts our organizational structure immediately following the Reorganization Transactions and this offering, assuming no exercise by the underwriters of their option to purchase up to 735,000 additional shares of Class A common stock from us and the selling stockholder.

GRAPHIC

Reorganization Transactions

        Prior to completion of this offering, we intend to complete the transactions described below, which we collectively refer to in this prospectus 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, prior to the completion of this offering, the limited liability company agreement of Adeptus Health LLC will be 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." We anticipate the Reclassification will be effected following the time that the registration statement of which this prospectus forms a part becomes effective and prior to the completion of this offering. We believe that creating a single class of units that will be held by all of the owners of Adeptus Health LLC, including Adeptus Health Inc., will make our ownership structure simpler and also more transparent to investors in this offering. Immediately following the Reclassification but prior to the completion of this offering, there will be 15,637,360 LLC Units issued and outstanding.

        Pursuant to the Amended and Restated Limited Liability Company Agreement, Adeptus Health Inc. will be the sole managing member of Adeptus Health LLC. Adeptus Health Inc. will have the right to determine when distributions will be made to the members of Adeptus Health LLC and

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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.

        The holders of LLC Units in Adeptus Health LLC, including Adeptus Health Inc., will 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 will generally be 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 will be 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 will be 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).

        See "Certain Relationships and Related Party Transactions—Amended and Restated Limited Liability Company Agreement of Adeptus Health LLC" and "Certain Relationships and Related Party Transactions—Tax Receivable Agreement."

Merger with Adeptus Health Inc.

        SCP III AIV THREE-FCER Blocker, Inc., one of our Existing Owners, will merge with Adeptus Health Inc. As a result, Adeptus Health Inc. will acquire 4,474,107 LLC Units (or 21.8% of the economic interest in Adeptus Health LLC) owned by such Existing Owner and SCP AIV THREE-FCER Conduit, L.P., the stockholder of such Existing Owner, which we refer to as the Merged Owner, will receive 4,474,107 shares of our Class A common stock.

Offering Transactions

        At the time of the consummation of this offering, Adeptus Health Inc. intends to purchase, for cash, 4,900,000 newly-issued LLC Units from Adeptus Health LLC at a purchase price per unit equal to the initial public offering price per share of Class A common stock in this offering net of underwriting discounts and commissions and $7.3 million of 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 421,414 outstanding LLC Units from an affiliate of our Sponsor for an aggregate of $8.6 million at a purchase price per unit equal to the initial public offering price per share of Class A common stock in this offering net of underwriting discounts and commissions. The Post-IPO Unit Holders will have the right to exchange their LLC Units (together with a corresponding number of shares of our Class B common stock) for shares of Class A common stock, in accordance with the exchange provisions of the Amended and Restated Limited Liability Company Agreement described below. Based on the initial offering price per share of $22.00, at the time of this offering Adeptus Health Inc. will purchase from Adeptus Health LLC 4,900,000 newly-issued LLC Units for an aggregate of $93.0 million. The issuance and sale of such newly-issued LLC Units by Adeptus Health LLC to Adeptus Health Inc. will correspondingly dilute the ownership interests of the Existing Owners in Adeptus Health LLC. Accordingly, immediately following this offering, Adeptus Health Inc. will hold a number of LLC Units that is equal to the number of shares of Class A common stock that it has issued, a relationship that we believe fosters transparency because it results in a single share of Class A common stock representing (albeit indirectly) the same percentage equity interest in Adeptus Health LLC as a single LLC Unit. The LLC Units held by the Post-IPO Unit Holders will be reflected as a non-controlling interest.

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Exchange Procedures

        Pursuant to the Amended and Restated Limited Liability Company Agreement, 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 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, will 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 initial purchase of LLC Units with the proceeds from this offering and any subsequent 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 will be increased upon the deemed transfer (for U.S. federal income tax purposes) 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 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. We will enter into a tax receivable agreement with the Post-IPO Unit Holders and the Merged Owner that will provide 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. See "Certain Relationships and Related Party Transactions—Tax Receivable Agreement."

Voting Power and Ownership Following the Reorganization Transactions

        As a result of the Reorganization Transactions described above:

    Adeptus Health Inc. will hold 9,374,107 LLC Units, representing 45.6% of the economic interest in Adeptus Health LLC (or 9,795,521 LLC Units, representing 47.7% 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:

    the investors in this offering will collectively own 4,900,000 shares of our Class A common stock, representing 23.8% of the economic interest in Adeptus Health LLC through Adeptus Health Inc. (or 5,635,000 shares of Class A common stock, representing 27.4% 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

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      the Merged Owner will own 4,474,107 shares of our Class A common stock, representing 21.8% of the economic interest in Adeptus Health LLC through Adeptus Health Inc. (or 4,160,521 shares of Class A common stock, representing 20.3% 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.;

    the Post-IPO Unit Holders will hold 11,163,253 LLC Units, representing 54.4% of the economic interest in Adeptus Health LLC (or 10,741,839 LLC Units, representing 52.3% 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 51.1% of the economic interest in Adeptus Health LLC (or 47.5% 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.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

        The following pro forma consolidated balance sheet as of March 31, 2014 and statement of operations for the year ended December 31, 2013 and the three months ended March 31, 2014, 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 March 31, 2014, with respect to the unaudited pro forma consolidated balance sheet and as of January 1, 2013 with respect to the unaudited pro forma consolidated statement of operations.

