Q3 2024 Ardent Health Partners Inc Earnings Call
et généralement les considérer comme agressifs et plus élevés que ce qu'ils devraient être.
Payers have also been slower to pay claims.
However, we have managed these challenges with the key help of our revenue cycle management partner, Ensemble.
The year-over-year impact on revenue and income from whistleblowing activity did not accelerate during the third quarter.
Our strong third-quarter results, combined with increased visibility and momentum in our strategic execution, give us the confidence to raise our full-year 2024 guidance to 425 million to 440 million, compared to 415 million to 435 million previously, which represents a 2% increase at the midpoint.
We are also modestly raising the midpoint of our revenue outlook.
During the last earnings call, I shared that one of the main components of our market growth strategy is to invest in outpatient care sites, such as urgent care centers, planned emergency rooms, hospital operation centers, and physician clinics.
This provides additional access points for patients and is consistent with our focus on creating a consumer healthcare ecosystem capable of meeting patients' needs across the continuum of care.
As an example, when we do an urgent student, patients use this access point when there is a backlog at the local primary care office or when they do not have primary care. These urgent care centers have become our first interaction with many patients, thus bringing new patients into our system.
As mentioned during our second call, we acquired 8 urgent care centers earlier this year. We are already seeing an increase in the number of new patients, with 30% of the patients treated at these urgent care centers being new patients to Ardent Health, giving us more and more opportunities to bring these patients into our care ecosystem.
When it comes to a relatively small data point in isolation, it illustrates the rationale for our strategy of increasing hospital cases. Ultimately, we hope that the escalation of our emergency care footprint will produce hospital volumes and hospital case access to hospitals on the scale of hospital access over time.
By evaluating additional M&A opportunities in existing and new urban markets, we operate from a position of strength on the pendulum. At the end of the third quarter, we had more than 560 million dollars in available cash and approximately 850 million dollars in available liquidity.
We hope that our adjusted minimum support ratio improves closer to our target of three times a year once last year's cybersecurity security events have unfolded, putting us in a comfortable support position to execute our strategy.
The M&A pipeline is active, and we will continue to evaluate opportunities for opening and new markets. We remain fiscally disciplined in terms of what we are able to pay and our total savings. And we are looking for assets where we can offer synergies and demonstrate growth over a 2 to 3-year horizon.
We will continue to explore joint venture opportunities as part of our impatient growth strategy and M&A, as the model has provided differentiated value to Arden.
I would like to spend some time discussing the benefits of this joint venture model, why it has served us well, and provide some context on why it makes sense for all citizens.
At a high level, Arden is a partner of choice for academic medical centers, non-profit health systems, and community physicians and foundations. We operate 18 hospitals through our partners and have at least one joint partner in each of the 8 markets we serve.
When we created a joint partner with another health partner, Arden allows access to the strong brand of the health partner, its reputation, its regional presence, and allows us to welcome new physicians to our markets who increasingly improve our service and growth strategies.
At the same time, our joint venture partner receives a minority partner from the low economy and benefits from Arden Health Acumen in the operated community hospitals, the financial strength, and access to investment money that it might not have otherwise.
And ArdenHealth has the ability to expand using a succeeding model that allows us to maintain the majority of ownership and complete operational control as the daily operator.
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During filming, I would like to take a moment to give you a new idea of how we operate on the strength of our technological platform by improving it through a number of artificial intelligence initiatives.
Even in the early editions, we have seen the advantage of AI in driving performance improvement through several avenues, from transforming care delivery models and improving quality outcomes, to consumer engagement and involvement in the efficiency process at the bedside, as well as behind the scenes, through our business processes.
Today, I will highlight two of these use cases.
The FIRST uses AI to optimize our operating room schedules and drive strategic surgical growth.
The collaboration between the principals and the operating room schedulers to manage and release surgery time blocks based on surgery models resulted in more than 500 additional cases being scheduled in these released blocks.
which resulted in 2.3 million dollars in annual revenue and helped fill the openings created by the service line optimization efforts.
This reduces the time that patients often wait for surgery and ensures the maximization of our O.R. resources. We are now working to expand the solution across the company, where appropriate.
Another use case I would like to highlight is the implementation of New Call Center technology to better interact with patients in our markets.
Thanks to the use of natural language, our patients can talk to virtual agents to quickly find a location, access our clinics, schedule or change appointments, or obtain prescription refills without speaking to a live representative.
