Q2 2025 Ardent Health Inc Earnings Call

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

You would like to ask a question. During this time simply press star followed by the number one on your telephone keypad once again star one and if you'd like to withdraw your question simply press Star one again. Thank you.

I'd now like to turn the call over to Dave <unk> Senior Vice President of Investor Relations Dave.

Thank you operator, and welcome to <unk> Health second quarter 2025 earnings Conference call. Joining me today is our president and Chief Executive Officer, Marty <unk>, and Chief Financial Officer, Alfred Lumping, Marty and Alfred will provide prepared remarks, and then we will open the lines for questions before I turn the call over to Marty I want to remind everyone.

That today's discussion contains forward looking statements about future business and financial expectations actual results may differ significantly from those projected in today's forward looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission, except as required by.

Speaker #3: Thank you standing by. My name is Greg, and will be your conference operator today. At this time, I would like to welcome everyone to today's Ardent Health Second Quarter Earnings Conference call.

Speaker #3: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed the number one on your telephone keypad.

We undertake no obligation to update our forward looking statements. Further this call will include the discussion of certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDAR reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release, which was issued yesterday evening after them.

Speaker #3: Once in, star one. And if you'd like to withdraw your question, simply press star one again. Thank ou. I'd now like to turn the call over to Dave Styblo, Senior Vice President of Investor Relations.

Market closed and is available at <unk> dot com with that I'll turn the call over to Marty.

Speaker #3: Dave?

Speaker #4: Thank you, operator, and welcome to Ardent Health Second Quarter 2025 Earnings Conference call. Joining me today is Ardent President and Chief Executive Officer, Marty Bonick, and Chief Financial Officer, Alfred Lumsdaine.

Okay.

Thank you Dave and good morning, we appreciate everyone joining the call and webcast, we have a lot to cover today, so let's get started.

This past July marked our one year anniversary as a public company.

Speaker #4: Marty and Alfred will provide prepared remarks, and then we will open the line to questions. Before I turn the call over to Marty, I want remind everyone that today's discussion contains forward-looking statements about future business and financial expectations.

As I reflect back over the past year I'm proud of the financial and operational progress we've made while remaining true to our purpose of delivering exceptional care to our patients.

I wanted to begin by reinforcing why Arden is well positioned to drive long term shareholder value, despite broader market conditions and pending regulatory changes.

Speaker #4: Actual results may differ significantly from those projected in today's forward-looking statements. Due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission, except as required by law, we undertake no obligation to update our forward-looking statements.

While the policy environment may introduce future disruption healthcare remains essential and we believe that creates opportunity for strong well positioned companies like ours.

Speaker #4: Further, this call will include the discussion of certain non-GAAP financial measures including adjusted EBITDA and adjusted EBITDAR, reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release, which was issued yesterday evening after the market closed and is available at ardenthealth.com.

Arden's, leading positions in growing mid sized urban markets combined with an aging and increasingly complex patient population continue to drive demand.

Our expansion beyond the hospital, particularly around outpatient services is generating new revenue streams and positioning us well for value based care.

Our strong balance sheet and differentiated joint venture model support both core growth and expansion into new markets.

Speaker #4: With that, I'll turn the call over to Marty.

Speaker #5: Thank you, Dave, good morning. We appreciate everyone joining the call and webcast. We have a lot to cover today, so let's get started. This past July, marked our one-year anniversary as a company.

We are building a track record of disciplined execution delivering results that have met or exceeded expectations in each of the four quarters since our IPO.

Speaker #5: As I reflect back over the past year, I'm proud of the financial and operational progress we've made while remaining true to our purpose of delivering exceptional care to our patients.

In 2024, we grew revenue by 10% and adjusted EBITDA by nearly 60% in the first half of 2025 revenue increased again by 8% and adjusted EBITDA rose by over 20% compared to the prior year period.

Speaker #5: I want to begin by reinforcing why Ardent is well-positioned to drive long-term shareholder value despite broader market conditions and pending regulatory changes. While the policy environment may introduce future disruption, healthcare remains essential, and we believe that creates opportunity for strong, well-positioned companies like ours.

Looking ahead, we are confident in our ability to sustain strong performance supported by our impact program, which I'll discuss in more detail later.

Turning to our second quarter performance I'll cover four key areas that highlight our progress and future direction.

Speaker #5: Ardent's leading positions in growing mid-size urban markets combined with an aging and increasingly complex patient population continue to drive demand. Our expansion beyond the hospital, particularly around outpatient services, is generating new revenue streams and positioning us well for value-based care.

First I'll discuss our strong demand backdrop and continued financial progress.

I'll update you on progress around our strategic growth initiatives.

Third I will highlight the latest innovations we've deployed to drive clinical transformation.

Fourth I will review our thoughts on the regulatory environment and our plans to drive continued performance supported by our impact program.

Speaker #5: Our strong balance sheet and differentiated joint venture model support both core growth and expansion into new markets. We are building a track record of disciplined execution, delivering results that have met or exceeded expectations, and each of the four quarters since our IPO.

Starting with demand and performance.

Our strong positioning in a growing mid sized markets combined with initiatives to improve capacity and efficiency drove six 6% year over year admissions growth in Q2 supported by nine 2% growth in inpatient surgeries.

Speaker #5: In 2024, we grew revenue by 10%, and adjusted EBITDA by nearly 60%. In the first half of 2025, revenue increased again by 8%, and adjusted EBITDA rose by over 20% compared to the prior year period.

While total surgeries declined <unk>, 2% year over year. This still reflects a sequential improvement from the 0.7% decline in Q1.

This robust demand translated into strong financial results that are aligned with our 2025 plan even in the face of ongoing industry wide payer denial headwinds.

Speaker #5: Looking ahead, we are confident in our ability to sustain strong performance, supported by our impact program, which I'll discuss in more detail later. Turning to our second quarter performance, I'll cover four key areas that highlight our progress and future direction.

Adjusted EBITDA grew 39% year over year with 200 basis points of margin expansion, we generated $117 million in operating cash flow and improved our net leverage ratio to two seven times down from three eight times at the end of Q1.

Speaker #5: First, I'll discuss our strong demand backdrop and continued financial progress. Second, I'll update you on progress around our strategic growth initiatives. Third, I'll highlight the latest innovations we've deployed to drive clinical transformation.

Importantly, and as we anticipated CMS renewed the 2025, New Mexico DPP program in late June.

Speaker #5: And fourth, I'll review our thoughts on the regulatory environment and our plans to drive continued performance supported by our impact program. Starting with demand and performance, our strong positioning in eight growing mid-size markets combined with initiatives to improve capacity and efficiency drove $6.6% year-over-year admissions growth in Q2, supported by $9.2% growth in inpatient surgeries.

This program is pivotal and continuing to support providers and caring for this vulnerable population across new Mexico, which is vital as Medicaid covers nearly 40% of the state's total population, 55% of births and about 60% of children.

Moving on to growth.

We continue to make meaningful progress in growing market share and expanding our outpatient footprint a key pillar of our long term strategy and.

Speaker #5: While total surgeries declined 0.2% year-over-year, this still reflects a sequential improvement from the 0.7% decline in Q1. This robust demand translated into strong financial results that align with our 2025 plan, even in the face of ongoing industry-wide payer denial headwinds.

In May we welcome Chris <unk> as our Chief Development Officer, who has deep industry experience will be instrumental in scaling our business.

On the ambulatory fronts, we have shovels in the ground in multiple new projects and expect to open five urgent care centers and two imaging centers in the second half of 2025.

Speaker #5: Adjusted EBITDA grew 39% year-over-year with 200 basis points of margin expansion. We generated $117 million in operating cash flow and improved our net leverage ratio to 2.7 times, down from 3.0 times at the end of Q1.

These will complement the 18 urgent care centers, we acquired earlier this year.

Over the past 12 months, we have significantly expanded our urgent care footprint and increased market share meeting, both consumer demand and fueling growth in our core markets.

Speaker #5: Importantly, and as we anticipated, CMS renewed the 2025 New Mexico DPP program in late June. This program is pivotal in continuing to support providers in caring for this vulnerable population across New Mexico, which is vital as Medicaid covers nearly 40% of the state's total population, 55% of births, and about 60% of children.

Continuing onto our clinical care transformation.

We advanced multiple initiatives focused on improving physician and nursing workflows, reducing burnout and turnover enhancing patient outcomes and ultimately driving incremental earnings.

Our virtual care strategy is delivering strong operational and financial results with virtual nursing now scaled in east, Texas in Idaho.

