Ardent Health Inc Aktie

Good afternoon, everyone. Good morning, everyone. My name is Sam Becker. I'm with Goldman Sachs Research, and I have the honor to round up our conference with Ardent Health, CFO, Alfred Lumsdaine; and Senior VP of IR, Dave Styblo. Thank you both for joining us.

Our pleasure. Thanks for having us.

So I guess to start, I know there's a lot going on with your recent CEO transition. But before we get into that, could you just remind us a little bit of the Ardent story and then your overall growth strategy as it stands today?

Sure. Yes, Ardent Health, we've been around a long time, 30 years. But the company went public 2 years ago and is still a controlled public company. But off of that IPO plan, 3-part growth strategy, focused, I'd say, first and foremost, on expanding margins. We believe we continue to have an opportunity through creating incremental scale the company had -- was built off of acquisition, but has moved -- transformed from being more of a holding company to more of an operating company, where we've consolidated a lot of the back-office operations and oversight into a single operating unit over the last several years, we still have the opportunity to optimize that platform. And we call a lot of our initiatives to expand margins, our moniker is our impact programs.

Second, we have transformed the company from being a hospital-centric focus to focusing on our markets, growing our ambulatory and outpatient footprint inside of our markets, investing in our markets to be sure that we are truly a health system, meeting the consumer demand where -- in the setting that the consumer wants to be seen and often in lower cost settings than the 4 walls of the hospital.

And then lastly, the company would like to enter new markets through inorganic M&A. Again, went public 2 years ago with the belief that we would be entering new markets and doing inorganic M&A. The backdrop of the transaction market has not facilitated the types of transactions we are looking for. We want to be in markets that look a lot like Ardent markets, where you have stronger-than-average population and economic growth dynamics at play.

And while those have been out there, we're going to be very disciplined around what we pursue. The worst thing we could do is a bad acquisition. And so we've seen attractive markets at valuations that were unattractive, and we've seen attractive valuations in markets that we don't think are good long-term investments for Ardent.

So I haven't found that sweet spot yet, but continues to be core to our long-term growth strategy. But we have such a good opportunity in those first 2 buckets. We're, again, going to stay very disciplined on new market M&A. And just overview of who Ardent is, we're 30 hospitals. We're in 8 markets across 6 states, predominantly in the South, Southwest.

Awesome. That sounds great. So let's move on to the CEO transition a little bit. Could you just opine more on the Board's decision to transition now?

Sure. Happy to provide an overview of what Dave and I have talked to the Board about. The Board, their perspective on this was that it's a very proactive move and couldn't be further from a reactive move. They weren't looking at this in any way reactive to anything. They were -- Board appropriately has been extremely complementary of Marty in terms of the work that Marty did to build the organization from being a hospital-centric to being a health system and executing on the strategy of transforming the company from that holding company perspective to an operating company.

And the Board would say, Marty was absolutely the right CEO for that business transformation and executed it extremely well. And as we look at the go-forward challenges and headwinds, let's say, in the industry, there's the expectation that we've gone through a period of time where there's been a ton of coverage expansion, and the exchange growth. We've had growth in state supplemental programs. With the big beautiful bill, certainly as one element and other dynamics and headwinds at play, the expectation is there will be more of a premium on that underlying operational execution.

Dave was brought in to enhance our operations, strengthen our core operating platform, stand up and enhance our impact programs and as, again, as the Board looks at the next 5 years, they think that dynamic of operational execution will be different. They think Dave is extremely well positioned given his background, not only inside of health systems, but also across scaled retail health platform.

Dave's got experience with running Target's pharmacy business with running Walmart Health business and the level of operational rigor, standardization is at a dimension, I'd say, higher than what even the health system world is typically accustomed to. So bringing that operational focus and rigor and accelerating and enhancing our margin profile takes primacy as we look forward.

Great. Great. And I was also curious, why do you think the Board looked internally at Ardent instead of doing maybe a larger nationwide search?

Well, I think it's -- yes, no, good question, and I think it's, I'll say, at a personal level, the easiest answer, and that is Dave has proven himself inside of the Ardent organization over the past 15 months and executed at a level that has accelerated and enhanced our operational position. And in terms of really demonstrating that this was a proactive move and not a reactive move, I think that's probably no further evidence in the fact that it was an internal promotion.

Great. And I know you talked a little bit about Dave's experience. Are there any strengths that you'd like to highlight for him and working so closely with us?

Sure, absolutely. Yes, I really had the pleasure working with Dave for 15 months. I tell people who I meet and ask about Dave. He is an extraordinary leader from the standpoint of creating. He is one of the most authentic, consistent and accountable driven leaders that I've worked with in my career. And I think, yes, if I were to highlight 3 strengths, it would be just those things. And I think those are the dimensions that really make his operational rigor and acumen come to the forefront.

And as you think about Dave also, so he has been the catalyst behind our impact program savings initiative. And so again, he's been here for 15 months plus. And so when we initially introduced that program, we had targeted $40 million of savings for fiscal year 2026. And since then, he's continued to drive, find and harvest additional savings.

And on our last earnings call, we raised that up to $45 million when we -- sorry, additional $15 million up to $55 million. So again, just to give the market a little flavor of just his discipline and execution, ability to find things and continue to deliver, that's an additional proof point just as the investment community introduced to Dave.

Great. And transitioning a little bit to volumes. Last week, when you made the announcement, you also mentioned you observed some volume softness across your portfolio during the second quarter, and you also gave some industry-wide commentary as well. And just wanted to see if you could elaborate a little bit more on that, what you've seen across the portfolio and some of those industry trends.

Absolutely. And obviously, that commentary got picked up very broadly. And what we were, I guess, first and foremost, doing was reaffirming our guidance for the year with this trend. Again, it goes to the fact that the CEO change was a proactive, not a reactive move. And we are very comfortable and confident with our guidance as we go forward and for the rest of the year.

And -- but with that reaffirmation, what we didn't want to do is not give color on kind of the shape of that. And oh, we -- the industry data that we work with shows volume softness, particularly most acutely on the surgical side, more acute on inpatient than outpatient, which we attribute to kind of the normal ongoing shift of procedures out of inpatient settings to outpatient settings.

But yes, we just thought we'd be remiss not to give a shape of what we're seeing and the fact with our reaffirmation of guidance that we're continuing to work on the cost structure of the organization back to Dave's prior comments about Dave Caspers and continuing to expand and accelerate our impact program such that we have the cost structure of the enterprise built for the overall volume environment. That's what the message we were trying to send.

And so with the volume observations, we're largely -- we work with -- as one example, we're triangulating a number of different sources, but a decent amount of our data comes through our relationship with Ensemble. Ensemble 10x the size of Ardent. And so the 6 states and 8 markets that we're in. And that data suggests, again, very broad softening across, I would say, all geographies, not the same across all geographies, but across all geographies as well as broad softness across payer type and service line.

And so that helps provide, we think, some of the underlying rationale as to the dynamics that underlie the softness, which we think certainly overall, I'd say, macroeconomic concerns, inflationary pressures, et cetera, would certainly be one thesis when you see the breadth of the volume softness.

Great. And then I guess within that data that you've been seeing, so what's the -- and you may have just mentioned to the extent that you know, what's the scale and size of that sample?

Yes. Again, I would say our biggest sample set today is off of data that we work with Ensemble. So again, I would suggest, call it, 10x the size of Ardent.