In our pilot location, this technology resulted in a 75% reduction in abandoned calls and a 25% increase in service levels, which collectively made it easier for our patients to access healthcare and reduced the employment pressure to deliver healthcare efficiently.
Speaker Change: Before passing the phone to Alfred, I want to make some high-level comments regarding the recent hurricane activity. First of all, we do not overlook the devastation to human life, infrastructure, and properties caused by these catastrophic events. Our thoughts and prayers go out to the affected communities, first responders, and volunteers.
Speaker Change: As it relates more specifically to Ardent, we were fortunate to not have direct facility exposure to the hurricanes. That has allowed us to operate as usual.
Like our colleagues, we are examining the deficiency of IV fluids and have implemented conservation plans to avoid depletion and wastage. Ardenne has not experienced any significant service disruptions and we continue to work with our vendors to receive our full allotment. With that, I will now hand over to Alfred.
Alfred: Thank you, Marty. Good morning to everyone joining on the call today.
Alfred: As Marty indicated, we are pleased with our third-quarter results, which reflect an increase in volume, solid revenue growth, and an expansion of the material margin compared to the previous year.
Alfred: Our total revenue for the quarter was 1.4 billion euros, an increase of 5.2% compared to the third quarter of 2023, driven by higher volumes and prices.
Alfred: I'd note that total revenue growth was affected by two items.
Alfred: Firstly, the third quarter of 2023 benefited from approximately 25 million dollars of discrete and non-recurring revenue.
Alfred: associated with additional Medicaid programs, the majority of which are related to an allocation of time to hospitals in Oklahoma that participate in the SHOP program in consideration of a delay in the implementation of the Oklahoma DPP program.
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Alfred: Secondly, our total revenue for the third quarter of 2024 represents a reduction of more than 10 million dollars compared to the third quarter of last year due to Ardent's strategic decision to transfer an ecology and infusion center to an academic health system partner earlier this year.
Alfred: The efficiency of this job allowed us to achieve a balance, and the transfer enabled us to better optimize our portfolio and resources, while improving margins.
Excluding these two elements, the total revenue growth for the third quarter of 2024 would have been about 8%.
In the same way, we reported a net patient service revenue per adjusted admission of 0.9% for the third quarter of 2024 compared to the previous year.
Alfred: Excluding the two 2023 revenue items, growth in net patient service revenue per adjusted admission would have been over 3%.
Alfred: The increase in the IBDF in the neighborhood rose by 15% compared to the previous year, to 98 million dollars, and the associated margin expanded by 50 basis points per year to 6.7%.
Alfred: The adjusted EBITDAre margin before non-controlling interest was increased by 60 basis points compared to the previous year, to 10.9%.
Alfred: higher patient volumes, increased reimbursement fees, the optimization of strategic service lines, and cost reduction initiatives all contributed to the strong financial performance.
Alfred: In terms of revenue mix, Medicaid volumes decreased by 80 basis points annually to 10.2% per year, similar to the decline in the first half of 2024.
This decline largely reflects the impact of the Medicaid redetermination.
Alfred: On the other hand, our commercial mix increased by 60 basis points per year to 43.3%, primarily due to trading volumes.
Alfred: In general, our revenue contribution to the exchange is 3.6% of our total income in a year.
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Speaker Change: Another point to note is the contribution of other revenues, which increased by 50 basis points year-over-year in the third quarter of 2024, to 2.3%, primarily due to an increase in ACO revenues that was recognized compared to the previous year.
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Speaker Change: As Martin mentioned, the volumes of the third quarter show an acceleration of year-on-year growth compared to the first half of 2024.
Speaker Change: The emissions for the third quarter of the year of about 40,000 represent an increase of 6.4% over the previous year.
Speaker Change: which represents an increase of 5.3% during the first half of 2024.
Speaker Change: The increase reflects strong growth in general medicine, including particular strength in our pulmonology and gastroenterology service lines, as well as the impact of the two-hour morning rule, which we estimate contributed to about a quarter of the 6.4% increase in admissions.
Speaker Change: The number of adjusted admissions increased by 3.8% year over year during the third quarter, rising by 3.3% in the first half of 2024.
Speaker Change: Total operations have returned to a nominal growth of 0.3%, which is an improvement from the decline of 1.9% during the first half of 2024.
Speaker Change: The efforts to optimize strategic service lines discussed during our second meeting continue to be a headwind for some low-margin service lines, like ENT.
Speaker Change: At the same time, the growth of higher acuity service lines, such as orthopedics, has created a more favorable case mix.