Speaker #5: Moving on to growth, we continue to make meaningful progress in growing market share and expanding our outpatient footprint, a key pillar of our long-term strategy.

This model reduces administrative burden on bedside nurses lowering nursing cost of care by $30 per patient per day in reducing voluntary turnover by 600 basis points in these units last year.

Speaker #5: In May, we welcomed Chris Schepplein as our Chief Development Officer, whose deep industry experience will be instrumental in scaling our . On the ambulatory front, we have shovels in the ground and multiple new projects and expect to open five urgent care centers and two imaging centers in the second half of 2025.

Similarly, our virtual specialty consoles and our outline hospitals in these Texas have reduced unnecessary transfers to our tertiary hospital by 85% preserving capacity for higher acuity and out of network patients and boosting both volumes and rates.

Speaker #5: These will complement the 18 urgent care centers we acquired earlier this year. Over the past 12 months, we've significantly expanded our urgent care footprint and increased market share, meeting both consumer demand and fueling growth in our core markets.

We're also leveraging technology to improve clinical outcomes and efficiency medical wearables deployed across several markets enable continuous vital sign monitoring reducing mortality by up to 15% and shortening length of stay by roughly one third of a day in our pilot group and.

Speaker #5: Continuing on to our clinical care transformation, we advanced multiple initiatives focused on improving physician and nursing workflows, reducing burnout and turnover, enhancing patient outcomes, and ultimately driving incremental earnings.

In parallel we're rolling out AI enabled scribed technology to assist with real time clinical documentation.

Following a successful pilot and the reduced documentation time by 41% and had 100% of participating providers reporting improved satisfaction. The tool is being adopted companywide across multiple specialties.

Speaker #5: Our virtual care strategy is delivering strong operational and financial results with virtual nursing now scaled in East Texas and Idaho. This model reduces administrative burden on bedside nurses, lowering nursing cost of care by $30 per patient per day, and reducing voluntary turnover by $600 basis points in these units last year.

These innovations are part of our broader commitment to quality operational excellence and a best in class workplace culture.

This commitment is being recognized as nine Arden hospitals were named to modern Healthcare's Best places to work the Tennessee honored Arden as a top workplace in 81% of our eligible facilities earned an a or b and the latest leapfrog Hospital safety grade report well above the 56% National average.

Speaker #5: Similarly, our virtual specialty consults and our outlying hospitals in East Texas have reduced unnecessary transfers to our tertiary hospital by 85%, preserving capacity for higher acuity and out-of-network patients and boosting both volumes and rates.

Finally, turning to the regulatory environment.

Speaker #5: We're also leveraging technology to improve clinical outcomes and efficiency. Medical wearables deployed across several markets enable continuous vital sign monitoring, reducing mortality by up to 15%, and shortening length of stay by roughly one-third of a day in our pilot group.

We recognize investors are closely monitoring two key developments the big beautiful Bill for <unk> and the possible exploration of enhanced exchange subsidies.

We aim to provide as much transparency as possible and how these may affect our long term growth outlook.

Speaker #5: In parallel, we're rolling out AI-enabled scribe technology to assist with real-time clinical documentation. Following a successful pilot that reduced documentation time by 41% and had 100% of participating providers reporting improved satisfaction, the tool is being adopted company-wide across multiple specialties.

Like our peers, we are disappointed by the passage of the <unk> due to substantial Medicaid funding cuts that threaten coverage for vulnerable populations. If implemented as planned. These cuts would begin ramping in 2028 disrupting care delivery for millions.

We know investors are particularly focused on <unk> impact on the DPP programs, including Medicaid rate reductions and a provider tax cap at three 5%.

Speaker #5: These innovations are part of our broader commitment to quality, operational excellence, and a best-in-class workplace culture. This commitment is being recognized as nine Ardent hospitals were named to Modern Healthcare's Best Places to Work, the Tennessee Honored Ardent as a Top Workplace, and 81% of our eligible facilities earned an A or B in the latest Leapfrog Hospital Safety Grade report, well above 56% national average.

We expect a de Minimis impact to earnings in 2026, and 2027 with the majority of the financial effect occurring between 2028 and 2035.

Worst case scenario, we estimate this could ultimately result in an EBITDA impact of $150 million to $175 million by the time. The cuts are fully effective all the way out in 2035, assuming no material changes to the legislation.

Speaker #5: Finally, turning to the regulatory environment, we recognize investors are closely monitoring two key ments. The big beautiful bill, or OBBA, and the possible expiration of enhanced exchange subsidies.

However, we do anticipate the net impact will likely be lower supported by at minimum that Rural Hospital fund and other state level supplemental programs there'll be as are not yet finalized that cannot be quantified at this time.

Speaker #5: We aim to provide as much transparency as possible on these may affect our long-term growth outlook. Like our peers, we are disappointed by passage of the OBBA due to substantial Medicaid funding cuts that threaten coverage for vulnerable populations.

We also understand concerns around the potential exploration of enhanced exchange subsidies at year end.

Arden has seen nearly 40% growth in exchange admissions in the first half of 2025.

Speaker #5: If implemented as planned, these cuts would begin ramping in 2028, disrupting care delivery for millions. We know investors are particularly focused on OBBA's impact on the DPP programs, including Medicaid rate reductions and a provider tax cap at 3.5%.

<unk> reimbursement rates for this population or less favorable and most of them.

More closely aligned with Medicare than commercial rates due to the high denial activity and a disproportionate share of ER visits which are typically margin dilutive in.

In fact, we are sending termination notices to some exchange plans, where reimbursement has been an adequate and in some cases net rates that have been well below Medicare.

Speaker #5: We expect a de minimis impact to earnings in 2026 and 2027. With the majority of the financial effect occurring between 2028 and 2035. In a worst-case scenario, we estimate this could ultimately result in an EBITDA impact of $150 to $175 million by the time the cuts are fully effective, all the way out in 2035.

This will free up capacity to absorb high quality demand that we have had two previously turned away.

All that to say the key takeaway here is that our current exchange population currently contributes less to EBITDA than it is volume might suggest.

There is a misconception that any revenue declines here would directly impact EBITDA, which is not necessarily the case, especially as we remain agile and adjusting operations to meet demand.

Speaker #5: Assuming no material changes the legislation. However, we do anticipate the net impact will likely be lower, supported by at minimum the rural hospital fund and other state-level supplemental programs, though these are not yet finalized and cannot be quantified at this time.

Obviously, there are number of moving parts, but we are committed to providing visibility as the policy landscape evolves and are optimistic about working with policymakers to mitigate the bills more harmful effects.

Speaker #5: We also understand concerns around the potential expiration of enhanced exchange subsidies at year-end. Ardent has seen nearly 40% growth in exchange admissions in first half of 2025.

To proactively address these headwinds we've already begun identifying opportunities to leverage our scale and centralized platform to streamline workflows embrace automation and AI and sharpen operations.

Speaker #5: However, reimbursement rates for this population are less favorable, and our more closely aligned with Medicare than commercial rates, due to the high denial activity and a disproportionate share of visits, which are typically margin-dilutive.

Under the leadership of Dave Casper as our new Chief operating officer, we are accelerating these.

Efforts through our impact program, which stands for improving margins performance agility and care transformation.

Speaker #5: In fact, we are sending termination notices to some exchange plans where reimbursement has been inadequate and, in some cases, net rates that have been well below Medicare.

Alfred will share more detail as we build a robust mitigation plan ahead of 2028.

Speaker #5: This will free up capacity to absorb high-quality demand that we have had to previously turn away. All that to say, key takeaway here is that our current exchange population currently contributes less to EBITDA than its volume might suggest.

These regulatory pressures underscore the importance of scale and strategic partnerships. We believe these pressures may accelerate M&A opportunities as hospitals and health systems seek transactions partners and capital to navigate these uncertain waters.

Speaker #5: There is a misconception that any revenue decline here would directly impact EBITDA, which is not necessarily the case, especially as we remain agile in adjusting operations to meet demand.

We are well positioned to offer a variety of relationships with these systems over the coming years.

In summary, we are pleased with our second quarter results. The operational workflow initiatives I've highlighted are starting to bear fruit and the execution of our strategic growth priorities is creating strong momentum as we enter the second half of the year and importantly, the timing. The <unk> provides allows for us to plan and implement mitigation strategies before the full impact takes hold.

Speaker #5: Obviously, there are a number of moving parts, but we are committed to providing visibility as a policy landscape evolves and are optimistic about working with policymakers to mitigate the bill's more harmful effects.

Speaker #5: To proactively address these headwinds, we've already begun identifying opportunities to leverage our scale and centralized platform to streamline workflows, embrace automation and AI, and sharpen operations.