        We currently conduct our operations through Adeptus Health LLC. As an entity treated as a partnership for U.S. federal income tax purposes, Adeptus Health LLC is not subject to U.S. federal income taxes and our earnings do not reflect the U.S. federal income taxes we will pay as a corporation upon completion of this offering. In order to reflect our operating expenses, and our tax and capital structure as if we were organized as a corporation, the unaudited pro forma consolidated financial statements give effect to the Reorganization Transactions as described in "Organizational Structure," including:

    the merger of one of the Existing Owners and Adeptus Health Inc. and the consolidation of Adeptus Health LLC with this merged entity, which we refer to as the Merged Owner;

    the repayment of any outstanding indebtedness under the Senior Secured Credit Facility (with such facility remaining outstanding after such repayment);

    the recognition of deferred tax assets and liabilities at an assumed combined federal, state and city income tax rates of 35.2%; and

    a provision for income taxes as a corporation at an assumed combined federal, state and city income tax rates of 11.0% and 1.0% of our pre-tax net income for the year ended December 31, 2013 and the three months ended March 31, 2014, respectively.

        In addition to the adjustments described above, 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 at the initial public offering price per share of $22.00, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering; and

    the pro forma balance sheet data gives effect to the net proceeds of $93.0 million from this offering and the application of the proceeds as described under the caption "Use of Proceeds."

        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. Adjustments that are based on fair value of the shares are calculated using the initial public offering price per share of $22.00.

        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 the Reorganization Transactions or this offering actually occurred on the date or as of the date specified, nor do they purport to project our results of operations as a public corporation or for any future period. The unaudited pro forma financial statements and accompanying notes should be read together with "Organizational Structure," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus.

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Unaudited Pro Forma Consolidated Statements of Operations for the Year Ended December 31, 2013

(dollars in thousands, except per share data)
  Adeptus
Health LLC
  SCP III AIV
THREE-FCER
Blocker, Inc.
  Adeptus
Health Inc.
  Pro Forma
Adjustments
  Pro Forma
Adeptus
Health Inc.
 

Statement of Operations Data:

                               

Revenue

                               

Patient service revenue

  $ 114,960   $   $   $   $ 114,960  

Provision for bad debt

    (12,077 )               (12,077 )
                       

Net patient service revenue

    102,883                 102,883  

Operating expenses:

                               

Salaries, wages and benefits

    65,244                 65,244  

General and administrative

    17,436                 17,436  

Other operating expenses

    11,185                 11,185  

Loss from the disposal or impairment of assets

    207                 207  

Depreciation and amortization

    7,920                 7,920  
                       

Total operating expenses

    101,992                 101,992  
                       

Income from operations

    891                 891  
                       

Other (expense) income:

                               

Interest expense

    (2,827 )           (857 )(1)   (3,684 )

Change in fair market value of derivatives

    112                     112  

Unrealized gain on investment

        29,933         (29,933) (2)    

Write-off of deferred loan costs

    (440 )               (440 )
                       

Total other (expenses) income

    (3,155 )   29,933         (30,790 )   (4,012 )
                       

(Loss) income before provision for income taxes

    (2,264 )   29,933         (30,790 )   (3,121 )

Provision for income taxes

    720     10,552         (11,307) (3)   (35 )
                       

Net (loss) income

  $ (2,984 ) $ 19,381   $     (19,483 )   (3,086 )
                           
                           

Less: Net loss attributable to the non-controlling interest

                      (1,698) (4)   (1,698 )
                             

Net loss attributable to Adeptus Health Inc. 

                    $ (17,785 ) $ (1,388 )
                             
                             

Pro forma net loss per share of Class A common stock(5):

                               

Basic

                          $ (0.15 )

Diluted

                          $ (0.15 )

Pro forma weighted average shares of Class A common stock(5):

                               

Basic

                            9,374,107  

Diluted

                            9,374,107  

(1)
Reflects an increase in interest expense of $0.9 million as a result of a borrowing of $65.0 million on our Senior Secured Credit Facility associated with our $60.0 million dividend payment to Existing Owners as described in "Use of Proceeds," as if such borrowing occurred on January 1, 2013. Borrowings under the Senior Secured Credit Facility bear interest at LIBOR plus the applicable rate of 7.5%.

(2)
Reflects the adjustment to remove SCP III AIV THREE-FCER Blocker, Inc.'s unrealized gains on investment in First Choice ER, LLC.

(3)
Following the Reorganization Transactions, we will be subject to U.S. federal income taxes, in addition to state and local taxes, with respect to our allocable share of any net taxable income of

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    Adeptus Health LLC, which will result in higher income taxes. As a result, the pro forma statements of income reflect an adjustment to our provision for corporate income taxes to reflect an effective rate of 1.0%, which includes provision for U.S. federal income taxes and assumes the highest statutory rates apportioned to each state and local jurisdiction.

(4)
Adeptus Health Inc. will become the sole managing member of Adeptus Health LLC. Adeptus Health Inc. will initially own less than 100% of the economic interest in Adeptus Health LLC, but will have 100% of the voting power and control the management of Adeptus Health LLC. Immediately following this offering, the non-controlling interest will be 54.4%. Net loss attributable to the non-controlling interest represents 54.4% ($1.7 million) of loss before provision for income taxes ($3.1 million). These amounts have been determined based on an assumption that the underwriters' option to purchase additional shares is not exercised. If the underwriters' option to purchase additional shares is exercised, the ownership percentage held by the non-controlling interest would decrease to 52.3%.