Speaker Change: During the third quarter, we continue to execute on our savings initiatives. Our additional expense is a percentage of total revenue that improves by 70 basis points year over year to 17.4%.
Speaker Change: This reduction reflects improvements in our performance in the electricity market thanks to a number of additional expense initiatives that our team has been adopting over the course of the year.
Speaker Change: The cost of contract labor decreased by approximately 3 million euros year-over-year and accounted for 3.9% of total employees and profits for the third quarter of 2024 compared to 4.6% during the third quarter of 2023.
Speaker Change: We continue to see a normalization in the use of employment contracts and rates across each market, as well as improvements in our retention of medical care.
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Speaker Change: Employees and profits as a percentage of total revenue have increased by 60 basis points per year to 43.8%.
Speaker Change: This increase is attributable to an additional 8 million dollars of equity-based compensation, recorded in the third quarter of 2024, following our IPO in July.
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Speaker Change: During the third quarter of 2024, professional taxes as a percentage of total income increased by 100 basis points per year to 18.9%, in line with the increase during the first half of 2024.
Speaker Change: The increase in professional taxes continues to be driven by a combination of subsidies for hospital-based doctors, as well as higher taxes paid to our external revenue partner from the tax cycle, increasing money collections annually year by year.
Speaker Change: Operating expenses for the third quarter were 8.2% of total revenue, a decrease of 90 basis points per year.
Speaker Change: This decrease was mainly driven by lower provider assessments associated with supplemental Medicaid program revenues during the third quarter of 2024 compared to the third quarter of 2023.
Speaker Change: Let's move on to the cash flow and liquidity. We finished the third quarter with a total cash of 563 million dollars and a total cash of 1.1 million dollars.
Speaker Change: Our total waste and available cash at the end of the third quarter was $851 million.
Speaker Change: The cash provided by operating activities during the third quarter was 90 million dollars compared to 89 million dollars during the third quarter of 2023.
Speaker Change: Capitalist expenditures during the third quarter were 43 million euros, above the quarterly average of 31 million euros during the first half of 2024.
Speaker Change: Just as a reminder, we previously guided to a sizable increase in capital spending over the back half of the year.
Speaker Change: As of September 30, 2024, our total savings, as calculated under our credit agreement, was 1.6 times, and our suggested minimum savings was 3.5 times.
Speaker Change: We hope that our mining supply ratio adjusted to the mining economy improves closer to our target of three times per year if the impacts of the cyber security incident that materially affected the financial results of the fourth quarter of 2023 diminish.
Speaker Change: In September, we announced a repricing amendment to our credit agreement.
Speaker Change: The amendment reduced our interest rate by 50 basis points and eliminated the credit spread adjustment.
Speaker Change: We hope that the repricing will create approximately 5 million dollars in annual interest savings for us in the future.
Speaker Change: On the other hand, our third quarter results, combined with the momentum of our strategic execution, give us confidence to increase our adjustment baseline for the future 2024 by about 2%, as well as our revenue growth baseline.
[inaudible]
Speaker Change: A complete list of our guidance metrics is listed in our earnings release, but key highlights include total revenue of between $5.8 and $5.875 billion versus $5.75 to $5.9 billion previously.
Speaker Change: The net income attributable to Arden Health is between $156 million and $176 million, implying an EPS of $1.18 and $1.32 per year.
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Speaker Change: The guidance on net income has been reduced to reflect an expected delay in receiving the company's insurance benefits related to the 2023 cybersecurity event.
Speaker Change: We still hope to verify the integrity of our statement, but the expectation for the end of the resolution has been pushed to 2025.
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Speaker Change: The adjusted EBITDA is expected to be between $425 million and $440 million, compared to the previous guidance of $415 million to $435 million.
Total adjusted admissions growth of between 4.5% to 5%.
from 4 to 4.5% previously.
Speaker Change: The service revenue of nurses in relation to adjusted admission growth is 2.6% to 3.3% compared to 2.3% to 4.4% previously.
Speaker Change: Finally, we are increasingly expecting capital expenditures of 170 to 185 million dollars.
Speaker Change: I would now like to turn the floor over to Marty for some comments on the quarantine before opening the floor to questions.
Marty: Thank you, Alfred. In summary, we continue to make great progress by executing our key strategic initiatives and leveraging the consumer platform we have built to create long-term partner value.
Marty: We are encouraged by the increasing volume trends that showed improvements in the third quarter compared to the trends in the first half of 2024.