All of this puts us on track to meet our full year 2025 financial guidance, which we are reaffirming today.

That I will now turn the call over to Alfred.

Speaker #5: Under the leadership of Dave Caspers, our new Chief Operating Officer, we are accelerating these efforts through our impact program, which stands for Improving Margins, Performance, Agility, and Care Transformation.

Thanks, Marty and good morning to everyone.

<unk> on Marty's comments I'll walk through how our financial performance reflects the strength of our strategy the resilience of our platform and our disciplined execution.

Speaker #5: Alfred will share more detail as we build a robust mitigation plan ahead of 2028. These regulatory pressures underscore the importance of scale and strategic partnerships.

As Marty indicated CMS is approval of the new Mexico DPP program for calendar year 2025 is an important continuation of funding in the state of New Mexico that ultimately results in improved access and high quality care for the Medicaid population.

Speaker #5: We believe these pressures may accelerate M&A opportunities as hospitals and health systems seek transactions partners and capital to navigate these uncertain waters. We are well-positioned to offer a variety of relationships with these systems over the coming years.

As expected the financial benefit from the New Mexico DPP program. In Q2 includes the impact for the entire first half of 2025 and is fully consistent with the EBITDA contribution assumptions embedded in our full year 2025 guidance that we've previously outlined.

Speaker #5: In summary, we are pleased with our second quarter results. The operational workflow initiatives I've highlighted are starting to bear fruit, and the execution of our strategic growth priorities is creating strong momentum as we enter the second half of the year.

Speaker #5: And importantly, the timing the OBBA provides allows for us to plan and implement mitigation strategies before the full impact takes hold. All of this puts us on track to meet our full year 2025 financial guidance, which we are reaffirming today.

We're pleased with our second quarter results and our execution across numerous key strategic initiatives helped set the stage for attractive long term growth.

Speaker #5: With that, I will now turn the call over to Alfred.

Speaker #4: Thanks, Marty, and good morning to yone. Building on Marty's comments, I'll walk through how our financial performance reflects the strength of our strategy, the resilience of our platform, and our disciplined execution.

Despite facing an environment of increasing payer denial activity from already historically elevated levels, we executed on our key financial targets, including revenue and adjusted EBITDA.

Second quarter revenue increased 11, 9% to $165 billion compared to the prior year driven by adjusted admissions growth of one 6% and net patient service revenue per adjusted admission growth of 10, 2%.

Speaker #4: As Marty indicated, CMS's approval of the New Mexico DPP program for calendar year 2025 is an important continuation of funding in the state of New Mexico that ultimately results in improved access and high-quality care for the Medicaid population.

Meanwhile, adjusted EBITDA increased 39% in the second quarter to $170 million and.

Speaker #4: As expected, the financial benefit from the New Mexico DPP program in Q2 includes the impact for the entire first half of 2025 and is fully consistent with the EBITDA contribution assumptions embedded in our full year 2025 guidance that we've previously outlined.

EBITDA margin increased 200 basis points to 10, 3%.

Year to date through the second quarter, adjusted EBITDA grew 23% and margins expanded 100 basis points from the prior year period.

Speaker #4: We're pleased with our second quarter result. And our execution across numerous key strategic initiatives helps set the stage for attractive long-term growth. Despite facing an environment of increasing payer denial activity from already historically elevated levels, we executed on our key financial targets, including revenue and adjusted EBITDA.

From a volume standpoint, Q2 admissions growth was strong at six 6% and adjusted admissions increased one 6% year over year.

The admissions growth was strongest in the exchanges up approximately 35% year over year.

While commercial excluding exchange plans and Medicaid admissions both increased approximately 8%.

Speaker #4: Second quarter revenue increased $11.9% to $1.65 billion compared to the prior year, driven by adjusted admissions growth of $1.6% and net patient service revenue per adjusted admission growth of $10.2%.

Inpatient surgery growth was nine 2% in the second quarter, while outpatient surgeries declined three 8%.

Moving onto cash flow and liquidity, we ended second quarter with total cash of $541 million and total debt outstanding of $1 1 billion. Our total available liquidity at the end of the second quarter was $835 million.

Speaker #4: Meanwhile, adjusted EBITDA increased 39% in the second quarter to $170 million, and adjusted EBITDA margin increased 200 basis points to 10.3%. Year to date, through the second quarter, adjusted EBITDA grew 23%, and margins expanded 100 basis points from the prior year period.

Cash flow from operating activities during the second quarter was $117 million compared to $120 million for the second quarter of 2024, which benefited from favorable changes in working capital related to supplemental programs.

Speaker #4: From a volume standpoint, Q2 admissions growth was strong at $6.6% and adjusted admissions increased 1.6% year over year. Admissions growth was strongest in the exchanges, up approximately 35% year over year, while commercial excluding exchange plans and Medicaid admissions both increased approximately 8%.

Capital expenditures during the second quarter of 2025 totaled $46 million and we expect that to ramp during the second half of the year.

Our total net leverage as calculated under our credit agreements was one two times and our lease adjusted net leverage was two seven times at the end of the second quarter, which is an improvement from three times at the end of the first quarter.

Speaker #4: Inpatient surgery growth was 9.2% in the second quarter, while outpatient surgeries declined 3.8%. Moving on to cash flow and liquidity, we ended second quarter with total cash of $541 million and total debt outstanding of $1.1 billion.

Our strong balance sheet and liquidity position not only support our current operations, but also enable us to pursue strategic growth opportunities, particularly focused on joint ventures with academic partners in the acute care space with regard to the pipeline, we continue to see increasing interest in our DIFM.

Speaker #4: Our total available liquidity at the end of the second quarter was $835 million. Cash flow from operating activities during the second quarter was $117 million, compared to $120 million for the second quarter 2024, which benefited from favorable changes in working capital related to supplemental programs.

<unk> joint venture model from potential partners that are in the exploratory phase.

We'll evaluate all potential opportunities in a disciplined manner and we have the balance sheet to move forward when our stockholder value enhancing opportunity presents itself.

Speaker #4: Capital expenditures during the second quarter 2025 totaled $46 million, and we expect that to ramp during the second half of the year. Our total net leverage as calculated under our credit agreements was $1.2 times, and our lease-adjusted net leverage was $2.7 times at the end of the second quarter, which is an improvement from three times at the end of the first quarter.

As Marty outlined our impact program is a cornerstone of our strategy to drive sustainable margin expansion and operational agility.

We're accelerating underlying initiatives to focus on the next 24 month period to unlock efficiencies enhanced performance and proactively address the evolving regulatory and reimbursement landscape.

More specifically the strategic objective of impact is to pull forward cost efficiency activities already embedded in our long term margin expansion target of 100 to 200 basis points.

Speaker #4: Our strong balance sheet and liquidity position not only support our current operations but also enable us to pursue strategic growth opportunities particularly focused on joint ventures with academic partners in the acute care space.

And identify additional opportunities that can be used to mitigate incremental headwinds.

Speaker #4: With regard to the pipeline, we continue to see increasing interest in our differentiated joint venture model from potential partners that are in the exploratory phase.

These cost savings and margin enhancement initiatives span the gamut of opportunity, including supply chain management workflow and work force optimization leveraging of technology, and AI as well as payer contracting enhancements and supplemental revenue opportunities.

Speaker #4: We'll evaluate all potential opportunities in a disciplined manner and we have the balance sheet to move forward when a stockholder value-enhancing opportunity presents itself.

Speaker #4: As Marty outlined, our impact program is a cornerstone of our strategy to drive sustainable margin expansion and operational agility. We're accelerating underlying initiatives to focus on the next 24-month period to unlock efficiencies, enhance performance, and proactively address the evolving regulatory and reimbursement landscape.

In closing we remain on track to achieve our 2025 financial outlook, which we are reaffirming today and our planning for 2026 and beyond to successfully navigate through the regulatory and payer headwinds.

Before opening the line to questions.

Wanted to mention that we are now S. Three eligible following the one year anniversary of our IPO.

Speaker #4: More specifically, the strategic objective of impact is to pull forward cost efficiency activities already embedded in our long-term margin expansion target of $100 to $200 basis points and identify additional opportunities that can be used to mitigate incremental headwinds.

Accordingly, we intend to file an S. Three shelf registration statement in the near future as a procedural matter, which will provide optionality for primary secondary and debt offerings should the market environment and events warrant.

We have no active plans to raise capital we view this shelf is providing important financial flexibility for the company as a good corporate housekeeping matter.