(5)
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 4,474,107 shares owned by the Merged Owner and the 4,900,000 shares sold in this offering, including 2,932,551 shares to be sold in this offering, the proceeds of which are expected to equal the $60.0 million dividend to be paid to Existing Holders in connection with this offering (based on the initial offering price per share of $22.00, after deducting underwriting discounts). See "Use of Proceeds."

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Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2014

(dollars in thousands)
  Adeptus
Health LLC
  SCP III AIV
THREE-FCER
Blocker, Inc.
  Adeptus
Health Inc.
  Pro Forma
Adjustments
  Pro Forma
Adeptus
Health Inc.
 

Assets:

                               

Current assets

                               

Cash

  $ 1,127   $   $   $ 34,104 (1)(5)(8) $ 35,231  

Restricted cash

    1,322                 1,322  

Accounts receivable, net

    18,189                 18,189  

Other receivables and current assets

    6,914     41         (41) (3)   6,914  

Medical supplies inventory

    1,917                 1,917  

Investment, at fair value (cost of $27,369)

        72,708 (2)       (72,708) (3)    
                       

Total current assets

    29,469     72,749         (38,645 )   63,573  

Property and equipment

    69,184                 69,184  

Deposits

    634                 634  

Deferred tax asset

                32,400 (4)   32,400  

Intangibles

    21,350                 21,350  

Goodwill

    61,009                 61,009  

Other long-term assets

    4,388             1,850 (5)   6,238  
                       

Total assets

  $ 186,034   $ 72,749   $     (4,395 ) $ 254,388  
                       
                       

Liabilities and owners'/stockholders' equity:

   
 
   
 
   
 
   
 
   
 
 

Current liabilities

                               

Accounts payable and accrued expenses

  $ 15,166   $   $   $   $ 15,166  

Accrued compensation

    7,461                 7,461  

Current maturities of long-term debt

    336                 336  

Current maturities of capital lease obligations

    66                 66  

Deferred rent

    434                 434  
                       

Total current liabilities

    23,463                 23,463  

Long-term debt, less current maturities

    82,000             5,000 (5)   87,000  

Payable to related parties pursuant to tax receivable agreement

                26,382 (4)   26,382  

Capital lease obligations, less current maturities

    4,002                 4,002  

Deferred tax liability

        15,890         (15,890) (3)    

Deferred rent

    1,026                 1,026  

Other long-term liabilities

        96         (96) (3)    
                       

Total liabilities

    110,491     15,986         15,396     141,873  

Commitments and contingencies

                               

Owners' equity

    75,543         (6)   (75,543) (7)    

Class A common stock, par value $0.01 per share; 50,000,000 shares authorized, 9,374,107 shares issued and outstanding on a pro forma basis

                94 (7)   94  

Class B common stock, par value $0.01 per share; 20,000,000 shares authorized 11,163,253 shares issued and outstanding on a pro forma basis

                112 (7)   112  

Additional paid-in capital

        27,369         30,165 (3)(7)(8)   57,534  

Accumulated other comprehensive income (loss)

                     

Retained earnings

        29,394         (33,694) (1)(3)   (4,300 )

Non-controlling interest

                59,075 (7)(9)   59,075  
                       

Total owners'/stockholders' equity

    75,543     56,763         (19,791 )   112,515  
                       

Total liabilities and owners'/stockholders' equity

  $ 186,034   $ 72,749   $   $ (4,395 ) $ 254,388  
                       
                       

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(1)
Reflects (i) a one-time payment of $2.0 million to SFM, an affiliate of our Sponsor, in connection with the termination of the Advisory Services Agreement and (ii) initial public offering bonuses to certain members of our management team of approximately $2.3 million. Pursuant to the Advisory Services Agreement, which we entered into with SFM on September 30, 2011, SFM has provided management, consulting and financial services to us and our subsidiaries. The Advisory Services Agreement has a five-year term and is automatically renewable for successive one-year periods, until such time that our Sponsor or any of its affiliates, in the aggregate, no longer beneficially own greater than 10% of the then-outstanding voting securities of First Choice ER, LLC. Notwithstanding the foregoing, in connection with the consummation of this offering, the Advisory Services Agreement will be terminated. See "Certain Relationships and Related Party Transactions—Advisory Services Agreement."

(2)
Represents SCP III AIV THREE-FCER Blocker, Inc.'s investment in First Choice ER, LLC.

(3)
Reflects the adjustment to remove SCP III AIV THREE-FCER Blocker, Inc.'s investment in First Choice ER, LLC and the other assets and liabilities, deferred tax liability, additional paid-in capital and retained earnings associated with this investment.

(4)
Reflects adjustments to give effect to the tax receivable agreement (as described in "Certain Relationships and Related Party Transactions—Tax Receivable Agreement") and other tax adjustments based on the following assumptions:

We will record an increase of $25.6 million in deferred tax assets (or $28.0 million if the underwriters exercise in full their option to purchase additional shares) 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 enacted federal and state tax rates at the date of this offering. To the extent we estimate that we will not realize the full benefit represented by the deferred tax asset, based on an analysis of expected future earnings, we will reduce the deferred tax asset with a valuation allowance;

We will record 85% of the estimated realizable tax benefit as an increase of $26.4 million (or $28.8 million if the underwriters exercise in full their option to purchase additional shares) as Payable to related parties pursuant to the tax receivable agreement; and

We will record estimated deferred tax assets of $6.8 million pursuant to temporary differences between the historical cost basis and tax basis of the Company's assets and liabilities as the result of the Reorganization Transactions.

The amounts to be recorded for both the deferred tax assets and the liability for our obligations under the tax receivable agreement have been estimated. 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.