Great. And then you mentioned the impact program, but with the reiteration of guidance last week, what really gives you confidence to achieve that guide despite the soft...

Yes. I would point back to the impact programs. Now again, I don't want to get ahead of ourselves in talking specifically quantifying where we are relative to the pull-through of our impact programs. We, again, as Dave mentioned, sized it at $55 million for this year at the midpoint.

I would expect that number will increase given the dynamics we're talking about that we're working to enhance and expand the throughput of that through the year as a consequence of the overall demand environment that we're working against. And I would point to a couple of different things. We -- obviously, it's easy to think about these types of programs on the cost side.

And clearly, we are working on our overall organizational structure, keeping it lean for the underlying volume demand, particularly at, I'd call the middle management layers and working on having scaled and nimble organization structured for the demand levels today and going forward, working on supply chain improvements, what can we do around pricing, unit pricing, what can we do around physician preference items and obsolescence.

So a number of broad supply chain initiatives and then down to things like, we'll call it, services like professional services like IT licenses, what can we do? We've seen pressure on -- as more stuff has moved to the cloud, there's maybe been a little bit more pressure coming from those vendors on just sort of the belief that there aren't a lot of good alternatives. And so we've really looked at, okay, how do we source those? What opportunities can there be to make product switch and how can we actually reduce the number of licenses we're using.

We're working with a third party on a -- we've actually brought in a third party to help us move faster and add additional impact initiatives. But the last thing I would also call out, impact program also means enhancing our revenue opportunity. So not just on the cost side, but what are we doing to drive better rates and not just better rates, but better terms with our payers.

We've talked a lot about internally, we've reorganized our managed care team to integrate with our revenue cycle team, creating what we call a revenue integrity function so that when we're at the table, we're not just looking at top line rate, but also the underlying terms, how are we dealing with authorizations, denials, payment terms. Don't have a lot of data points, but we do have one recently large completed managed care negotiation that we had to take to essentially the weekend before it expired because we -- through the transparency data, we learned we were significantly underpaid in the market for our outpatient services, but weren't getting the type of traction that we felt was appropriate in our negotiations.

So we've had to get more aggressive, for lack of a better word, in our negotiation in order to ensure, while we still, in many of our markets are still, we think, the value leader inside of the market, but that we're getting reimbursed appropriately.

Great. And switching gears to the -- more of the policy side. How are you thinking about the proposed changes to CMS' state-directed payment programs? And what could that mean for your Medicaid exposure over time? Anything you'd like to highlight in terms of timing or where you feel most insulated?

Yes, there's probably not a lot. I say new there. I mean stuff comes out every day, but we quantified our exposure over the full implementation of the BBB reductions in state-directed payment programs at $150 million to $175 million by 2035.

Now a long time between today and 2035, we'll see if those actually go in place the way that they were crafted. Oftentimes, when you have forward starting reductions, you see those being delayed, deferred, changed. We're -- but what we know is that as the loss wrapped today, that's our exposure.

Going back to Dave's comment about base Dave Caspers, again, it plays to that overall environment. We want to be in a position to execute to operate and win in whatever reimbursement environment that we're working in. And so as we look forward, I would expect our impact programs to continue to expand and grow and work towards us enhancing our margins. We've historically talked about Ardent moving towards an EBIT -- adjusted EBITDA margin in the mid-teens. we've not factored -- we've not sort of renewed that expectation off of the BBB cuts until we kind of get a better feel for what the environment looks like going forward.

But we continue to view the multiyear journey of the impact programs as the way we continue to enhance our margins over time. Having said that, we do think there will be other opportunities, assuming that the BBB cuts happen the way that they're crafted, we do think there -- I mean, there are programs that exist today at the state level that we would be eligible for would those cuts happen that could be partial offsets.

We would also think that there would be incremental state level programs that could provide some offsets to. But we can only control the controllables, and that's what the focus on the -- on our impact programs really drives down to.

As we're thinking about the proposed Medicaid book requirements, too, what are you thinking about around potential impact to coverage or demand across your markets there?

Yes. I think the recently issued CMS rule there was really consistent with our expectations. I think the number of the disenrollment there at full run rate of 3 million lives was a little bit lower than some of the other estimates we have seen off the CVO and other third-party research. But -- so it's certainly a challenge to try to model and forecast that. But certainly, it's been part of our business planning and our strategy.

And again, I'll come back to Alfred, what he just mentioned there. Again, we are preparing and equipping the business to navigate through these cross currents, whether it's the Medicaid disenrollments the exchange MVPP final parameters rule that came out where you're likely to have a little bit more exchange disruption on the margin next year, right?

So we are preparing and equipping to navigate through these and as well as into '28 and beyond with the DPP headwinds there. But largely as expected, and that will likely staggering a little bit. So you may not really reach that full run rate impact until you move into towards the second quarter of the year. But yes, overall, consistent with our expectations.

Awesome. Pivoting over to the margin side. I would love to talk a little bit about the professional fees. I know they've been a multiyear headwind for you guys. And I'm curious where things stand today and what you're seeing as you progress through the year?

Yes. It certainly has been sort of a, we'll call it, a 3-year journey, which we really go back to the changes to the -- no Surprise Billing Act and how that has sort of shifted responsibility for -- or created an environment for a lot of compensation has shifted out of the payers to the providers and how that has worked its way through essentially every specialty now, starting with anesthesiology, hospitalists and then particularly acute on the radiology side in 2025.

We think essentially, all contracts have now been reset some, I'll say, multiple times. And while we don't sit here and imagine that or expect that, that will go to just sort of an ordinary cost of living type inflationary environment, we do think the -- as we get to the back half of '25 and start lapping some of the big step-ups that we will see a deceleration of the rate of increase.

So far, Q1, we were right on track almost to the penny with our expectations. And so that gives us confidence in that we've sized this right for 2026. Now as we go forward, part of the question is so what -- how do we think about this for '26 and beyond? I mean, I do think, again, the reset has happened we still will see inflationary pressure and likely at above inflationary rates, but we see a deceleration.

I think working with our vendor partners is a part of that ensuring how are we optimizing our efficiency in partnership with those vendors. And I do think I can imagine this radiology, for example, technology will be a helper in terms of easing the burden of not having enough radiologists. So again, I'm optimistic that the rate of change will be decreasing going forward.

Great. Great. And then another headwind for you all recently an important theme lately has been around denials. Can you discuss what you're seeing in terms of payer behavior today and particularly around denials and reimbursement trends?

Yes. It's certainly been an extraordinarily challenging element for the whole industry and Ardent specifically over the past 2 years. We saw a big step-up in the first half of 2024 and then we got surprised with another leg up in denial activity in the big -- in the last half or in Q3 of 2025. So starting from a very elevated level, I would say we've seen both a stabilization and maybe a little bit of an improvement.

I would say, I would remiss not to mention the very difficult work we've done internally to standardize a lot of our processes, work with our vendors Ensemble Health to ensure that advantage of their AI in both responding to and avoiding denials upfront and then working on the collections on the back end.

So early positive signs out of that work. And I think you're hearing from the MCOs better performance on their own internal underwriting and maybe that has an element of decelerating some of it. But again, I'm not certainly ever going to declare victory on that dimension, but I do think there are early positive signs of potential improvement. But again, I would say not inconsistent with our expectations for the year.