Speaker #4: These cost savings and margin enhancement initiatives span the gamut of opportunity including supply chain management, workflow and workforce optimization, leveraging of technology and AI, as well as payer contracting enhancements and supplemental revenue opportunities.

With that I'll turn the call back over to Marty for some closing comments.

You offered as we look back on the quarter. We are proud of the continued progress we're making as we implement our strategic growth initiatives and leverage the consumer focused platform. We've built to create long term stockholder value.

Speaker #4: In closing, we remain on track to achieve our 2025 financial outlook, which we are reaffirming today, and our planning for 2026 and beyond to successfully navigate through the regulatory and payer headwinds.

We are pleased with our year to date results and CMS is renewal of the 2025, New Mexico DPP program.

We believe Arden is well positioned for the future we operate in attractive growing markets and maintain a strong balance sheet to support growth.

Speaker #4: Before opening the line to questions, I wanted to mention that we are now S3 eligible, following the one-year anniversary of our IPO. Accordingly, we intend to file an S3 shelf registration statement in the near future as a procedural matter which will provide optionality for primary, secondary, and debt offerings should the market environment and events warrant.

We continue to sharpen our focus on market share growth, taking a disciplined approach to evaluating opportunities in both the ambulatory space as well as acute care hospitals.

With leverage of two seven times and the ample cash we will continue to assess opportunities to execute on this strategy.

Finally, we remain focused on operational excellence initiatives to drive margin expansion over the next several years.

Speaker #4: We have no active plans to raise capital. We view this shelf as providing important financial flexibility for the company as a good corporate housekeeping matter.

I want to close by thanking our more than 24000 team members in 1800 employed and affiliated providers, who continue to deliver exceptional care to patients across the communities. We serve together, we are focused on making health care better and advancing our purpose of caring for our patients our communities and one another.

Speaker #4: With that, I'll turn the call back over to Marty for some closing comments. Thank ou, Alfred. As we look back on the quarter, we are proud of the continued progress we're making as we implement our strategic growth initiatives and leverage the consumer-focused platform we've built to create long-term stockholder value.

With that I will turn the call back to the operator for questions.

Thanks, Marty and at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad once again star one and in the interest of time, we ask that you. Please limit yourself to one primary question and one follow up. Thank you in advance and we'll pause just a moment to compile the Q&A roster.

Speaker #4: We are pleased with our year-to-date results and CMS's renewal of the 2025 New Mexico DPP program. We believe Ardent is well-positioned for the future.

Speaker #4: We operate in attractive, growing markets and maintain a strong balance sheet to support growth. We continue to sharpen our focus on market share growth, taking a disciplined approach to evaluating opportunities in the ambulatory space as well as acute care hospitals.

And it looks like our first question today comes from the line of Ben Hendrix with RBC capital markets. Please go ahead.

Speaker #4: With leverage of $2.7 times and ample cash, we will continue to assess opportunities to execute on this strategy. Finally, we remain focused on operational excellence initiatives to drive margin expansion over the next several years.

Okay.

Thanks, Ben mixture sure to jump back in queue. We lost you there for a second but.

Speaker #4: I want to close by thanking our more than 24,000 team members and 1,800 employed and affiliated providers who continue to deliver exceptional care to patients across the communities we serve.

The next question will actually come from Jason <unk> with Guggenheim Jason. Please go ahead.

Great. Thank you can you hear me yes.

Yes mechanics.

Okay. Thanks.

Speaker #4: Together, we are focused on making healthcare better and advancing our purpose of caring for our atients, our communities, and one another. With that, I'll turn the call back to operator for questions.

Maybe just on the managed care front I believe you comp that denial headwind that <unk> been calling out next quarter is that correct.

You've discussed terminating exchange contracts can you give us a percentage of.

Speaker #3: Thanks, Marty. And at this time, I would like to remind everyone in order to ask a question, press star and then the number one on your telephone keypad.

Your exchange admissions that those terminated contracts represent and then just broadly if you could just update us on what youre seeing on the managed care front kind of.

Speaker #3: Once again, star one. And in the interest of time, we ask that you please limit yourself to one primary question and one follow-up. Thank you in advance.

On a go forward basis. Thanks.

Hey, Jason This is Marty Pollack I'll start and then turn it over to Alfred.

Speaker #3: And we'll pause just a moment to compile the Q&A roster.

<unk> seen.

Significant growth in our exchange volume this year in particular compared to years past.

Speaker #6: And it oks like our first question today comes from the line of Ben Hendricks with RBC Capital Markets. Ben, please go head.

And unfortunately, some of the plans that we've seen that large growth have been providing.

Not great rates in terms of.

What they're yielding and so we have terminated one of those plans, but have not quantified the percentage, but it is one of the larger plans that had been generating the volume increases for this this year so far.

Speaker #7: Actually, Ben, make sure to jump back in queue. We lost you there for a second. But the next question will actually come from Jason Costello with Guggenheim.

Speaker #7: Jason, please go head.

Speaker #8: Great. Thank you. Can you ar me?

Yes, I would just add Jason.

Speaker #7: Yes, we can.

<unk> now perspective, and I think we've been.

Speaker #8: Okay. Thanks. Maybe just on the managed care front, I believe you comped that denial headwind that ou've been calling out next quarter. Is that correct?

Pretty transparent we saw a big step up in denials.

Occurred towards the end of Q2 last year, which has persisted and as we indicated is even ground.

Speaker #8: And you've discussed terminating exchange contracts. Can you give a percentage of your exchange admissions that those terminated contracts represent? And then just broadly, if you can just update us, on what ou're seeing on the managed front, kind , you know, on the go-forward basis.

This year, even though as a company we are well below the national average in terms of initial denials, but it is.

Have consistently ground, we think the year over year comps eases up because of how the timing at which they increase last year in terms of the terminated contract, we're not going to quantify the exact percentages, but.

Speaker #8: Thanks.

Speaker #9: Jason, this is Marty Bonick. 'll start and then turn it over to Alfred. you know, we've en significant growth in our exchange volume this year in particular compared to years past.

Speaker #9: and unfortunately, some of the plans that, we've seen that large growth, have been providing, you know, not not great rates in terms of, what they're yielding.

What we're trying to demonstrate is the very rigid.

View, if we cannot make the contract works because the denial behavior, yes, the frontline rates may be great.

Speaker #9: And so we have, terminated, one of those plans, but, have not quantified the percentage. But it is one of the larger plans that have been generating the volume increases for this, this year so far.

Denials are eating into our profitability.

We're not going to be afraid.

To turn those contracts and replace that volume with better paying volume I mean, as we've I think.

Speaker #4: Yeah, and I would just add, Jason, you know, from a denial perspective, and I think we've been, pretty, transparent. You know, we saw a big step up in denials occur towards the end of Q2 last year, which has persisted.

<unk> been clear our volumes are strong.

Hospitals buy in larger full and we're going to focus on those payer sources, where we can be compensated.

Currently in terms of what we're saying from a rate perspective.

Speaker #4: And as we indicated, has even grown, this year, even though, you ow, as a company, we're well below the national average in terms of initial denials.

So far this year, we're about 65% contracted for 2026.

We'll have some open negotiations going on we continue to say, it's a consistent pattern in terms of the.

Speaker #4: But it is, ou know, they they have, consistently grown. You know, we think the year-over-year, comps, eases up because of how, you know, the timing at which they increased last year.

Type of rates.

We would want and expect.

And our big focus is on closing some of those gaps where we're saying.

Speaker #4: In terms of the terminated contracts, we're not going to quantify the exact percentages. But, you know, what we're trying demonstrate is a very rigid, view of if we cannot make the contract works because the denial behavior, yes, the frontline rates may be great, but denials are eating into, you know, our profitability.

We'll just call it what it is the denial activities being exploited and closing those will say holes, where we can from a contractual perspective to again to be sure that we're getting paid appropriately timely.

So.

Speaker #4: We're not going to be afraid to, to turn those contracts. And replace that volume with better paying volume. I mean, as we've, I think, been clear, our volumes are strong.

Got it. Thanks appreciate it and maybe just as a follow up question I wanted to touch on your ambulatory strategy and the expansion opportunity there you've executed on an urgent care deal earlier this year.

Speaker #4: our hospitals by and large are full. And we're going to focus, on those payer sources where we can be, compensated appropriately. In terms of what we're seeing from a rate perspective, you know, we're so far this year, we're about 65% contracted for 2026.

Got a handful of new centers expecting to open up later this year I guess is there a way to frame kind of like the average number of ambulatory access point for every inpatient asset you have in like where would you expect that to get over time and then just broadly.

Speaker #4: we still have, you know, some open negotiations going on, we continue to see, you know, I'd say consistent pattern in terms of, the type of rates, that that we would want and expect.