Speaker Change: Our focus on operational excellence continues to improve margin achievement, as evidenced by our strong increase in EBITDA growth and increased support.
Speaker Change: And we continue to improve our focus on developing market share, taking a disciplined approach to evaluating opportunities in the outpatient space as well as in new markets. With our strong balance sheet and recent IPO, we are well positioned to execute on development opportunities and continue to improve the quality of care in the communities we serve.
Speaker Change: I would like to conclude by thanking our 24,000 team members and more than 1,800 providing employees and affiliates who continue to deliver exceptional care to patients across the communities we serve.
Speaker Change: Together, we focus on the best health property and on achieving our goal of taking care of our patients, our communities, and each other. With this operator, please open the line for questions.
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Speaker Change: At this moment, I would like to remind you that, to ask a question, please press the star, followed by the number 1 on your phone keypad. Once again, it's the star, followed by the number 1. I will pause for a moment to compile the list of questions.
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Speaker Change: Our first question comes from Mr. Gilmour with KeyBank. Your line is open.
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Speaker Change: Thank you for the question. I wanted to ask you about the sequential acceleration in the volumes you mentioned. I was curious about what you attribute this to. I think you might have mentioned the midday as a factor, but I was curious if there were more operational drivers, perhaps copying from some of the service lines.
Exits or more, just environmental things that are going on.
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Speaker Change: Thank you, Mathieu. Yes, there are a number of factors that affect the growth we are seeing. Two Midnights is certainly a part of that, but we are also very focused on optimizing our facilities from a long-term and efficiency perspective, as well as filling the capacity we create through these long-term efficiencies across our transfer center.
Speaker Change: Consistently, we see improved benefits and reduced denials of transfers and improved acceptance of these incoming transfers. So, it's multifactorial.
Speaker Change: I would just like to add that I am not thinking about the acceleration speed of 2 and a half hours of the Q3. It continued, as was said. We can think of this as 20 to 25% of the growth in eligibility.
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Speaker Change: Thank you. And then, a follow-up on the exchanges. I appreciate the announcement there. I was curious if there was something about your markets in particular that resulted in lower trading volumes compared to some of your peers. Is it just, perhaps, broader Medicaid coverage, but any insight would be great.
Speaker Change: We really think that it's a factor of the size of the markets in which we operate. We operate in these mid-sized urban markets. There are still many traditional employee response insurances available for people. We think it's largely a factor of size.
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Thank you.
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Speaker Change: Our next question comes from the line of Ben Hendricks of RBC Capital Markets. Your line is open.
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Speaker Change: Thank you very much. You mentioned that the development of your operation has reflected the impact of your efforts to optimize your service line. I would like to know if you could comment on our position in this optimization process, compared to where you want to be and how you see the mix of cases in different categories, joints, cardiology, urology, etc. And then, in extension, how this shapes the scope of your outpatient M&A efforts. Thank you.
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Speaker Change: Yeah, several questions there, Ben. Thank you. Yes, we do see the impact of our rationalization in surgeries.
Speaker Change: are developing, but that's not all.
Speaker Change: It's something that will probably continue until the end of the year, until next year.
The second part of your question was...
who is interested in the ASC, I believe.
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Thank you.
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Speaker Change: Our next question comes from the line of Scott Fadel with Stevens. Your line is open.
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Speaker Change: Hello, this is Rajan for Scott. I have a quick question about the contractual environment with Medicare Advantage plans.
You noted that there had been no acceleration.
Denial claims year over year.
Speaker Change: But, you know, seeing how MA Plans are putting pressure on rates and margins, I was wondering if you could give a bit of insight on how the contract turned out for the 2025 book and beyond.
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Speaker Change: That's an excellent question. We are at about 85% of the contracts for next year and we are still seeing changes.
Speaker Change: It was an excellent performance, a bit more moderate than what we had seen 18 to 24 months ago, but still operating in this mid-digit range for the year 2025.
Speaker Change: Instead of Arden or any lines of demarcation kind of worth noting across here ownership areas.
Speaker Change: Yes. So couple of questions vessel, then there so on the oncology piece.
Speaker Change: That is part of our continued strategic service line rationalization process.
Speaker Change: Oncology rates varies significantly across.
Speaker Change: Multiple geographies and so where we can get rates that makes sense, we're continuing.
Speaker Change: To provide those services, but.
Speaker Change: As a taxpaying organization, we don't qualify for 340 billion. So infusion services is one of those things Thats a high drug cost that goes with that.
Speaker Change: Very reimbursement rates and so where we have.