Great. And I love that you mentioned some of your AI initiatives. Could you just expand a little bit more on what you're doing company-wide and how that fits into your strategy?

Yes, I mean I think AI hits on almost every dimension. And a lot of that ends up being procured through the partners that we work with. I've already talked about Ensemble and how they've made 9-figure investment into AI over the past 12 months. It also touches on the delivery of care.

And I think that's probably a little bit of slower in terms of how it gets implemented. But we -- for example, everybody talks about their AI scribe capability we work with a company called Ambient, where we've gone from -- we went from a pilot program to a full organizational deployment within a 12-month time period and with extraordinarily high physician satisfaction, enhancements to physician productivity.

I think the reduction in documentation time is something like 5 hours per physician, which now means that we can address some of the access and see more issues and see more patients. And we're actually now capturing the richness of the interaction because if something wasn't documented, it can't be billed even if it happens. So now we -- it improves the documentation for purposes of ensuring that we're compensated appropriately.

Another example. At the back office level, Ardent has kicked off a transition to a new EHR, not EHR, ERP. Workday is our selected ERP that will be a 2-year implementation, which I think comes at the perfect time because with -- it allows us to reengineer our processes while the AI revolution is happening. So it's coming at a perfect time.

So Workday and that ERP implementation will bring a lot of embedded AI with it as does -- we're on -- for EHR, we're on a single instance of Epic. Epic continues to incorporate a lot of AI into their platform, which we then have access to through our single instance of Epic. So yes, there's just -- it becomes a part of everything you do and touch. So yes, I would say it's not one initiative. It touches almost every initiative.

Great. And then maybe jumping back, I know we've talked quite a bit about the impact program today. But would love to hear just what that looks like day-to-day across the organization and what you see to really drive the most impact near term. And then I know you've already mentioned broadly, but if you want to go into detail about any areas that might be driving additional improvement thus far.

Yes, I'll touch on top of mind. And Dave, please jump in on any I miss. I do think it starts at kind of the blocking and tackling at workforce management/productivity, how are we -- it's the largest expense in any health system and how are we organized, how are we optimized on our workforce management dimensions. I've touched on our supply chain initiatives. I've touched on IT licensing initiatives and those revenue enhancement initiatives, although I'm sure I'm leaving some things.

No, it's okay.

As I've mentioned, we are bringing in a third-party consultant as well just because we don't want to leave any dollars on the table. And we think really having -- how we win going forward will be to out execute. And that is the rallying cry around -- and again, is a lot of the genesis of how we think Dave is positioned to lead the company going forward.

Great. And I also want to talk about your outpatient strategy and where that can potentially go long term and some of your key priorities on your ASC build-out?

Yes. It's certainly been -- it's a long-term strategy. We -- as we sit here today, we're still underrepresented on the outpatient assets inside of our markets. While we have a market-leading clinical enterprise, we believe, in most of our markets. We have, in the last 2 years, grown our urgent care enterprise, which is often the front door to the health system in today's environment.

We moved from only a handful of urgent care to now 46, I think, across our markets, which is -- I don't want to ever call that built out, but it's closer to build out than not. Still underrepresented on some of the other sites of care. So ASCs, we only have a handful. We have a couple under construction now. That will be growing that footprint will be a combination of M&A and de novo maybe skewing a little bit heavier towards de novo just given the dynamics and the costs and the multiples involved in often purchasing those types of assets.

We do think there will be opportunities on freestanding ED and perhaps even the opportunity to have freestanding ED combined with urgent care because so often you have ED need levels patients showing up in urgent care and vice versa. So anyway, and that all attributes to a little bit of a step-up in CapEx. Historically, the company has run a little bit under 3% of revenue in CapEx spend. This year, it will be over 3% the growth over time, largely attributable to that de novo investment in ambulatory sites of care.

And we could see it even get to the mid-3s here in the next couple of years as that investment in our existing markets continue to ramp. But going back to some of the other underlying dynamics that we see in the industry, we do see the consistent movement of certain things out of inpatient settings into outpatient settings, meeting the consumer where they want to be met in potentially lower cost settings. So yes, that continues to be a strategic imperative for the organization.

And I think that's a great transition. Just overall, I would love to hear how you're thinking about capital deployment today across internal investment versus M&A?

Yes. No, great question. We -- again, the company historically has been pretty judicious on its CapEx spend running historically under 3% of CapEx, which our revenue for CapEx, which is relatively low for the industry, although somewhat reflecting the markets we're in as well as the fact that we have maybe more of an OpEx investment relative to our size in our clinical enterprise because of the types of the markets we're in.

And as I mentioned, we would see a little bit of a step-up in that completely driven by our investments in ambulatory sites of care. But we are going to continue to be active in the M&A market to source new markets to enter. We want those markets to be similar to the types of markets that Ardent is in today. We want to be in high growth, high population growth, higher economic growth type markets. We think that's a rising tide.

Again, it hasn't been a lot of opportunities at the right multiples to enter those markets. But we -- kind of a bad news, good news. We do think as some of the cross currents that we're facing into, will likely yield more interest in potential M&A opportunities going forward. But those will really be opportunistic. We've maintained an extremely [Technical Difficulty] balance sheet with 2.5x lease adjusted net leverage, we would have the opportunity to take on more leverage for the right acquisition, although as we sit here today, have over $1 billion in capacity for M&A should the right opportunity come along.

But the message I would want investors to be clear on is that, that will be done in an extremely disciplined way and that we have so much opportunity to grow margins, to build out our existing markets that doing a bad deal -- which could just be a good deal at a bad price is still a bad deal. That's our first order of business is to be very disciplined.

The element of capital deployment. Obviously, we have a share repurchase authorization that we put into place in the fourth quarter of last year for $50 million. We executed $3 million of that in that quarter. And so again, that's an element that we may pull that lever given certain pricing and market conditions. But I want to just remind you that, that's out in the market as well.

Great. And as we wrap up here, what do you think investors most often misunderstand about the Ardent story today?

Yes, I come back to the basics that we -- while the industry is considered as a whole, what are the things that make Ardent different is where I focus. We are smaller than our public peers, but I would like to think that also allows us to be more nimble. And I do think that, that matters in the current operating environment and the go-ahead environment. And we have an opportunity to expand our margins because we have been less optimized historically.

Again, a bad news, good news that I think that allows us to grow our margins going forward. And then I come back to Ardent has really been focused on being in the right markets. And by -- we define the right markets as being markets that are growing faster, both population and economically as well as having a model that allows us and takes advantage of having partnerships with and other not-for-profits, which yields in many cases type relationship.

We cite our relationship, as an example, in East Texas with University of Texas Health System, leveraging the brand that UT brings as well as their -- they've built a medical school on our campus, the access that it gives us to train clinicians, doctors, nurses really yields a very powerful relationship. And so I think it is a differentiator in the Ardent story.

And so again, we're very excited about the future, both as a continuation from the thesis that we've had and again, under Dave's leadership and the operational enhancements to the enterprise.

Sounds great. Well, I want to thank you both for joining me today and joining us here at the Goldman Sachs Healthcare Conference.

Our pleasure. Thank you.

Thanks.