On your ambulatory strategy like what would be the added additive like kind of volume benefit from this strategy relative to kind of like volumes inside of your markets relative to population growth and the like just trying to get a feel of how additive the volume picture could be on your ambulatory strategy.

Speaker #4: and a big focus is on closing some of those gaps where we're seeing, you know, we'll just call it what it is, the denial activities being, exploited and closing those.

Going forward. Thanks.

Yes, Great question. This is Marty again, we don't have a specific target of ambulatory assets per hospital today with that numbers close to double digits.

Speaker #4: You know, we'll say holes where we can from a contractual perspective, to, again, to be sure that we're getting paid appropriately, timely, to.

We look at each one of our markets in terms of what is the capacity and what is our opportunity. What we're trying to do is ultimately grow the number of unique patients served in each of our markets. Because we believe there is a trickle down effect that once we get them into the system through an urgent care primary care office that we're able to then have follow up care in multiple touch points with those patients over.

Speaker #8: Got it. Thanks. Appreciate . And maybe just as a follow-up question, I wanted to touch on your ambulatory strategy and the expansion opportunity there.

Speaker #8: You've ecuted on an urgent care deal early this year. you've had a handful of new centers expecting to open up, later this year. I ess, is there a way to frame kind of like the average number of ambulatory access points for every inpatient asset you have?

The force of there of course of their life and so that is our primary focus in making sure that we've got the right access points in the right locations to capture that new patient volume in terms of the downstream effect and we've talked about this before we're still ramping the earlier acquisition. We did this year, but if we look at last year about 45% of those.

Speaker #8: And like where would you expect that to get over time? And then just broadly, like, you know, on your ambulatory strategy, like what would be the additive kind of volume benefit from this strategy relative to kind of like, you know, volumes inside of your markets, you know, relative to like population growth?

Patients that came in to the urgent cares we acquired in the first half of last year were brand new to <unk> and about 30% of those go on to have follow up care within that first 30 days and even a larger number after that so not all of it will translate into inpatient admissions, but it may translate into.

Speaker #8: like just trying to get a feel , you know, how additive the volume picture could be on this on your ambulatory strategy or, going forward.

Speaker #8: Thanks.

Speaker #9: Yeah, great, great, great question. This is Marty again. we don't have a specific target of ambulatory assets per hospital today. We've got numbers, you know, close to, you know, double digits.

Other outpatient procedures specialty visits surgeries et cetera. So we do think that this is part of that strong growth that we've seen is just continuing to open up the access points in our markets and I think the topline admissions numbers and.

Speaker #9: But, we're looking at each one of our markets in terms of what is the capacity and what is our opportunity. What we're trying to do is ultimately grow the number of unique patients served in our markets, because we believe there's a trickle-down effect that once we get them into the system through an urgent care or primary care office, that we're able to then have follow-up care in multiple touchpoints with those patients over the course of their life.

Surgery numbers are speaking for themselves.

Great. Thank you.

Thanks, Jason.

And we have Ben Hendrix back from RBC capital markets. Ben Your line is open.

Speaker #9: And so that that is our primary focus in making sure that we've got the right access points in the right locations to capture that new patient volume.

Great. Thank you very much and apologies for the technical difficulty.

I was wondering if you could kind of discuss your strong inpatient surgical growth that you saw some of the categories Youre seeing come in there and then maybe just how this volume is informing your decision to.

Speaker #9: In terms of the downstream effect, you know, we've talked about this before. you know, we're still ramping the earlier acquisition. We did this year.

Speaker #9: But if we look last year, about 45% of those patients that came into the urgent cares we acquired in the first half of last year were brand new to Ardent.

Channel capital, perhaps toward higher acuity inpatient capabilities. Thanks.

Speaker #9: and about 30% of those go on to have follow-up care within that first 30 days and even a larger, number after that. So not all of it will translate into inpatient admissions, but it may translate into, other outpatient procedures, specialty visits, surgeries, etc.

Yes, Great question. Ben This is Marty again, our inpatient surgeries have been really strong, particularly in orthopedics cardiology general surgery, which is exactly consistent with the service line rationalization, we've talked about while we did note.

Speaker #9: so we we do think that this is part of that, strong growth that we've seen, is just continuing to open up the access points in our markets and, and I think the the top line admissions numbers and, surgery numbers are speaking for themselves.

Bit of a decline in some of those lower areas of outpatient surgery like ophthalmology or E&P. It has opened up the doors so to speak for those higher.

Margin and higher <unk>.

Acuity procedures. So the program is working exactly like we thought obviously orthopedics and cardiology being very strong procedures for us.

Speaker #8: Great. Thank you.

Speaker #6: Thanks, Jason. And we have Ben Hendricks back from RBC Capital Markets. Ben, our line is open.

The total volume of numbers may not compare to the loss of an ophthalmology, but when you look at the quality of revenue and earnings that those are going to be the exact types of service lines that we're looking to PREPA preference.

Speaker #10: Great. Thank you very much. And apologies for the technical difficulty. I was wondering if you could kind of discuss your, strong inpatient, surgical growth that you saw some of the, categories you're seeing come in there and then just how this volume is informing your decision to, channel capital, perhaps toward, higher acuity inpatient capabilities.

Thank you and just as a quick follow up to some of your prior exchange commentary in markets, where you would have opted or would opt to to exit.

Certain exchange networks.

Speaker #10: Thanks.

Speaker #9: Yeah, great question, Ben. This is Marty again. our inpatient surgeries have have been really strong, particularly in, orthopedics, cardiology, and general surgery, which is exactly consistent with the service line rationalization we've talked , while we did, note, a little bit a decline in some of those lower, areas of, outpatient surgery like ophthalmology or ENT.

What kind of you talked about there being opportunities to backfill that with some higher acuity higher paying volume would you expect that mostly to be commercial or Medicare and kind of how do you think case mix would evolve in those markets. Thanks.

Yes, I'll start.

You look at the National trends, Texas.

One of the higher growth exchange states and Thats true for us as well so as we look at some of the contracts, where we have seen that growth, but not rates quality rates, we still believe that theres backfill.

Speaker #9: It has opened up the doors, so to speak, for those higher, higher, margin and higher, acuity procedures. So the programs work in exactly like we thought.

Speaker #9: obviously, orthopedics and cardiology being very strong procedures for us. you know, the, the, the total volume of numbers may not compare to the the loss of an ophthalmology, but, when you look at the quality of revenue and earnings that those are going to the exact types of service lines that we're looking to preference.

As we look to optimize through our transfer centers and even through the technology that we mentioned in terms of load balancing and keeping patients in the secondary and primary level hospitals, that's freeing up capacity and demand for those other transfers are coming in we've seen strong transfer growth.

Pull through through our efficiency initiatives.

Speaker #10: Thank you. And just as a quick follow-up to some of your prior exchange commentary, in markets where you would or have opted or would opt to to exit certain exchange networks, you know, what kind of, and you talk about there there being opportunities to backfill that with some, higher acuity, higher paying volume.

And yet we know that there are still patients that were not able to service. So I would expect that as we see that shift either to better rates in the commercial exchange business through renegotiation or other commercial endeavors, that's where we'd expect to see that volume pull through along with our.

Speaker #10: Would you expect that mostly to be commercial or Medicare and kind of what what how do ou think case mix would evolve in those markets?

Physician services strategy, our service line strategies that are generating that strong pull through we talked about in orthopedics and cardiology.

Speaker #10: Thanks.

Speaker #9: Yeah, I'll start. I an, if you look at the national trends, Texas, was one of the higher growth exchange states, and that's true for us as well.

And this is Alfred Ben I would just add to what Marty said, while we saw obviously the strongest admission growth in the exchange product at 35%, we saw strong growth across the other payer categories as well.

Speaker #9: so as we look, at some of the contracts where we've en that growth but not great, quality rates, we still believe there's backfill. you ow, as we look to, optimize through our transfer centers, and even through this technology that we mentioned in terms of load balancing and keeping, patients in secondary and primary level hospitals, that's freeing up capacity and demand for those other transfers that are coming in.

With Medicaid as we indicated and core commercial excluding exchange up 8% Medicare was up as well. So we feel the demand is there and it really is a question of ensuring that we're optimizing.

The <unk>.

Speaker #9: We've en strong transfer growth, you know, and pull through, through our efficiency initiatives. and yet we know that there's still patients that we're not able to service.

Patient flow based off.

Accepting these types of.

Hicks exchange contracts that are again, where the yield is just unacceptable.