(5)
Reflects the borrowing of $65.0 million aggregate principal amount of our Senior Secured Credit Facility borrowed in conjunction with our dividend payment to Existing Owners including $1.9 million of debt issuance costs, net of repayment of $60.0 million from offering proceeds, with the remaining cash balance to be utilized for working capital purposes. See "Use of Proceeds."

(6)
Represents the investment of the Existing Owners in Adeptus Health LLC.

(7)
Represents an adjustment to stockholders' equity reflecting (i) par value of $94,000 for Class A common stock and $112,000 for Class B common stock to be outstanding following this offering, (ii) a decrease of $59.0 million in owners' equity to allocate a portion of Adeptus Health Inc.'s equity to the non-controlling interest and (iii) the reclassification of owners' equity of $16.5 million to additional paid-in capital for SCP III AIV THREE-FCER Blocker, Inc.'s ownership interest.

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(8)
Represents the following adjustments to Additional paid-in capital:

an increase of $95.2 million from the net proceeds from this offering, net of the par value of the shares Class A common stock sold in this offering of $0.1 million, as described under note (7) above;

a reclassification of $112,000 for the par value of Class B common stock as described under (7) above;

a decrease of $6.0 million due to recording deferred tax assets related to the Reorganization Transactions and the tax receivable agreement, as described under note (4) above;

payment of dividend to Existing Owners of $60.0 million as described in "Use of Proceeds;" and

SCP III AIV THREE-FCER Blocker, Inc.'s ownership interest in exchange of LLC Units for shares of Class A common stock of $16.5 million and elimination of their additional paid-in capital of $27.4 million as described in note (3) above.

The total pro forma adjustment to additional paid-in capital is an increase of $30.2 million.

(9)
As described in "Organizational Structure," Adeptus Health Inc. will become the sole managing member of Adeptus Health LLC. Adeptus Health Inc. will initially have a minority economic interest in Adeptus Health LLC, but will have 100% of the voting power and control over the management of Adeptus Health LLC. As a result, we will consolidate the financial results of Adeptus Health LLC and will record an amount as Non-controlling interest on our consolidated balance sheet.

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Unaudited Pro Forma Consolidated Statements of Operations for the Three Months Ended March 31, 2014

(dollars in thousands, except per share data)
  Adeptus
Health LLC
  SCP III AIV
THREE-FCER
Blocker, Inc.
  Adeptus
Health Inc.
  Pro Forma
Adjustments
  Pro Forma
Adeptus
Health Inc.
 

Statement of Operations Data:

                               

Revenue

                               

Patient service revenue

  $ 44,529   $   $   $   $ 44,529  

Provision for bad debt

    (5,748 )               (5,748 )
                       

Net patient service revenue

    38,781                 38,781  

Operating expenses:

                               

Salaries, wages and benefits

    24,980                 24,980  

General and administrative

    6,220                 6,220  

Other operating expenses

    4,863                 4,863  

Loss from the disposal or impairment of assets

    2                 2  

Depreciation and amortization

    3,057                 3,057  
                       

Total operating expenses

    39,122                 39,122  
                       

(Loss) income from operations

    (341 )               (341 )
                       

Other (expense) income:

                               

Interest expense

    (2,206 )           (214) (1)   (2,420 )

Unrealized gain on investment

        5,633         (5,633) (2)    
                       

Total other (expenses) income

    (2,206 )   5,633         (5,847 )   (2,420 )
                       

(Loss) income before provision for income taxes

    (2,547 )   5,633         (5,847 )   (2,761 )

Provision for income taxes

    220     1,945         (2,502) (3)   (337 )
                       

Net (loss) income

  $ (2,767 ) $ 3,688   $     (3,345 )   (2,424 )
                           
                           

Less: Net loss attributable to the non-controlling interest

                      (1,502) (4)   (1,502 )
                             

Net loss attributable to Adeptus Health Inc. 

                    $ (1,843 ) $ (922 )
                             
                             

Pro forma net loss per share of Class A common stock(5):

                               

Basic

                          $ (0.10 )

Diluted

                          $ (0.10 )

Pro forma weighted average shares of Class A common stock(5):

                               

Basic

                            9,374,107  

Diluted

                            9,374,107  

(1)
Reflects an increase in interest expense of $0.2 million as a result of a borrowing of $65.0 million on our Senior Secured Credit Facility associated with the dividend payment of $60.0 million to Existing Owners as described in "Use of Proceeds," as if such borrowing occurred on January 1, 2013. Borrowings under the Senior Secured Credit Facility bear interest at LIBOR plus the applicable rate of 7.5%.

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(2)
Reflects the adjustment to remove SCP III AIV THREE-FCER Blocker, Inc.'s unrealized gains on investment in First Choice ER, LLC.

(3)
Following the Reorganization Transactions, we will be subject to U.S. federal income taxes, in addition to state and local taxes, with respect to our allocable share of any net taxable income of Adeptus Health LLC, which will result in higher income taxes. As a result, the pro forma statements of income reflect an adjustment to our provision for corporate income taxes to reflect an effective rate of 11.0%, which includes provision for U.S. federal income taxes and assumes the highest statutory rates apportioned to each state and local jurisdiction.

(4)
Adeptus Health Inc. will become the sole managing member of Adeptus Health LLC. Adeptus Health Inc. will initially own less than 100% of the economic interest in Adeptus Health LLC, but will have 100% of the voting power and control the management of Adeptus Health LLC. Immediately following this offering, the non-controlling interest will be 54.4%. Net loss attributable to the non-controlling interest represents 54.4% ($1.5 million) of loss before provision for income taxes ($2.8 million). These amounts have been determined based on an assumption that the underwriters' option to purchase additional shares is not exercised. If the underwriters' option to purchase additional shares is exercised, the ownership percentage held by the non-controlling interest would decrease to 52.3%.