Thank you for joining us. It's my pleasure to be kicking off day 2 of the healthcare conference with Ardent Health. With us today, we have Marty Bonick, who's the CEO; and Alfred Lumsdaine who's the CFO. Dave Styblo from Investor Relations is in the audience as well. Maybe it makes sense to kind of start off. The company is a little bit different than some of the other hospital companies out there. Maybe just makes a little sense to start off with kind of how you guys think about growing your business, the growth strategy of Ardent.

Yes. I'll start. Good morning, everybody. Great to see everybody here. Ardent Health is a health system that's grown to 30 hospitals, almost 300 sites of care across 8 states and 6 markets. Our markets are growing faster than the U.S. average, which has built in some tailwinds that we've benefited by since we've gone public, and I think people are getting to see. And we said from the onset that we've got a tri-part growth strategy. The first is improving margins inside of our core book of business and our IMPACT program, which I'm sure we'll get into today. reflects that activity. We said we were going to grow within our regions, those 8 markets, we're #1 or #2 in the majority of those markets, and we've got a unique joint venture partnership that we'll talk about some more as well that has allowed us to grow our inpatient share to leading positions, but we have room to grow our outpatient.

And so we focused on access points with urgent cares and now growing into ASCs and other parts of the outpatient arena to be able to take care -- take advantage of the growth within our growing markets. And then the third is opportunistic growth, looking for M&A, either to complement our existing regions and expand our presence or to grow into new territories where it makes sense where we think we can bring value to both the community and to the company.

All right. Great. And can you just talk a little bit about -- take a step back for like the industry, there's been kind of a slowdown in volumes in the last few quarters. But in the Q1, you guys actually had a couple of percent growth in adjusted admissions, but the admission number was low. So can you just talk a little bit about the volume trends that you're seeing and have seen in the last couple of quarters?

Sure. Yes. No, we -- as Marty already touched on, we're in growing markets, and that is a built-in tailwind. And we have, as we've executed on our ambulatory growth strategy, we clearly have an opportunity to capture more share inside of our markets, and that's been a tailwind, too from a volume growth perspective. Yes, we were very happy with what we saw in Q1 from an adjusted admissions growth overall, which was right at the 2% midpoint of our range of 1.5% to 2.5% for the year. Maybe talking a little bit about what we saw from an exchange perspective because that's been on everybody's mind. As we entered the year, at the midpoint of our guidance, we had quantified about a $35 million headwind relating to exposure from an exchange perspective.

Now in the states we're in, we've seen better support from the exchanges than the national averages. And again, that's really driven by the specific states that we're in. And -- we're still seeing a change in behavior inside of the exchange markets. We saw from a metal level perspective, while the gold held up very well, approximately the same from a year-over-year perspective, we saw about a 12% shift out of silver into bronze levels. And so that is having an impact on our exchange. So we remain comfortable with the guidance that we put out, but we actually saw a slight increase in admissions from exchange lives in [ queue. ]

Is there any color on where the strength in volumes were either by service line or by geography?

It was pretty consistent across the geography. We did see some weather impact in our Texas and Oklahoma and New Jersey markets that impacted the inpatient side and some surgical volume. But we saw good strength in our outpatient ASCs -- our outpatient surgical volume, I should say. And we've got a really robust clinic infrastructure and urgent care network now that we've built. And so that was a little bit less impacted by the weather. So the strength of those outpatient programs, I think, helped fuel our adjusted admissions.

Yes. And I guess when we think about the volume impact, is it -- or the volume for the quarter, was it relatively stable throughout? Or was it like lower in January and kind of rebuilt?

It started out with some of the weather impact in January and then started to get into more normal seasonal patterns with February and March. You've got spring break in there, which happens every year, just a little bit of timing issues in there. But yes, we were pleased with how we were growing through the quarter.

And clearly, we saw lighter flu volume like everybody did throughout the industry. We put that from a headwind perspective at about maybe a 200 basis point headwind from admissions overall, combined with the weather approximately. But as we have said, flu volumes are generally lower acuity. We don't generate a whole lot of incremental profit off of flu volume. So much more of an impact to the top line than the bottom line.

Okay. That's helpful. And you mentioned the JV model. Can you talk a little bit about what you benefit from the JV model, why it works, why others maybe aren't replicating it?

Yes. Well, it's not -- it adds complexity to operating. We've got partnerships and joint venture boards with our partners in each of these markets that we have a joint venture relationship. But it's well worth it from our perspective. Particularly, we look at the academic sector right now. They're being faced with cuts from NIH funding and other cuts that we're all facing across the industry. But everybody wants to grow. And so for us, it allows us to partner with a name brand organization that brings credibility and it brings stability as we come in. It helps us to recruit physicians and specialists into the market. We've been able to grow services successfully as a result of this model. And for them, it allows them to expand their brand, expand their reach, but derisks that expansion.

We've got the operating and execution abilities on our end, and we know how to scale, which is something that when you're leaving your core market and expanding across the state, could be more difficult for some of those that don't have the integrating or operating experience or may not have the balance sheet for them to grow themselves, but know that they have a brand that would spread across the state in a positive way. So it's a symbiotic relationship in terms of how we can help each other. And it's generated a lot of interest with our Chief Development Officer. We've got active conversations going on with close to a dozen different academic centers that are interested and intrigued by what we're doing and how we might be able to help.

Yes. And I think that, that opportunity was a big part of kind of like the IPO a couple of years ago. We haven't seen a big acquisition yet. I mean, what would you say the odds are that in the next couple of years, we don't see a hospital transaction?

Yes, pretty low. I mean if you just look at the state of the industry, it's still a tale of 2 cities. You still have roughly 30% of hospitals still losing money, and that puts financial strain on their balance sheet and their ability to be financially solvent and stable independently. And so I think the opportunities are going to continue to be prevalent. For us, it's a matter about finding the right fit. We've talked a little bit openly about an acquisition we were looking at. There's a couple we looked at that we really like the academic partner, like the vision, had an alignment in terms of the strategy, but either found things within diligence within the target opportunity that just we didn't see that we can either overcome from a price perspective or from a value perspective to make it accretive to the company.

And so we're going to be very choosy in terms of doing these acquisitions. We're not chasing growth for growth's sake. I think we had the best growth organically across the peer group last year independently of M&A, and we want to keep that going. We're looking for markets that emulate the success that we've seen in our sort of secondary sort of mid-tier urban markets where we can see that growth and expansion, but we're not going to do a bad deal and chase growth for growth's sake.

Yes. I guess where do these deals come from? Because I think you guys obviously are being very picky about that you want to be in a market that grows above average, has opportunity and you think that those hospitals are doing relatively well. So like why are they selling? What are you bringing to those hospitals in that transaction?

Yes. Well, I mean, any number of reasons, things can happen in every market and every state is a little bit different. Typically, the inner dynamics between the payers and the providers in those markets often have a big factor in terms of why hospitals and systems go up for sale. And so we are going through and proactively identifying partners that we might want to join forces with and then go look for target opportunities. And then when the system does realize that it's got to go outside and find a strategic capital partner like us and it becomes an auction process, we're getting involved there. But those are a little bit more difficult to jump into without a proactive relationship. So if we were going to do a deal together and we got a ticking clock on the other side, it's tough. So we're trying to proactively build those relationships. So if and when those opportunities come, we're ready to join forces to go after those opportunities.