Speaker #9: So I would expect that, as we see that shift, either to better rates in the in the commercial exchange business through renegotiation or, other commercial, endeavors, that's where we'd expect to see that volume pull through along with our, physician services, strategy or service line strategies that are, you know, generating that strong pull through we talked about in orthopedics and cardiology.

Thank you very much.

Thank you Brad.

And our next question comes from the line of Craig hitting back with Morgan Stanley Craig. Please go ahead.

Thanks, and appreciate all the color on the regulatory front just following up on some of the things you said that you can potentially mitigate those pressures.

Speaker #4: And this is Alfred, Ben. I would just add to what Marty said. You know, while we saw, obviously, the strongest admission growth in the exchange, product at 35%, you know, saw a strong growth across the other payer categories as well.

Are there any in particular, when I think about technology AI supply chain like what are some of the ones that maybe stand out at the top in terms of <unk>.

<unk> drive some offsets.

Speaker #4: with Medicaid, you know, as we indicated, and core commercial out excluding exchange, you ow, up 8%. Medicare was up as well. So, you know, we feel the demand is there, and it really is a question of ensuring that we're optimizing, the, the the patient flow based off, you know, and not accepting, you ow, these types of, hicks, exchange contracts that are, you know, again, where the yield is just, unacceptable.

Hey, Greg. Thanks for the question. This is Marty again, yes, the impact program that we've mentioned is exactly that.

You've talked historically about improving margins 100 to 200 basis points over the next three to four years, our impact program would encompass that and accelerate but you mentioned exactly the types of areas that we're focused on inside the company.

Obviously labor and productivity is going to continue to be disciplined focus for us.

The right people in the right place at the right time to do the right job.

Speaker #10: Thank you very much.

But at the same time, we know that there's going to be opportunities continued opportunities in the supply chain, we do see the impact of technology, playing a bigger role in our transformation as we move forward. So we talked about some of those things already whether it's virtual nursing virtual attending again those are helping to drive not only efficiencies whether it's length of stay.

Speaker #8: Thank you, Ben. And our xt question comes from the line of Craig Hettenbach with Morgan Stanley. Craig, please go head.

Speaker #11: Thanks. And appreciate all the color on the regulatory front. just following up on some of the things you said that you can potentially mitigate those pressures, are there any in particular when I think technology, AI, supply chain, like what are some the ones that maybe stand out at the top in terms of levers to drive, some offsets?

Jay ore throughput through the hospitals, but also.

Again that debt load balancing which is allowing us to keep more volume in our outline hospitals.

Create new volume opportunities for those transfers are all into the tertiary facilities. So.

Speaker #9: Hey, Craig. Thanks for the question. This is Marty again. yes, that, that the impact program that we mentioned is exactly that. you know, 've talked historically about improving margins 100 to 200 basis points over the next three, three to four years.

All of those are fair game inside of our impact program and what we see continuing to move forward.

That's helpful. And then just as a follow up Marty is there any update on just kind of a demographic and job growth trends in your core markets I know you've been growing above the national average. So again, just looking for a pulse and kind of how some of the trends on that front in your markets.

Speaker #9: Our impact program would encompass that and accelerate. But, you you mentioned exactly the the types of, h, areas that we're focused on inside the company.

Speaker #9: obviously, labor and productivity is going to continue to be a disciplined focus for us. having the right people in the right place at the right time to do the right job.

I don't have a specific on that but I will say that our recruitment and retention efforts have been continuing to bear fruit, where we're continuing to see better than average.

Speaker #9: but at the same time, we ow that there's going to be opportunities, continued opportunities in the supply chain and we do see the the impact of technology playing a bigger role in our transformation as we move forward.

Retention or turnover rates. However, you want to look at that.

Speaker #9: So we talked some of those things. Already, whether it's virtual nursing, virtual attending, again, those are helping to drive not only efficiencies, whether it's length of stay or throughput through the hospitals, but also, you know, again, that that load balancing, which is allowing us to keep more volume in our outlying hospitals, and create new volume opportunities for those transfers to pull into the tertiary facilities.

Again that goes to our culture, but I think it also goes to the strong leading positions we have in our market. So.

I would say thats, our demographics in general are still growing faster than the U S average theyre attractive markets and by and large favorable job job markets for us to be.

And this is Alfred Craig just echoing marty's comments, a while we don't have specifics in terms of the underlying growth demographics.

Speaker #9: So, all all of ose, are fair game inside of our impact program. And and what we see, continuing to move forward.

I think it is certainly is indicative of the strength of our volumes, we think first and foremost starts with the quality of the markets. We're in.

Speaker #10: That's helpful. And then just as a follow-up, Marty, is there update on just kind of demographic and job growth trends in your core markets?

Underlying demographics in those markets and again, we think it's evidenced by the by the volume growth that we saw as the primary evidence that strength.

Speaker #10: I know you've been growing above the national average. So just looking for a pulse in kind of how some of the trends are on that front in your markets.

Got it thank you.

Speaker #9: I don't have a specific on that, but, you know, I'll say that, you know, our recruitment and retention efforts have been continuing to to bear fruit.

Thanks, Craig.

And our next question comes from the line of Kevin Fischbeck with Bank of America. Kevin. Please go ahead.

Speaker #9: We're we're continuing to see, better than average, retention or turnover rates, however you want to look at that. you know, again, that goes to our culture, but I think it also goes to the strong leading positions we have in our market.

Great. Thanks.

I guess I wanted to go back to some of the comments you made about.

Exiting some exchange contracts on them back filling that.

But to free up capacity I guess, how often are you at capacity or near capacity within your facilities and then.

Speaker #9: So, you know, I would say that our our demographics in general are still growing faster than the the US average. They're attractive markets. And, by and large, favorable, job job markets for us to be in.

How easy is it to.

Backfill that with say commercial volumes, which would be more profitable than government or uninsured volumes.

Speaker #4: And this is Alfred. Craig, just, echoing Marty's ments. And while we don't have, you ow, specifics in s of the underlying growth demographics, you know, I think it is certainly as indicative, the strength of our volumes, we think, first and foremost starts with the quality of the markets we're in.

Yes, Kevin welcome back to Marty.

As we look at.

Our facilities, we've got primary secondary and tertiary level hospitals are tertiary level hospitals are by and large pretty full on a day to day basis and so.

Speaker #4: And the underlying demographics in those markets. And again, we think it's evidenced by the volume growth that we saw, which is the primary evidence of that strength.

It's a continuous effort by our teams to manage the throughput and volume capacity. So we're very focused on length of stay initiatives efficiency in that transfer pull through but we have seen that improve and again as I've mentioned before we are still leaving some volume on the table.

Speaker #10: Got it. Thank you.

Speaker #8: Thanks, Craig. And our next question comes from the line of Kevin Fischbeck with Bank of America. Kevin, please go head.

Coming requests that were just not able to service at a given time based upon that tertiary capacity, so things that were doing.

Speaker #12: Great. Thanks. I guess, I wanted to go back some of the comments that you made about, you know, exiting some exchange contracts and then backfilling that, to free up capacity.

Within our service line initiatives in our physician outreach teams are catering to those specialties and hospitals that have.

Those higher level complex patients that need that tertiary level transfer. So we do believe that as we balance out these exchange.

Speaker #12: I guess, how often are you at capacity or near capacity within your facilities? And then, you know, I guess, how easy is it to, backfill that with, say, commercial volumes, which would be more profitable than, you know, government or uninsured volumes?

This exchange bubble and we start to move this towards others that service line initiative, our physician outreach strategy will yield high quality admissions coming continuing to come into the facility.

Speaker #9: Yeah, Kevin, welcome back. This is Marty. yeah, as we look at, our facilities, you know, we've got primary, secondary, and tertiary level hospitals. Our tertiary level hospitals are are by and large, pretty full on a day-to-day basis.

So that is where.

Our focus is on that at the same time, our technology improvements mentioned the virtual attending.

Speaker #9: And so, you know, it's a continuous effort by our teams to manage the throughput and volume capacity. So we're very focused on length of stay initiatives, efficiency, and that transfer pull-through.

That is helping to keep sort of patients that we would have normally transferred from our own system into a tertiary care backend those beds in that primary or secondary level hospitals. So we see that as a great pilot that has demonstrated traction and we will be continuing to expand that to our other large markets.

Speaker #9: But, we have seen that improve. And again, as I mentioned before, we we are still leaving some volume on the table of, you know, incoming requests that we're just not able to service at a given time.

Okay, that's helpful and I guess.

Speaker #9: Based upon that that tertiary capacity. So, things that we're ing, you know, within our service line initiatives and our physician outreach teams are are catering to those.