(5)
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 4,474,107 shares owned by the Merged Owner and the 4,900,000 shares sold in this offering, including 2,932,551 shares to be sold in this offering, the proceeds of which are expected to equal the $60.0 million dividend to be paid to Existing Holders in connection with this offering (based on the initial public offering price per share of $22.00, after deducting underwriting discounts). See "Use of Proceeds."

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

        The following tables set forth the selected historical consolidated financial and other data for Adeptus Health LLC as of the dates and for the periods indicated. Adeptus Health Inc. is a recently formed holding company that has not engaged in any business or other activities except in connection with its formation and the Reorganization Transactions described in this prospectus. Accordingly, for the purpose of this prospectus, all financial and other information herein relating to periods prior to the completion of the Reorganization Transactions is that of, or derived from, Adeptus Health LLC. The selected consolidated statements of operations data presented below for the fiscal years ended December 31, 2012 and 2013 and the consolidated balance sheet data presented below as of December 31, 2012 and 2013 have been derived from Adeptus Health LLC's audited consolidated financial statements, included in this prospectus. The selected consolidated statements of operations data presented below for the three months ended March 31, 2013 and 2014 and the consolidated balance sheet data presented below as of March 31, 2014 have been derived from Adeptus Health LLC's unaudited condensed consolidated financial statements, included in this prospectus. 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 "Organizational Structure," "Unaudited Pro Forma Financial Information," "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our historical audited and unaudited financial statements and the accompanying notes included in this prospectus. The selected consolidated financial data in this 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 included in this prospectus.

 
  Adeptus Health LLC
as of and
for the year
ended December 31,
  Adeptus Health LLC
as of and
for the three months
ended March 31,
 
(dollars in thousands)
  2012   2013   2013   2014  

Statement of Operations Data:

                         

Revenue

                         

Patient service revenue

  $ 80,977   $ 114,960   $ 23,297   $ 44,529  

Provision for bad debt

    (8,376 )   (12,077 )   (2,261 )   (5,748 )
                   

Net patient service revenue

    72,601     102,883     21,036     38,781  

Operating expenses:

                         

Salaries, wages and benefits

    41,754     65,244     14,009     24,980  

General and administrative

    12,805     17,436     3,230     6,220  

Other operating expenses

    7,493     11,185     2,420     4,863  

Loss from the disposal or impairment of assets

    652     207     108     2  

Depreciation and amortization

    4,640     7,920     1,684     3,057  
                   

Total operating expenses

    67,344     101,992     21,451     39,122  
                   

Income (loss) from operations

    5,257     891     (415 )   (341 )
                   

Other (expense) income:

                         

Interest expense

    (1,056 )   (2,827 )   (288 )   (2,206 )

Change in fair market value of derivatives

    (533 )   112          

Write-off of deferred loan costs

        (440 )        
                   

Total other expenses

    (1,589 )   (3,155 )   (288 )   (2,206 )
                   

                         

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  Adeptus Health LLC
as of and
for the year
ended December 31,
  Adeptus Health LLC
as of and
for the three months
ended March 31,
 
(dollars in thousands)
  2012   2013   2013   2014  

Income (loss) before provision for income taxes

    3,668     (2,264 )   (703 )   (2,547 )

Provision for income taxes

    467     720     132     220  
                   

Net income (loss)

  $ 3,201   $ (2,984 ) $ (835 ) $ (2,767 )
                   
                   

Balance Sheet Data:

                         

Cash

  $ 3,455   $ 11,495         $ 1,127  

Total assets

    120,367     183,292           186,034  

Total debt and capital lease obligations

    23,604     79,411           86,404  

Owners' equity

    82,734     78,651           75,543  

Cash Flow Data:

                         

Cash flows provided by (used in):

                         

Operating activities

  $ 11,408   $ 6,872   $ (757 ) $ (6,963 )

Investing activities

    (15,537 )   (44,647 )   (5,329 )   (10,181 )

Financing activities

    2,820     45,815     4,118     6,776  

Other Financial Data:

                         

Adjusted EBITDA(1)

  $ 13,689   $ 16,010   $ 2,525   $ 5,092  

Same-store revenue(2)

    64,506     70,641     18,652     17,591  

Capital expenditures

    11,504     46,048     5,269     10,297  

Other Operational Data:

                         

Patient volume (number of patient visits)

    58,434     77,044     17,044     27,697  

Number of facilities

    14     26     17     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 certain non-cash and other items 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 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.

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    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)
  2012   2013   2013   2014  

Net income (loss)

  $ 3,201   $ (2,984 ) $ (835 ) $ (2,767 )

Depreciation and amortization

    4,640     7,920     1,684     3,057  

Interest expense(a)

    1,589     3,155     288     2,206  

Provision for income taxes

    467     720     132     220  

Advisory Services Agreement fees and expenses(b)

    553     559     131     138  

Preopening expenses(c)

    497     3,977     940     1,408  

Management recruiting expenses(d)

    970     719         99  

Stock compensation expense(e)

    253     586     95     159  

Other(f)

    1,519     1,358     90     572  
                   

Total adjustments

    10,488     18,994     3,360     7,859  
                   

Adjusted EBITDA

  $ 13,689   $ 16,010   $ 2,525   $ 5,092  
                   
                   

(a)
Consists of interest expense of $1.1 million and $2.8 million for the years ended December 31, 2012 and 2013, and $0.3 million and $2.2 million for the three months ended March 31, 2013 and 2014, respectively, a loss in fair market value of derivatives of $0.5 million and a gain in fair market value of derivatives of $0.1 million for the years ended December 31, 2012 and 2013, respectively, 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 our Sponsor under our Advisory Services Agreement.