Okay. I guess you mentioned a little bit about some of the payer issues that some of these hospitals come up with you guys have been dealing with payer denials. Can you talk a little bit about the trends that you're seeing on denials?

Sure. As I think most people know, last year, we saw a significant spike in our denial levels in the middle of the year. And that has stabilized for us, stabilized through Q4, and we saw much of the same through Q1. So there has not been any sort of acceleration, maybe just a little bit of an improvement from what we've seen. We continue to be very focused on the things we can control to improve the denial process. It starts at the front end with authorizations, tightening up our authorization process. We're working with our revenue cycle partner Ensemble to use advanced analytics and AI to identify root causes of denials, things like accelerating appeals processes, standardizing appeals processes and building contractual language that strengthens our ability to overturn and prevent both overturn and prevent denials on the front end.

So can you quantify kind of like what the headwind has been the last year?

Well, we talked about from the step-up that we saw in Q3 about -- on an annualized basis, about a $50 million impact to the organization when you combine denials and the professional fee headwind that we also saw in the back half of last year.

And so how much of it do you think is something fixable on your end from like the RCM perspective versus kind of necessary to kind of recontract? And how long does that kind of take to get back to where you were?

Yes. I think difficult to actually apportion that out in that way. But I think what we're focused on is certainly, first, ensuring that it doesn't get worse, control the things that we can control. And I think overall, very candidly, what we've seen from the payers is they had a challenging year last year and that has a trickle-down effect to the providers as there was a significant ramp-up in denial activity broadly. Clearly, we saw the payers, as I said, had pretty good Q1. We think there's been a re-rating and better underwriting. And we do think that, again, what we don't control is what happens on that end. But we think working with Ensemble in terms of really doing the things we can do to prevent, overturn and again, use both technology and leveraging Ensemble's expertise, we think we've gotten to a better place than we were, call it, 12 months ago.

Yes. Because it's just the managed care companies keep putting out press releases about reducing prior authorizations. Is that just not in the hospital setting that they're doing? It's more physicians or what is the disconnect there?

Yes. I mean, one, we haven't seen a huge change. So we've seen the press release. And so when we see the change on the other side, I think it's more consumer-facing, and you're going to see it more so with the outpatient test, your imaging test and those types of things, GI procedures, those things that are going to need that pre-authorization. We'll be interested to see and if that helps the flow. As Alfred said, though, we want to make sure that we've got those people precleared in terms of making sure we've got all the other things that were going to be necessary to successfully bill and collect on the opposite side of that. So I think it's -- we hear the headlines and we'll be pleasantly surprised if we start to see that trickle through.

You mentioned the professional fee pressure last year as well. So can you talk a little bit about what happened there and where you are in dealing with that?

Sure. Yes, we saw -- and again, the pro fees have been a pressure point now for a number of years, right? We're into really our third year of really significant elevation in the rate of increase. Now what we saw last year beyond our expectations in the back half, particularly on the radiology side, we saw a big step-up that was unexpected. Going into this year, Q1, year-over-year, we are at about a 13% increase, which seems high, but it is actually fully consistent with our expectations because we saw that big ramp in the back half of last year.

So once we lap that from a year-over-year comp perspective, we expect to be in the high single digits from a rate of increase perspective. We do think that we're to a point in the process where essentially the recontracting has happened throughout all specialties at this point, and that will -- I think it will be way optimistic to think we'll get back to kind of a parity with inflation, but where we'll see a trend downward in the rate of increase. And again, nothing that we've seen would change our perspective on what our expectations are for 2026.

So what does that mean? Like by the end of the year, is it still -- it's out of the double digits, but it's still high single digits?

High single digits, I think, is where we expect it to end up this year. Again, the provider groups that we contract with, and we've got some great relationships across different specialties as we recontract within a given market or geography, bringing in partners, we're able to gain from the scale of that partnership and relationship, but they're facing some of the same payer challenges that we are which is driving a lot of this, and you hear a lot about the IDR process and dispute resolution for surprise bills. Most of our groups are required to be in network. And so that's not an issue unless they get forced out of network. And so we're feeling some of the sideways pressure that they're feeling from the payers that comes as a result of that professional fee increase. And then you've just got some specialties like anesthesia that have had significant wage inflation growth, particularly with CRNAs.

And at the beginning, you kind of laid out as part of the growth strategy, cost control is one of the margin improvement. Where is the opportunity greatest for the margin improvement story?

It's across the board. I mean we talked just now about some of the improvements on the revenue cycle side and some of the things that we're seeing from revenue integrity. But across the board, we've seen great improvement in our continued focus around productivity, precision staffing and decreasing contract labor. That's been a big focus for us. We're now back down to sort of pre-pandemic levels, 2.2% of our SWB was contract labor down from a peak in the high single digits during COVID when they started. And so we're finally back down to where it was before. And we're going to continue to push on that. I think as we get into more technological advances, there's probably always going to be some base level of contract labor spend, but we want to see that as low as possible.

And I don't think that the step-down functions will be as dramatic as they've been over the last few years. But now that we're at pre-pandemic level, we are going to continue to push on that agenda. And then the supply chain and professional services or professional fees, continued opportunity there that we're focused. We've got a new supply chain leader who's come in with experience from another reputable health system and driving this expense down for us, focusing on physician preference items, focusing on the consumables, focusing on just the amount of supplies that we use. We continue to see opportunity in the supply chain. And so it's a combination of all of those different factors that will be continuing to press, and this is meant to be -- our IMPACT strategy is meant to be a multiyear journey. We've quantified $55 million of benefit for this year, and we feel like we're definitely on pace for that, but expect that the tail benefits and additional opportunities to come from a care transformation and business transformation side with AI to continue into the out years.

Yes. That $55 million, I guess, you got $5 million last year, correctly, $50 million this year. how do we think about -- is there an exit rate to think about? Like is that number ramping and so that it actually annualizes into something into next year? How do we think about that?

That's correct. I'd say there's 2 elements to that ramp, right, meaning it will ramp throughout the year. We talked about coming into this year that we already had $40 million achieved. So that's kind of a $10 million per quarter impact that's baked into our expectations. And then with the remainder kind of a ramp throughout the year. And as Marty mentioned, this is a multiyear journey. So we would expect more off of that run rate as we go into 2027. So there is more to come. Obviously, not going to get into '27 expectations yet, but there will be incremental contribution from the IMPACT programs into '27, both from a run rate and from a new initiative perspective.

Is there a way to think about longer term where the margin target is for the group of assets that you have today?

Yes. We've always talked about getting to a mid-teens EBITDA margin. And from a core operations perspective, we feel like we're very much on track for that achievement over the next couple of years. Now what becomes more difficult, of course, is the BBB and the expiration of the exchange subsidies and the impact that those things will have over the long term. And so we wouldn't -- while we're certainly not coming off of our expectations from a core operating perspective, I wouldn't want to predict what the overall backdrop is and what happens with the BBB cuts.

Okay. And then I guess you mentioned additional savings potentially from AI. Everyone is excited about AI. Can you talk about where you see the most opportunity? And then I don't know if people get too excited in some areas that I think people are getting over their skis on as far as AI goes?