Going to the acquisitions.

The outlook there you're talking about the JV model.

Yes.

The discussion has changed at all.

Speaker #9: Specialties, and hospitals that have, you know, those higher level complex patients that need that that tertiary level transfer. So, so we do believe that, you know, as we balance out these exchange, you know, this exchange bubble and and we start to to move this towards thers, that that service line initiative, our physician outreach strategy, will yield, high-quality admissions coming continuing to come into the facility.

Either from.

The partners that Youre talking to because of the bill or has your interest in doing deals changed at all because of the bill is the hurdle any higher than it was before.

These cuts were being proposed.

Yes, great question, if anything I would say that our the amount of outreach and discussions have increased since the bill and it was ramping before the bill that the anticipation, but again, bringing on crush up line, our new Chief development officer with his background and experience in working with nonprofit and academic systems.

Speaker #9: so that is, you know, where our focus is that. at the same time, ou know, our technology improvements, we mentioned the the virtual attending, that is helping to keep, sort of patients that we would have normally transferred from our own system into a tertiary care back in those beds, in that primary or secondary level hospital.

But we're encouraged by the number of conversations and the quality of those conversations that are coming in in terms of our outlook.

Speaker #9: So we see that as, a great pilot that has, demonstrated traction, and we will be continuing to expand that to our other, large markets.

It doesn't change our outlook or appetite for growth it will require us to be disciplined in terms of the markets that we enter into an understanding of the state dynamics of what's happening specifically with there.

Speaker #12: Okay. That's helpful. And I ess, you know, ing to the the acquisitions, the outlook there, you talked about the JV model. I guess, has has the discussions changed at all, either from, you know, the the partners that ou're talking to, because of the bill or has your interest in doing deals changed at all because of the bill?

<unk> DPP programs or are there.

Sure.

Got it.

Provider tax cap rates and so it will strategically hone where we go looking for those opportunities, but it doesn't dissuade us from our long term growth outlook.

Alright. Thanks.

Speaker #12: Has the hurdle any higher than it was before? you know, these cuts were being proposed. Thanks.

Thank you Kevin.

And our next question comes from the line of Matthew Gilmore with Keybanc Matthew. Please go ahead.

Speaker #9: Yeah, great question. If thing, I would say that our, the amount of outreach and discussions have increased, since the bill. and it was ramping before the bill, but, anticipation.

Yes.

Hey, Thanks for the question.

Maybe asking about the big beautiful Bill discussion I appreciate the estimate that you all provided in a worst case scenario.

Speaker #9: But, you know, again, bringing on, Chris Schepplein, our new Chief Development Officer, with his, background and experience in working with, nonprofit and academic systems, but we're encouraged by the, the number of conversations and the quality of those conversations that are coming in.

Are you able to break down that 150 to 175 between work requirements supplemental payments or are other provisions and is it fair to assume that the impact would be much more weighted 2030 to 2035 versus the periods there within this decade.

Speaker #9: In terms of our outlook, it it doesn't change our outlook or appetite for growth. it will require us to be disciplined in terms the markets that we enter into and understanding the state dynamics and what's appening specifically with, their DPP programs or their, you ow, provider tax, cap rates and so it it will strategically hone where we go looking for those opportunities.

Hey, Matt This is Marty just to start off.

We haven't really put something specific on work requirements, we think that at a high level.

One, we're a little bit insulated and about 60% of our revenues are from states that expanded Medicaid. So the others are not going to be subject to that same level of scrutiny and we do think that the work requirements may play out ultimately like the Redetermination stood last year, there was a lot of it.

Speaker #9: But, but it doesn't dissuade us from our long-term growth outlook.

Speaker #4: Great. Thanks.

Speaker #8: Thank you, Kevin. And our next question comes from the line of Matthew Gilmore with KeyBank. Matthew, ase go head.

Consternation about what's going to happen.

Speaker #13: Hey, thanks for the question. Maybe asking about the big beautiful bill discussion. I appreciate the estimate that you all provided in a worst-case scenario.

Redetermination and as we saw it turned out to be a slight modest tailwind.

For us and for the industry. So we do think that.

Given the relatively small percentage of patients.

Speaker #13: Are you able to break down that 150 to 175 between work requirements, supplemental payments, or, you know, or other provisions? And is it fair to assume that the impact would be much more weighted to 20, 30 to 20, 35 versus the, you know, periods that are within this decade?

Population Medicaid that would be subject to that work requirements.

And largely lesser utilizes a care.

That exchange, we don't see that as being the impacts now as we think about.

The more structural impacts of the BBB.

We do think that that will ramp just slightly heavier in the early years and then moderate out.

Speaker #9: Hey, Matt, this is Marty. Just to start off. Yeah, we, we're, you ow, we haven't really put some things specific on work requirements. We think that at a high level, you ow, one, we're we're a little insulated, in about 60% of our revenues are from states-expanded Medicaid.

Okay.

Thanks for that and then as a follow up could.

Could you provide a little bit of detailer discussion around the trend with outpatient surgeries as I know you mentioned it was up.

Sequentially, but still down year over year is there a service line rationalization occurring there.

Speaker #9: So the others, are not going to be subject to that same level of scrutiny. and we do think that, you know, the work requirements, may play out ultimately like the predeterminations did last year.

<unk> results, but just love any perspective or commentary on that trend.

Yes, good good callout, yes, definitely still some service line rationalization.

Speaker #9: There was a lot of, you know, consternation about what's going to happen against predeterminations. And as as we saw, it turned out to be, you know, a slight modest tailwind, for it for us and for the industry.

Ophthalmology in E&C being the largest drivers of where we're seeing those declines and again those tend to be relatively short, but high volume cases short duration, but high volume cases, and so it magnifies the optics around the percentages.

Speaker #9: So we do think that, you know, given the relatively small percentage of patient or of the population in Medicaid, that would be subject to that work requirements, in in largely lesser utilizers of care, in that exchange, we don't see that as being the impact.

But again it has freed up that capacity for higher quality in patient service lines that modeling exactly as we would've hoped and expected with higher quality and higher acuity inpatient is back filling that albeit at smaller total numbers, but higher percentages.

Speaker #9: Now, as we think about, the the more structural impacts of the the BBB, you know, we do think that that will ramp, just slightly heavier in the in the early years, and then moderate out.

This is Alfred and that the one thing I would add as well is that there is still some impact from two midnight rule as states have moved from ops to impatient as well so that has a small impact too.

Speaker #4: Okay. thanks for that. And then as a follow-up, could you provide a little of detail or discussion around the trend with outpatient surgeries? I know you mentioned it was up, sequentially, but still down year over year.

Got it thank you.

Thank you.

And our next question comes from the line of Ben Rossi with J P. Morgan. Please go ahead.

Great. Good morning, Thanks for the question here.

So one of the features we've been trying to figure out is your visibility into some of the longer term prospects for the Medicaid supplemental programs I appreciate that it's early here, but based on conversations with state and federal partners for more recently approved programs in New Mexico, New Mexico, and Oklahoma do you believe that these programs will qualify for one of the rate cap exemptions.

2028 within the <unk> may.

May one grandfather with that minor related good faith application effort for renewals this year.

Can you repeat that last part.

Oh no.

Curious if either of these programs will qualify under the <unk>.

Grandfather clause for exemption to the rate cap.

Through 2028.

So.

I'm sorry, it's just your library. So you are asking if the.

Qualify for a grandfathering position for prison.

Yes, the exemption provision within <unk>.

Yes, our expectation is that.

These programs have been approved they've been and now have been approved twice and so.

Yes, there is no reason to think they wouldnt fully qualified.

No I think I got you. Yeah. This is Marty event, yes, we don't see Oklahoma, New Mexico any different than we see Texas or any of the other 44 states that have been approved they are approved program. So there should be no additional risk or different risk than any other so now that the bill is approved I think we do have solid visibility.

To say that these programs are durable and yes, there will be some structural changes over time, which is what we quantified in the 150 to 175 billion dollar potential impact and again, we've put that out there is what we believe based upon what we know is a worst case given that the states are going to have to react.

We're taking measures from our impact program to proactively get ahead and mitigate some of the potential consequences that but we do expect that the states are going to have to step in here as well. These programs are critical to the Medicaid populations that each of the states have to sponsor and as the federal government is trying to shift some of that.

Responsibility back to the states, we do expect that the states are going to have some reaction that will help mitigate this again, we benefit by these programs and serving this patient population, but sort of every other hospital in the nonprofit front and so this is a critical piece of how we fund health care in this country and so we see no differentiate.

Between New Mexico, Oklahoma and any of the other approved programs they are approved programs.

