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What happened

The hits keep coming. Adeptus Health (NYSE:ADPT), the nation's largest operator of freestanding emergency rooms, surprised investors yesterday after delaying the release of its quarterly earnings. That caused shares to drop 13.7% as investors fearing bad news scrambled for the exits. Those that stuck around are not being rewarded for their patience. The company announced disappointing earnings and surprised investors with an emergency financing round, which pushed shares down an additional 65% in morning trading today. 

So what

The company reported a net loss of $11.7 million in the third quarter of 2016 due to a range of issues. Adeptus Health cited high fixed costs at non-hospital outpatient departments -- or emergency rooms that are not affiliated with a hospital -- in addition to collection issues and increased competition from hospital openings, as the culprits. Worse yet, the surprise loss occurred despite a 32% increase in quarterly revenue compared with the prior year.

The third-quarter loss prompted a domino effect of other bad news: Many analysts downgraded the stock. Adeptus Health reduced its adjusted guidance for earnings before interest, taxes, depreciation, and amortization (EBITDA) for the full year, and admitted that it needed to secure emergency financing of $27.5 million (in preferred stock) from existing investors. While the company has a healthy debt-to-assets ratio, it has operated with minuscule cash balances in the past. That's fine when a business is growing hand over fist, but it makes for some uncomfortable decisions when dark clouds roll in. 

Speaking of growth, most of the gains in Adeptus Health's business are occurring within unconsolidated joint ventures, while consolidated financial results are relatively stagnant. Consider that consolidated revenue for the first nine months of 2016 has grown less than 1% compared with the same period of 2015. Meanwhile, unconsolidated revenue grew 273% over the year-ago period.

Now what

Adeptus Health has seen its share price tumble from over $73 to below $10 in just six months. Investors are worried about the headwinds in the company's industry and, now, the ability of the company to weather the storm. This is a difficult company to pin down, but one statistic hints that at least some of the move is an overreaction: Adeptus Health sports a book value of $21.08 per share as of the end of the third quarter. If you think the situation is overblown, then you may want to take a deeper look.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.