Speaker Change: Academic partners that we can join forces with them.
Speaker Change: Oklahoma, We've got it.
Nationally.
Speaker Change: National cancer designation sponsor that we're able to expand essentially the services, we're providing and still service our customers throughout our health system that was an opportunity that we look forward to.
Alfred: Alfred you want to talk about just the general ownership structure.
Alfred: Sure I think the important thing to remember in this is that we were saying full operational control and these JV. So that there are no.
Speaker Change: I will say bright lines in terms of what we do versus what our partner does the advantage that Marty.
Alfred: Articulated in our <unk>.
Alfred: Previous comments in term the strategic advantages of having academic partners, where we can make decisions like this that make create a win win for both parties.
Alfred: Based on the local environment, but very important to understand that we retain full operational control.
Speaker Change: Great. Thanks for clarifying.
Speaker Change: Our next question comes from the line of Tim Grieves with your.
Speaker Change: Your line is opened.
Tim Grieves: Oh, hi, Thank you for taking the question.
Speaker Change: I wanted to talk about more so the margins in that mid teens growth that you guys spoke about.
Speaker Change: I wanted to know about the timeline do you guys have a timeline and maybe how that has changed or maybe being reaffirmed due to the performance so far.
Speaker Change: Yes, I would say, we're very much on track with our expectations to achieve.
Speaker Change: Mid teens margins over the next several years. So you can think about that.
Speaker Change: Again, it will be a multiyear journey.
Alfred: Implementation of the DPP program in Oklahoma This year and the expectation for New Mexico next year are certainly a big component of that journey.
Alfred: As well as they continued margin enhancement initiatives as well as the ambulatory growth initiatives in our market. So you're looking at.
Alfred: From I would say two to three year type journey, and but our timeline for that is.
Alfred: Not been changed I would say.
Alfred: 2024 to the raising of our guidance is very much on track.
Speaker Change: Okay. Thank you.
Speaker Change: Once again, if you would like to ask a question. Please press star followed on number one once again that is SAR pharma number one. Our next question comes from the line of Craig <unk> with Morgan Stanley. Your line is opened.
Speaker Change: Yes, Thanks, Marty just following up on the comments around encouraging volume trends I think previously you talked about things settling kind of back to pre COVID-19 levels. So just how you're seeing things in Q4, and then any kind of.
Speaker Change: Headwinds or tailwind to consider looking into 2025 from a volume perspective.
Speaker Change: Yes, Thanks, Craig.
Speaker Change: Same strong demand in our markets and we think largely several factors as I mentioned before just.
Alfred: The aging growing population coupled with the fact that our markets are growing three.
Alfred: Three times faster than the U S average and so when I mentioned before that we were.
Alfred: Sort of getting back to pre Covid, we were seeing strong growth pre COVID-19.
Alfred: We don't see any hangover from that at this point.
Alfred: Service demand has been good coupled by the fact again that we've been able to improve efficiencies and just maximize the bed occupancy that we have through our incoming transfer centers. We know that there is continued demand across our regions.
Alfred: As they are growing for that higher acuity level service and.
Alfred: We're making sure that we have the ability to absorb that capacity into our system. So.
Alfred: Our outlook for next year, we have not officially said anything but we expect based upon the favorable demographics are positioned in the operational enhancements, we're making to.
Alfred: Yields continued strong demand going into next year.
Speaker Change: Got it thanks for that.
Speaker Change: And also just following up on the commentary kind of a multiyear journey of margin expansion in the progress you've seen this year.
Speaker Change: Did you see kind of more of the same into next year.
Speaker Change: Some of the operating leverage or anything else you would call out there are things to watch them into 2025.
Speaker Change: Sure. Good question of course again, our big the Big step up for next year would largely come through.
Speaker Change: Additionally, the DPP program in new Mexico, but from an operational perspective.
Speaker Change: Where your question over time that will continue to I'll say decrease but I'd say, we're still in the middle innings of that journey. So there's still a fair bit of.
Speaker Change: Additional improvement for us to continue to harvest over the next couple of years.
Speaker Change: Got it thank you.
Yeah.
Speaker Change: There are no further questions at this time I would like to hand things back over to Marty Mark.
Marty Mark: Thanks, everybody for your time and attention and we appreciate your focus on ardent and we're looking forward to continuing the strong trajectory as we enter into this next chapter of growth for the company. If you have any questions as always please reach out to Dave silo in Investor Relations. Thank you all.
Speaker Change: This concludes today's conference call you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
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