Yes. I continue to say that I think AI is going to be a massive transformation for this industry, and it's going to be evolution versus revolution. Everybody wants it to happen tomorrow and thinks that, okay, it's here, and we're seeing the benefits. Health care is a different type of industry than most. And historically, we've been fairly impervious to technological advances. This has been a very labor-dependent industry. And we have physician shortages. We have nursing shortages. And so I think AI is going to be a deflationary aspect for us and taking out some of the increases that we've seen. But we see it broadly across, I'd say, 3 general themes. There's the clinical theme, and we've talked about some of the things that we're doing with virtual nursing and virtual attending and our BioButton initiative and some of the care advances that we've seen, which have all been great benefits to the patients from an outcomes and a safety perspective, but also to us from an efficiency.

And that's -- I'd say we're still in the early innings of that, but we're encouraged by the results and continuing to rollout. The second is that from a consumer perspective, when you think about how consumers interact with their daily lives, I mean, everybody has got a phone and there's an app for whatever you're looking for and you can schedule things online. Health care has not been like that historically. And so we're really leaning into the consumer side, which again helps with that access. We've got 1,800 physician and extended providers through our network, making sure that those doors open, making sure the urgent cares are open, people can schedule easy appointments, get access to the care that they need, which then has a trickle-down effect into our facilities, into our outpatient agenda.

And so everything on the consumer side to make health care easier for them, which makes it easier for us to pull them through our system and has less leakage into disruptive competitors outside of our system. And then the third is the business transformation. And again, I think we're still very early on this part of the journey, but excited about the opportunities we see when we look across labor productivity, when we look across finance, when we look across supply chain and enabling some of the things in our impact that Alfred just discussed, we see opportunities to identify a lot of the work that's happening behind the scenes to help us to harvest those gains and continue to make margin improvement that Alfred was talking about.

Okay. And then when we think about the cost side of the equation, how do we think about getting to that mid-teens? Is it kind of like step straight line to that? Or is there a there [indiscernible]?

Yes, we do think it's relatively linear, and it's a combination of the confluence of the things that we've talked about from the work around our IMPACT programs, taking cost and putting more efficiency into our underlying processes and then the build-out of our system inside of all of our markets, the ambulatory outpatient settings, which sometimes have a higher margin and then also contribute to the overall contribution to admissions inside of our acute care settings as well. So again, we see that as a multiyear journey, but we are very happy with the progress that we've made already. And again, we think we have a very clear road map from an operational perspective to optimize our underlying operating system.

You've talked about outpatient a couple of times, so let's dig into that a little bit. Where is outpatient as a percentage of revenue for you guys today? Where can that number go? And when you think about adding assets, you talked a lot about the urgent care assets. Is that where the focus is? Is it ASCs? Where are we going from here?

Yes. Today, outpatient revenue is about 55 -- call it, mid-50% of our total revenue. And we've not quantified exactly where we think we can go, but north of there for certain. If we look at just how health care is evolving, there's a tremendous amount of growth in the outpatient space. And while we've had great market share on the inpatient side, we've had relatively weaker or lower market share on the outpatient side. So given the fact that our markets are growing, there's still white space inside of those for us to expand. We made a great push on urgent care right out of the gate as a public company. We've gone from hardly any urgent care to commanding market share in most of our core markets around urgent care. And so now the focus is shifting to ASCs, imaging centers, microhospitals, freestanding EDs.

And we've talked about some of the things that we've got in the plans this year. We want to make sure that we're being disciplined in that rollout, one that we can capture and bring that volume inside the system and making sure we're picking out the right sites in our core markets to be able to do that and just to be able to fund the working capital buildup of launching a new center without taking us off of our overall trajectory as a company from an EBITDA growth perspective. So -- but I would expect to see us focusing beyond the urgent care. There's still a few sites to round out in our markets, but moving into those other core operating assets like ASCs and imaging centers that are going to have a higher margin profile for the business.

Is there a way to think about that margin differential? Like what kind of -- what is an outpatient margin versus an inpatient margin?

It again depends on the specialty. But if we're currently in the low double digits from an EBITDAR margin perspective, these are going to be in the high teens to perhaps low 20s on the ASC side.

Okay. And then when we think about that -- your balance sheet is pretty strong as far as having a huge cash balance, you're generating free cash flow. Are you saving that for that large hospital deal? Is that the way to think about it? Is there any way to think about near-term capital deployment as far as ASCs or outpatient versus inpatient?

Yes. I think that's exactly right that obviously, a very strong balance sheet, very low leverage overall. And that essentially, you can think of that as preparation for and it ties to our whole reason for going public a couple of years ago to create the liquidity for that acquisition growth strategy. We've talked about the build-out of our ambulatory assets, and that has -- we have seen a step-up in our CapEx as a consequence of that, but that would never -- we would never burn through our current cash and liquidity and cash flow generation just off of executing on that ambulatory strategy. So very clearly, we are expecting that we will be acquisitive, and that will be -- one deal could -- at the right size would have a significant reduction in cash on the balance sheet. But we continue to be positioned to operate the company with a very modest leverage profile. Marty and I both worked in much higher leverage situations, and we believe in a conservative balance sheet.

Okay. And then can you talk a little bit about -- we talked a little bit about denials, but like what's commercial pricing looking like broadly speaking? And it sounds like contracting terms are just as important sometimes as the rate update, but just talk a little bit about that.

Yes. We're still seeing headline rates sort of in, call it, the low to mid-single-digit range. But to your secondary point there, yield is just as important. And so if you get the headline rate, but you're not collecting it because of denials or underpayments on the back end, you're effectively not achieving that volume growth. And so we are -- or the revenue growth. And so we are focused on both sides of that. We believe that in most of our markets that we're not the highest reimbursed. And so we want to bridge the gap to make sure that there's parity in the market and for the quality of care that we're delivering and the services that we're delivering that we're getting fairly compensated for that work. And we need to make sure that, that payment is happening from a timing and a friction perspective much better than it is today.

The denials across the industry that we face, we don't believe that we're unique in that, that has been fairly prevalent across the industry. And as Alfred said, when the payers had a challenging backdrop last year, it's one of the few levers that they can pull. But -- so realizing that, strengthening our terms around medical necessity and then defining that, strengthening our terms around payment and retroactive denials, all of those things come into play in terms of making sure that we are taking out the friction points for the care that we've already delivered, and there should be contractual obligation to pay for. So just making sure that we're sort of buttoning those hatches down as best as we can.

And I would just add, internally, we've reorganized around this function because prior, we had very siloed. We had a managed care unit and a revenue cycle where we've created a unified revenue integrity unit inside of the company and enhanced our resources significantly. So again, going to Marty's point, contract terms are just as important as the headline rate. And so having both managed care and revenue cycle under the same part of the house has created a much more unified approach towards our payer negotiations.

Okay. Great. And then when you think about -- you mentioned the OBBBA and the ACA headwinds. Is there anything that you're doing -- you have the IMPACT program. I guess that's something that you guys have kind of always been thinking about doing. Is there anything special that you can do or think about doing to kind of offset those pressures? Or is it just more about continuing on the path you were on?

Yes. No, I think the expansion of the IMPACT and continuation of the IMPACT beyond this year, as we've talked about, is how we're getting ahead of that and addressing it. This is going to be a challenging piece of legislation for the industry and for low-income Medicaid patients that may or may not have access to some of these services like they used to. But our ability to continue to improve our margins, as we've talked about today and transform the way in which we deliver care is how we end up overcoming those headwinds that we foresee down the road.