(c)
Includes labor, marketing costs and occupancy costs prior to opening a facility.

(d)
Third-party costs and fees involved in recruiting our management team.

(e)
Stock compensation expense associated with grants of management incentive units.

(f)
For the year ended December 31, 2013, we incurred costs to develop long-term strategic goals and objectives totaling $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 $0.2 million.

For the three months ended March 31, 2013, we incurred costs to develop long-term strategic goals and objectives totaling approximately $45,000 and board fees and travel expenses paid to members of the board of directors totaling $45,000. 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.

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(2)
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.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

        The following discussion should be read in conjunction with the respective financial statements and related footnotes of Adeptus Health LLC, included in this prospectus. This discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties. Actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors, including those included in the sections entitled "Risk Factors" and "Special Note Regarding Forward-Looking Statements." Adeptus Health Inc. is a holding company formed for the purpose of this offering. Since it has not engaged in any business or other activities except in connection with its formation and the Reorganization Transactions described elsewhere in this prospectus, the following Management's Discussion and Analysis of Financial Condition and Results of Operations focuses on the historical results of operations, liquidity, capital resources and overall financial condition of First Choice ER, LLC, its operating company.

Overview

        We own and operate First Choice Emergency Rooms, the largest network of independent freestanding emergency rooms in the United States. 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 32 facilities as of March 31, 2014. Our facilities are currently located in the Houston, Dallas/Fort Worth, San Antonio and Austin, Texas markets, as well as in Colorado Springs and Denver, Colorado. By the end of 2014, we expect to be operating 53 facilities in our target markets. We currently plan to open a full-service general hospital in Arizona in 2015.

        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.

        Following this offering, Adeptus Health LLC will continue to operate in the United States as a partnership for U.S. federal income tax purposes. In addition, however, Adeptus Health Inc. will be subject to additional entity-level taxes that will be reflected in our consolidated financial statements. For information on the pro forma effective tax rate of Adeptus Health Inc. following the Reorganization Transactions, see "Unaudited Pro Forma Financial Information."

Industry Trends

        The emergency room remains a critical access point for millions of Americans who experience sudden serious illness or injury in the United States each year. The availability of that care is under pressure and threatened by a wide range of factors, including shrinking capacity and an increasing demand for services. According to AHA, from 1992 to 2012, the number of emergency room visits increased by 46.7%, while the number of emergency departments decreased by 11.4%. The number of emergency room visits exceeded 130 million in 2012, or approximately 247 visits per minute, and care previously provided in inpatient settings is now increasingly being provided in emergency departments.

        Factors affecting access to emergency care include availability of emergency departments, capacity of emergency departments, and availability of staffing in emergency departments. ACEP's National Report Card on U.S. emergency care rates the access to emergency care category with a near-failing grade of "D-" and a grade of "D+" for the overall emergency room system. As the largest operator of freestanding emergency rooms, we believe we are an essential part of the solution, providing access

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to high-quality emergency care and offering a significantly improved patient experience relative to traditional hospital emergency departments.

Key Revenue Drivers

        Our revenue growth is primarily driven by facility expansion, increasing patient volumes and reimbursement rates.

Facility Expansion

        We add new facilities based on capacity, location, demographics and competitive considerations. We expect the new facilities we open to be the primary driver of our revenue growth. Our results of operations have been and will continue to be materially affected by the timing and number of new facility openings and the amount of new facility opening costs incurred. A new facility builds its patient volumes over time and, as a result, generally has lower revenue than our more mature facilities. A new facility generally takes up to 12 months to achieve a level of operating performance comparable to our similar existing facilities.

Patient Volumes

        We generate revenue by providing emergency care to patients based upon the estimated amounts due from commercial insurance providers, patients and other third-party payors. Revenue per treatment is sensitive to the mix of services used in treating a patient. Our patient volumes are directly correlated to our new facility openings, our targeted marketing efforts and external factors such as severity of annually recurring viruses that lead to increases in patient visits. Revenue is recognized when services are rendered to patients.

        Patient volume is supported through marketing programs focused on educating communities about the convenient and high-quality emergency care we provide. Through our targeted marketing campaigns, which include direct mail, radio, outdoor advertising, digital and social media, we aim to increase our patient volumes by reaching a broad base of potential patients in order to increase brand awareness. We also have a dedicated field marketing team that works to educate local communities in which we operate about the access and care available at our facilities. Our dedicated field marketing team targets specific audiences by attending local chamber of commerce meetings, meeting with primary care physicians and visiting with school nurses and athletic directors, in order to increase patient volumes within a facility's local community.

        Our patient volume is also influenced by conditions that may be beyond our direct control, some which are seasonal. These conditions include the timing, location and severity of influenza, allergens and other annually recurring viruses, which at times leads to severe upper respiratory concerns.