We expect them to be durable and just to be clear, new Mexico, and Oklahoma. There were no changes that were pushed through concurrent with the passage of the BBB. So again. These both had been approved well before there was.

This administration.

They were had been submitted so.

Yes.

<unk> zero expectation that they wouldnt fully qualified for those grandfathering provisions.

Great I appreciate the additional color there I guess just as a follow up just thinking about capital expenditures Capex picked up during <unk>, but through the first half of the year, it's trending well below your now reaffirmed Capex guide.

I can appreciate that you've framed capex being more back half weighted and probably should pick up as you rollout. These de novo urgent care and imaging facilities I guess could you just discuss forward capex priorities right now and if theres been any shift in your near term priorities in the wake of this bill.

Yes, I would say our expectations are very consistent with our <unk>.

All of our prior commentary on our expectations going forward historically, the company has roundabout 3% of revenues.

Weighted towards.

The acute side of the business going forward, we see that trending at or above 4% as we make more of a shift towards investing.

In the ambulatory build that of all of our markets, Yes, No change I think we've historically had.

Weighting towards the back half of the year just as.

Our internal processes and exit.

The expectations would be very consistent in our view towards Capex. This year is up is.

<unk>.

Got it thanks for the comments.

Thank you Ben.

And our next question comes from the line of Raj Kumar with Stephens Raj. Please go ahead.

Hi, Good morning, just one on the regulatory front with the recent Medicare.

PPS and ASC rule, they kind of proposed.

Elimination of the phase out of the inpatient only list and kind of seeing it.

Your outpatient and ambulatory footprint sits today kind of.

What do you think that kind of happens in terms of balancing out with recent.

Payer denial activities and trying to push it down to.

Less cost for your care setting so maybe just trying to.

Gage your kind of your view on kind of inpatient growth and it's that sustained at these current levels just given the changing dynamics in policy.

Hey, Raj this is Marty that great. Great question, obviously, the inpatient only list is not new and whether it gets phased out or something changes.

In the near future.

This is a clinical question of clinical acuity.

We've seen the shift from inpatient to outpatient been happening steadily and consistently over the last several years.

Particularly accelerated during COVID-19 and those trends haven't changed so we don't see a huge.

Flood moving from the inpatient to the outpatient just because of that because so many of these patients have other comorbid conditions that require that higher level of specialization or inpatient attention. So.

It's something that we're looking at but it really feeds into the focus of our growth strategy, which is growing beyond the core hospitals and into that outpatient environments and so we.

We continue to look with our team and it's part of our Chief development officers mission as well as to make sure that we're looking not only for inpatient acute opportunities, but continuing to grow that outpatient.

The program is so afcs on having having the right complement of afcs to.

To catch the patients as they do ship from the inpatient to outpatient as part of our core strategy and where we expect to see more investments to come.

Great and then as my follow up just kind of thinking about.

How you frame like the <unk>.

<unk> program.

Possible acceleration of the.

Realizing that.

100, 200 bps of core margin expansion and maybe just like is that is it still.

Still three to four year timeframe, where youll start realizing that sooner like 'twenty six 'twenty seven or is it maybe it's two to three years, just some clarification around that.

Yeah sure. Thanks for the question. This is Alfred Yes, it's obviously something we were in <unk>.

<unk> focused on internally just given the.

The payer denial headwinds the regulatory headwinds and being sure that the organization is ready to thrive in an environment, where we have those uncertainties going forward and as we indicated this isn't a new program obviously.

Putting it under the <unk>.

Impact to name, both internally and externally, but to your point there is a very intentional effort to accelerate such that we have.

Impacts from those initiatives embedded in the core operating platform as the highest the impacts from the regulatory changes there felt beginning in 2028. So it very much as an acceleration we are trying to ensure that the bulk of that 100.

The 200 bps is felt in the next 24 months.

The bulk of the regulatory impacts as well so.

And in addition to an acceleration focused intensely on that 24 months period, what are the other things that we can go do that certainly not limiting ourselves to 100 to 200 basis points Marty did a great job framing.

<unk> opportunities and the initiatives underneath that and it's not only on the cost side, but also looking at what are the payer contract contracting opportunities, where can we close and improve the reimbursement environment because.

And helped to limit the denial activity that we are saying as well as optimize supplemental revenue opportunities that we touched on that at a very broad perspective, but as if the cuts go into effect the way Theyre slated what are the other programs at a state level that become available.

Where are those offset so all of this as a component of the impact program and again, we very much think it is an acceleration.

Focused very.

Intentionally on the next 24 months period under the leadership of our new COO, Dave Casper.

Thank you I appreciate.

Great color.

Thank you Raj.

And our next question comes from the line of Tim Greaves with loop capital Tim. Please go ahead.

Hi, Thanks for taking my question.

Paul would you that view.

You gave some clarity on this already but as far as the next year visibility and the pull through you're seeing there currently how is that performing versus what you expected.

Yeah. Thanks, Tim This is Marty we have not.

<unk> officially on in terms of where that's at but but internally.

<unk> transaction was a very important.

Acquisition to us in expanding access points and doing it in a very.

Accretive manner, we are seeing volumes consistent with our internal pro forma expectations related to that transaction.

As we fully get that system embedded on our epic platform will have more visibility in terms of the downstream impact in terms of new patients as well as a follow up once they are there, but the initial volumes are very much in line with our expectations and contributed to the strong volumes that we've reported this year for the first half.

Okay. Thank you for the clarity.

Okay.

Alright, Thank you Tim.

And our final question today comes from the line of Whit Mayo with Leerink partners.

Please go ahead.

Thanks.

Al for what are the core pricing revenue per adjusted admission look like when you normalize for new Mexico and sounds like acuity was good within the quarter just any numbers around increases in case mix might be helpful.

Yes, obviously.

It did have when we look at over a 10% growth. It was a big component of that probably.

Between call it six 5% of that 10% net per AA is contributing to that.

I would say core rate increases as you know.

Brown, 4%, if you want to call it that very consistent with the type of increases that we've talked about historically.

Okay were there any kind of residual headwinds in the second quarter of last year from the cyber security or were you back at normalized levels and is this.

Okay, thank you for the clarity.

All right, thank you. Tim

Proper comparable year over year increase.

And admissions.

And our final question today comes from the line of Whit Mayo with Lee Ring Partners. Uh, Whit, please go ahead.

Yes. This is Albert again, I would say.

Very tough to tease out, 100%, but we feel pretty confident that it's very.

Very small impact from cyber wet.

Headwinds that were still persisting were probably offset by a little bit of tailwind to from some demand that so yes. We think we think it's a very comparable.

Uh, thanks. Um, Alfred, what did the core pricing revenue per adjusted at Mission look like when you normalize for New Mexico? And it sounds like Acuity was good within the quarter. Just any numbers around increases in case mix might be helpful.

Year over year again.

We do think that it was a little bit of a tough comp just from the standpoint of.

Mayor denial activity ramping up as well as we had we had a one time item in the Q2 a year ago.

Elevated stay or that was $78 million. So again from a year over year perspective, a little a little bit of that noise from a comp perspective, but we think by and large good.

10 percent net per AA is contributing to that, uh, you know, I would say core rate increases is, you know, around 4%. You know, if you want to call it that, you know, very consistent with the type of increases that we've talked about historically.

Comparisons.

Thanks.

Alright, thank you.

And ladies and gentlemen that concludes today's Q&A session as well as todays ardent health second quarter earnings Conference call. Thank you all for joining and you may now disconnect have a great day everyone.

Okay, were there any kind of residual headwinds in the second quarter of last year from the cyber security, or were you back at normalized levels and is this a, a, a proper comparable year increase, um, in admissions?

Yeah. Uh, this is Alfred again with I, I would say, you know, it's very tough to tease out 100% but we feel pretty confident that it, uh, yeah, very small impact from cyber, what headwinds, that we're still persisting, you know, we're probably offset by a little bit of Tailwind too from some demand that. So, yeah, we think, uh, we think, uh, it's a very comparable, uh, year-over-year again. As we do think that it was a little bit of a tough comp just from the standpoint of uh payer denial activity, ramping up as well as you know, we had

We had a 1 time item in the Q2 a year ago of a a sale of age are, that was 78 million dollars. So, you know, again from a year-over-year, little little bit of that noise from a comp perspective, but we think by and large, uh, good comparison. Cool. Thanks.

All right, thank you wit.

And ladies and gentlemen, that concludes today's Q&A session as well as today's Ardent Health second quarter earnings conference call. Thank you all for joining and you may now disconnect have a great day, everyone.

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