Yes. And then last year was tough. Q1 was good, though. You guys beat certainly consensus expectations, but you reaffirmed guidance for the year. Is there anything to kind of read into that as far as is there something that you're worried about that might go wrong? Is it just early? How do we think about the lack of raise there?

Yes. Just as a matter of practice, I mean we just gave guidance 60 days ago. And so it's a little bit too early in the cycle as a matter of practice to be able to change that. But we're encouraged by the way in which the year started off. We definitely see the momentum from our IMPACT program carrying out as we said it would and look forward to continuing the progress this year.

All right. I think that's all we have time for. But thank you very much.

Thank you for standing by, and welcome to Ardent Health First Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Dave Styblo, Senior Vice President of Investor Relations. You may begin.

Thank you, operator. And welcome to Ardent Health's First Quarter 2026 Earnings Conference Call. Joining me today is Ardent President and Chief Executive Officer, Marty Bonick; and Chief Financial Officer, Alfred Lumsdaine. 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 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 law, we undertake no obligation to update our forward-looking statements.

Further, this call will include a 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 and supplemental earnings presentation, which were both issued yesterday evening after the market closed and are available at ardenthealth.com.

With that, I'll turn the call over to Marty.

Thank you, Dave, and good morning. We appreciate everyone joining the call and webcast. During the first quarter, we built on the positive momentum exiting 2025 to deliver strong financial results. Revenue increased 7% and adjusted EBITDA grew 26%. Both adjusted admissions and higher acuity surgical activity showed positive growth even with the transient impacts related to weather and a light flu season, which reflects the underlying demand in our markets.

Importantly, our strong first quarter results underscore the resiliency of our operating model and disciplined execution amidst a challenging backdrop. Further, this performance reflects effective cost management across the organization and prudent investment decisions.

Our first quarter performance is a solid start to the year, and provides increased visibility and confidence as we track towards our 2026 financial targets.

To frame today's conversation, I'm going to focus my comments on 3 key areas. First, I will cover our first quarter results. Second, I will provide an update on the IMPACT program, our work to improve margins, performance, agility, and care transformation. And third, I will share updates on key 2026 focus areas.

Let's start with first quarter results. We had a good quarter that included strong cost management, particularly in SWB and supplies that drove 110 basis points of adjusted EBITDA margin expansion. I'm pleased with how we navigated transient challenges in the quarter.

Like many of our peers, we experienced severe winter storms in certain markets and lighter respiratory season. This resulted in fewer admissions and some disruption to our typical seasonal pattern. As conditions evolved, we acted swiftly to reschedule surgeries and adjust labor to align with volume, mitigating the impact on performance.

We also have been strategically focused on surgeon recruitment and productivity as a part of our Capacity IQ strategy. Capacity IQ is our system-wide approach to managing capacity and demand strategically, aligning where we invest, how we deploy clinical talent, and how we utilize assets to drive volume, mix, and throughput across the enterprise with a focus on key service lines.

Collectively, these actions helped drive first quarter total surgery growth of 1.2% year-over-year, which is a 100 basis point improvement over full year 2025 growth. Adjusted admissions increased 2%, which is in the middle of our 2026 guidance range.

At the same time, labor management was strong again and the significant improvement that began in the fourth quarter persisted into the first quarter. Specifically, we reduced salaries, wages, and benefits expense per AA by 1.4% in the first quarter. Supply expense per AA growth was a modest 1.7%. Taken together, these results reflect improving execution across labor and supply costs, reinforcing our focus on consistently delivering results through the controllable aspects of our business.

I now would like to shift to the 2 industry headwinds we previously discussed. First, payer denial trends were stable in the first quarter compared to fourth quarter, and we continue to work with Ensemble to drive improved denial management and recovery efforts. Secondly, professional fees were consistent with expectations in the first quarter and are tracking in line with our 2026 target. While it's early in the year, we are encouraged these headwinds are stabilizing, consistent with our expectations.

Turning to our IMPACT program. We continue to be pleased with our progress against our initiatives to further optimize cost and strengthen margins. Importantly, we remain on track to deliver $55 million in savings this year. The improvements we began delivering in the fourth quarter of last year continued to manifest on the P&L in the first quarter, reflecting consistent execution and durability.

Precision staffing initiatives resulted in first quarter salaries, wages, and benefits expense growth of only 0.6%. Additionally, we reduced contract labor expenses by over 40% to $15 million in the first quarter, driving a 160 basis point year-over-year improvement in contract labor as a percent of salaries, wages, and benefits expense.

In addition to labor discipline, we are driving incremental supply cost efficiencies under the IMPACT program. First quarter results reflect a broader set of strategic initiatives to leverage our scale and purchasing power with vendors, including improved rebates on physician preference items by moving to a single or dual sourced vendor model.

We also renegotiated key cardiovascular and med-surg distribution contracts, which are beginning to yield savings. What's also important is that these margin improvement activities are not episodic. They represent repeatable operating improvements across staffing, supply chain and throughput embedded into how we run the business.

Lastly, I'll shift to an update on some key 2026 focus areas, starting with outpatient growth. We continue to advance our ambulatory strategy, expanding capacity in markets where we see strong demand and attractive returns.

During the first quarter, we opened 4 urgent care centers across our Texas, New Mexico, and Idaho markets. For the remainder of the year, we expect to open 2 ASCs, 1 freestanding ED, and 1 urgent care facility. Once fully ramped, these assets should drive incremental volumes.

We're also focused on using AI and digital tools in a disciplined way to support consistent execution and improve operating efficiency across the enterprise. Our approach is practical and operational, deploying technology where it helps us to transform care delivery, enabling us to better manage staffing, enhance patient safety, and use resources more effectively.

For example, in February, we announced a partnership with hellocare.ai to implement an enterprise-wide AI-assisted virtual care platform across more than 2,000 patient rooms. Deployment is underway, and we expect all markets to be completed by year-end. Within this initiative, virtual patient monitoring, including virtual sitting, is already live across our markets.

The centralized technology-enabled model strengthens patient safety while allowing us to deploy clinical resources more efficiently at scale. It has already demonstrated the ability to prevent harm in its early use. While our initial focus is on patient safety and care quality, these tools also support our broader labor efficiency and cost discipline objectives as we scale the platform.

So to summarize, the first quarter represents a strong start to the year and managing through transient admission volume softness. Our model continues to demonstrate durability and resiliency and execution against our impact initiatives is translating into stronger operating efficiency and margin improvement.

While we recognize the healthcare environment remains dynamic and certain external factors are outside our control, our focus remains squarely on the elements that we can control: Cost discipline, operational execution, and capital allocation. That discipline gives us confidence that we are on track to deliver on full year financial targets we established on our fourth quarter's earnings call.

With that, I will turn the call over to Alfred.

Thanks, Marty, and good morning, everyone. Building on Marty's comments, we're pleased with our first quarter performance and the momentum we've generated early in the year. Before I summarize first quarter results, I'd like to share some general context on flu and severe weather dynamics.

As we've previously discussed, while flu fluctuations can impact volume metrics, they tend to be lower acuity events. As such, flu volatility typically has a less pronounced impact on earnings than on revenue, but still requires disciplined operational adjustments to flex staffing and manage costs accordingly.

As for this year's winter storms, they affected Ardent markets in Texas, Oklahoma, and New Jersey. We managed through these events very well, and I commend our clinicians and leaders for their response and their commitment to patient care.