Reimbursement Rates

        The majority of our revenue is derived from patients with commercial health insurance coverage. The reimbursement rates set by third-party payors tend to be higher for higher acuity visits, reflecting their higher complexity. Consistent with billing practices at all emergency rooms and in light of the fact our facilities are open 24 hours a day, seven days a week and staffed with Board-certified physicians, we bill payors a facility fee, a professional services fee and other related fees. The reimbursement rates we have been able to negotiate have held relatively stable; however, the mix of both acuity and payors can vary period to period, changing the overall blended reimbursement rate. With select payors, we have the ability to make annual increases in our billed amounts. Although we may begin to do so in the near term, we currently do not bill Medicare or Medicaid for the care we provide.

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Seasonality

        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. 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.

Sources of Revenue by Payor

        We receive payments for services rendered to patients from third-party payors or from our patients directly, as described in more detail below. Generally, our revenue is determined by a number of factors, including the payor mix, the number and nature of procedures performed and the rate of payment for the procedures.

        Patient service revenue before the provision for bad debt by major payor source for the periods indicated are as follows:

 
  Year ended December 31,   Three months ended
March 31,
 
(dollars in thousands)
  2012   %   2013   %   2013   %   2014   %  

Third-party payors, including patient portion(1)

  $ 79,408     98.1 % $ 113,603     98.8 % $ 22,896     98.3 % $ 43,672     98.1 %

Self-pay

    1,569     1.9     1,357     1.2     401     1.7     857     1.9  
                                   

Total

  $ 80,977     100.0 % $ 114,960     100.0 % $ 23,297     100.0 % $ 44,529     100.0 %
                                   
                                   

(1)
Patient portion includes deductibles and co-payments.

        Four major third-party payors accounted for 88.2%, and 86.7%, and 85.4% and 82.7%, of our patient service revenue for the years ended December 31, 2012 and 2013 and March 31, 2013 and 2014, respectively. These same payors also accounted for 76%, and 79%, and 77% and 78%, of our accounts receivable as of December 31, 2012 and 2013 and March 31, 2013 and 2014, respectively. The following table sets forth the percentage of patient service revenue earned by major payor source for the periods indicated:

 
  Year ended
December 31,
  Three months
ended
March 31,
 
(Payor)
  2012   2013   2013   2014  

Blue Cross Blue Shield

    29.1 %   28.0 %   26.5 %   27.7 %

United HealthCare

    26.0     26.5     27.4     24.5  

Aetna

    22.1     21.0     20.2     19.1  

Cigna

    11.0     11.2     11.3     11.4  

Other

    11.8     13.3     14.6     17.3  
                   

Total

    100.0 %   100.0 %   100.0 %   100.0 %
                   
                   

Third-Party Payors

        Third-party payors include health insurance companies as well as related payments from patients for deductibles and co-payments and have historically comprised the vast majority of patient service revenue. We enter into contracts with health insurance companies and other health benefit groups by granting discounts to such organizations in return for the patient volume they provide.

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        Most of our commercial revenue is attributable to contracts where a fee is negotiated relative to the service provided at our facilities. Our contracts are structured as either case-rate contracts or as discounts to billed charges. In a case rate contract, a set fee is assigned to visits based on acuity level. We also enter into contracts with payors based on a discount of our billed charges. There are contracted rates for both the professional component and the technical component. Each portion of the claim is billed separately and paid based on the patient's emergency room benefits received.

        First Choice Emergency Rooms, like hospital emergency rooms, are full-service emergency rooms licensed by the states of Texas and Colorado. As such, we collect the emergency room benefits based on a patient's specific insurance plan. Additionally, Texas insurance law provides that all fully funded insurance plans should pay all emergency claims at the in-network benefit rate, regardless of the provider's contract status.

Self-Pay

        Self-pay consists of out-of-pocket payments for treatments by patients not otherwise covered by third-party payors. For the years ended December 31, 2012 and 2013 and March 31, 2013 and 2014, self-pay payments accounted for 1.9% and 1.2%, and 1.7% and 1.9%, of our patient service revenue, respectively.

Charity Care

        Charity care consists of the write-off of all charges associated with patients who are treated but do not have commercial insurance or the ability to self-pay. This includes all charges associated with care provided to patients covered by Medicare and/or Medicaid, as we do not currently receive reimbursements under those programs. For the years ended December 31, 2012 and 2013 and the three months ended March 31, 2013 and 2014, charity care write-offs represented 7.0% and 2.0%, and 5.6% and 9.4%, of our patient service revenue, respectively.

Key Performance Measures

        The key performance measures we use to evaluate our business focus on the number of patient visits, same-store revenue and Adjusted EBITDA.

Patient Volume

        We utilize patient volume to forecast our expected net revenue and as a basis by which to measure certain costs of the business. We track patient volume at the facility level. The number of patients we treat is influenced by factors we control and also by conditions that may be beyond our direct control. See "—Key Revenue Drivers."

Same-Store Revenue

        We begin comparing same-store revenue for a new facility on 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. Opening new facilities is an important part of our growth strategy. These new facilities, within 15 months after opening, generally have historically generated between approximately $4.5 million to $5.5 million in annual net revenue and on average have historically incurred approximately $3.5 million in annual operating expenses. On that basis, our average annual estimated operating income, excluding depreciation and amortization, for such facilities has historically been

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between $1.0 million and $2.0 million, which would represent a facility operating margin, excluding depreciation and amortization, of between approximately 20% and 35%. As we continue to pursue our growth strategy, we anticipate that a significant percentage of our revenue will come from stores not yet included in our same-store revenue calculation.

Adjusted EBITDA

        We define Adjusted EBITDA as net income before interest, taxes, depreciation, and amortization, further adjusted to eliminate the impact of certain additional items, including certain non-cash and other items 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 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.

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        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)
  2012   2013   2013   2014  

Net income (loss)

  $ 3,201   $ (2,984 ) $ (835 ) $ (2,767 )

Depreciation and amortization

    4,640     7,920     1,684     3,057  

Interest expense(a)

    1,589     3,155     288     2,206  

Provision for income taxes

    467     720     132     220  

Advisory Services Agreement fees and expenses(b)

    553     559     131     138  

Preopening expenses(c)

    497     3,977     940     1,408  

Management recruiting expenses(d)

    970     719         99  

Stock compensation expense(e)

    253     586     95     159  

Other(f)

    1,519     1,358     90     572  
                   

Total adjustments

    10,488     18,994     3,360     7,859  
                   

Adjusted EBITDA

  $ 13,689   $ 16,010   $ 2,525   $ 5,092  
                   
                   

(a)
Consists of interest expense of $1.1 million and $2.8 million for the years ended December 31, 2013 and 2014, and $0.3 million and $2.2 million for the three months ended March 31, 2013 and 2014, respectively, a loss in fair market value of derivatives of $0.5 million and a gain in fair market value of derivatives of $0.1 million for the years ended December 31, 2012 and 2013, respectively, 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 our Sponsor under our Advisory Services Agreement.

(c)
Includes labor, marketing costs and occupancy costs prior to opening a facility.

(d)
Third-party costs and fees involved in recruiting our management team.

(e)
Stock compensation expense associated with grants of management incentive units.

(f)
For the year ended December 31, 2013, we incurred costs to develop long-term strategic goals and objectives totaling $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 $0.2 million.

For the three months ended March 31, 2013, we incurred costs to develop long-term strategic goals and objectives totaling approximately $45,000 and board fees and travel expenses paid to members of the board of directors totaling approximately $45,000. 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.

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Components of Results of Operations

Revenue

Patient Service Revenue

        Patient service revenue primarily consists of charges for the professional and technical services provided to patients, net of contractual allowance, charity care write-offs, and self-pay discounts. Revenue is recognized when services are rendered to patients. Charges for all services provided to insured patients are initially billed to and processed by the patients' insurance provider. Allowed amounts not covered by the insurance companies are then billed to the patients. Collection of payment for services provided to patients without insurance coverage is done at the time of service.

Provision for Bad Debt

        Provision for bad debt primarily consists of the estimated uncollectible amounts from insured patients. Provision for bad debt is taken in the quarter the services are provided.

Operating Expenses

Salaries, Wages and Benefits

        Salaries, wages and benefits primarily consist of contract payments to our physicians and compensation and benefits to our staff at our facilities and corporate office, including non-cash stock compensation related to restricted units with time- or performance-based vesting schedules. Salaries, wages and benefits also includes certain labor costs associated with the opening of new facilities. We typically incur higher than normal employee costs at the time of a new store opening associated with set-up and other opening costs. We employ a base "1-1-1-1" model for our staffing needs at each facility, meaning that we have a minimum of one Board-certified physician, one emergency trained registered nurse, one radiology technologist and one front office staff member on-site at all times. This is a fixed cost labor model as all facilities are open 24 hours a day, seven days a week.

General and Administrative

        General and administrative expenses primarily consist of marketing, utilities, medical malpractice and other insurance, professional fees, training and development, travel, office and computer, certain preopening costs incurred in connection with the opening of a facility and Advisory Services Agreement fees and expenses. Our marketing activities are principally focused on building awareness in the community to drive patient volume. We utilize targeted marketing efforts within local neighborhoods, through channels such as direct mail, mobile billboards, radio advertisements, physician open houses, community sponsorships and a robust online/social media presence.

Other Operating Expenses

        Other operating expenses primarily consist of facility and equipment lease costs, medical and laboratory supplies, radiology fees and facility maintenance. We lease the majority of our facilities under operating leases with terms ranging from five to 15 years. These leases typically have renewal options. We also lease certain medical equipment under various non-cancelable operating leases. With the exception of medical and laboratory supplies and radiology fees the facility expenses are fixed in nature.

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Loss from the Disposal or Impairment of Assets

        Loss from the disposal or impairment of assets primarily consists of the write-off of assets at closed facilities, leasehold improvements at our former corporate office and other disposal of equipment in the normal course of business.

Depreciation and Amortization

        Depreciation and amortization is related to buildings, equipment and leasehold improvements whose cost is depreciated or amortized over the shorter of the non-cancellable lease term or the estimated useful life of the asset.

Other (Expense) Income

Interest Expense

        Interest expense primarily consists of interest on our Senior Secured Credit Facility and on one facility treated as a capital lease.

Change in Fair Market Value of Derivatives

        Change in fair market value of derivatives consists of the fair value adjustment of an interest rate swap that was terminated in 2013.

Write-Off of Deferred Loan Costs

        Write-off of deferred loan costs consists of loan origination costs associated with the credit facility that was refinanced in 2013, which has since been terminated.

Provision for Income Taxes

        Provision for income taxes primarily consists of the Texas margin tax. No provision has historically been made for federal income taxes since we were taxed as a partnership for federal income tax purposes.

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Results of Operations

        The following table summarizes our results of operations for the three months ended March 31, 2013 and 2014:

 
  Three months ended March 31,  
 
   
   
  Change from prior
period
  Percentage of
net patient
service revenue
 
(dollars in thousands)
  2013   2014   $   %   2013   2014  

Statement of Operations Data:

                                     

Revenue

                                     

Patient service revenue

  $ 23,297   $ 44,529   $ 21,232     91 %