With that said, first quarter revenue of $1.6 billion, represents an increase of 7% compared to the prior year. Adjusted EBITDA for the first quarter increased 26% over the prior year to $124 million, with the associated margin expanding 110 basis points to 7.7%. Similarly, pre-NCI adjusted EBITDAR margin expanded 100 basis points to 11.5%.

During the first quarter, we recorded a $10.9 million pre-tax gain within other operating expenses from an increase in the carrying value of an investment option that we hold in a privately held company. Excluding this benefit, adjusted EBITDA growth was 15%.

In terms of volumes, first quarter admissions decreased 1.1%. However, adjusted admissions grew 2.0%, which is right at the midpoint of our full-year guidance range of 1.5% to 2.5%. Additionally, total surgeries grew 1.2%, driven primarily by outpatient surgery growth of 1.7%.

As Marty mentioned, we continue to make significant progress optimizing our labor expense. As a percent of revenue, SW&B improved 260 basis points compared to the prior year period, reflecting our focus on precision staffing and reducing reliance on contract labor.

Contract labor as a percent of SW&B improved to 2.2% in the first quarter from 3.8% in the year ago quarter and 2.6% in the fourth quarter of 2025. Additionally, employee labor rates were favorable. Our average hourly rate per FTE for the first quarter of '26 was up just 1% year-over-year.

As a percent of revenue, supply expense improved 50 basis points compared to the prior year, benefiting from our IMPACT program initiatives, specifically related to enhanced leverage with vendor contracts and improved rebates.

Professional fees as a percent of revenue increased 100 basis points compared to the prior year period and sequential quarter growth was 2.4%. This was fully consistent with our expectations. For context, professional fees for Q1 2026 have a tough year-over-year comparison given the step-up that started in the third quarter of 2025.

Moving on to cash flow and liquidity. We ended the first quarter with total cash of $610 million and total debt outstanding of $1.1 billion. Our total available liquidity at the end of the first quarter was $0.9 billion.

Our strong balance sheet gives us flexibility and our capital deployment approach remains return-driven and disciplined with a clear preference for high-margin service line, ambulatory growth, and operational investments.

Cash used in operating activities during the first quarter was $60 million compared to $25 million used in the first quarter of 2025, which benefited from the collection of business insurance proceeds related to our 2023 cybersecurity incident. As a reminder, the first quarter is traditionally our weakest cash flow quarter, largely due to payment timing on year-end accruals, including 401(k) matching and annual incentive payments.

Capital expenditures during the first quarter were $28 million, and we expect that to ramp through the year.

We finished the quarter with total net leverage of 1.0x and lease adjusted net leverage of 2.6x, an improvement from the 3.0x at the end of Q1 2025. So as we look to the rest of 2026, we continue to be mindful of various industry factors, including potential exchange disruption and macroeconomic conditions that could dampen consumer sentiment.

We're very pleased with our first quarter results and the increased confidence and visibility we have towards achieving the $55 million of IMPACT program savings. At the same time, it's still early in the year, and we believe it's prudent and appropriate to maintain our full year financial guidance, including revenue and adjusted EBITDA.

So with that, I'll turn the call back over to Marty for concluding remarks.

Thank you, Alfred. I want to leave you with 3 key takeaways. First, our first quarter results reflect execution outperforming the environment, demonstrating the strength of our operating model and ability to deliver strong earnings even when volumes are below typical levels.

Second, our IMPACT program is delivering measurable and repeatable results under Chief Operating Officer, Dave Caspers' leadership. The structural operational improvements we have put in place are strengthening performance, and we remain on track to achieve our 2026 savings commitment.

Third, we remain financially strong and disciplined with a balance sheet and strategy that position us to create long-term shareholder value. The strong start to the year gives us increased confidence in our 2026 financial guidance and serves as a solid foundation to continue building momentum as the year progresses.

Before I turn the call over for questions, I want to recognize our 25,000 team members and 2,000 affiliated providers across Ardent. This is a time of significant change in healthcare, and their resilience, agility, and unwavering commitment to our purpose have been critical to our progress. Every day, they continue to adapt, improve how we operate, and deliver high-quality care to the people and communities we serve. Their dedication is the foundation that allows us to navigate change and position Ardent for long-term success.

With that, I will turn the call over to the operator for our question-and-answer session.

[Operator Instructions] Your first question comes from the line of Jason Cassorla with Guggenheim.

Maybe to start on seasonality. Could you just help us in how we should be thinking about EBITDA progression for the rest of this year? You have a number of moving pieces with Medicaid supplemental payment timing, some of the headwinds you kind of discussed run rating, IMPACT program benefits, and the like. I guess any help with how we should think about the second quarter, including if you expect EBITDA to be roughly in line with the first quarter when excluding the onetime investment gain benefit, and then the exchange headwind remains out there? But any help around the second half in terms of EBITDA progression would be helpful.

Sure. Hello, Jason, this is Alfred. Yes, happy to talk about seasonality at a high level. Typically, just to baseline on what we normally say, like many, we see a very strong Q4 seasonally as we see a lot of electives with deductibles and co-pays met and conversely the weakest quarter is typically Q1.

Then historically, you might see a stronger Q2 than Q3 on a seasonal basis between those 2 as you get a lot more physician vacations and the like in the summer months. I would actually expect though that Q2 and Q3 would be more comparable to each other. As we've discussed, we'll see [indiscernible] of our impact through the year. So there'll be a little bit of an increase. So I would expect to see those quarters more in line with one another.

In terms of Q1 to Q2, I would think we would see a very small, modest step-up, again, largely driven by throughput on our IMPACT programs.

Now from a supplemental program standpoint, we don't have anything significant, any approvals that we're waiting on or anything like that. There's always going to be some timing dynamics involved in supplementals, but we wouldn't see anything dramatic. But when we think about that step-up that I just referred to, I'm actually excluding the gain from our -- of that $10.9 million gain from the privately held investment and really basing it off of a 113 number, and we would step up a little bit from that.

And then if I could just follow-up. I wanted to ask about payer mix trends. It would be helpful if you could give us a sense of volume growth or volume trends, I guess, by payer in the quarter relative to the 2% total volume growth? And then maybe if you could just focus specifically on commercial, excluding the exchanges, how you're seeing demand develop, if you think there's kind of any impact at this point from the macro environment or anything else kind of note on commercial, excluding exchange volume trends?

Sure. This is Alfred again. Yes, from a payer mix perspective, I would say that what we saw in Q1 was relatively consistent with our expectations. We did see perhaps from just an exchange volume perspective, a little bit stronger on the exchange where we were actually up 1% or 2%. But generally speaking, on a year-over-year basis, a little bit weaker on the core commercial, excluding exchange. Perhaps there's a little bit of macroeconomic dynamic in play there. But I don't think we're seeing anything contrary to -- dramatically contrary to what our expectations were coming into the year.

The next question comes from the line of Matthew Gillmor with KeyBanc.

Maybe asking on the contract labor dynamic. Obviously, really impressive results there. Can you give us a sense for some of the initiatives that are allowing that performance? And I was curious, on a go-forward basis, how much more room do you think you have to go there? Or do you get to a point on contract labor where it actually becomes inefficient to drop it down any further?

Hello, Matt, this is Marty. Yes, great question. The team has been very focused on this. And we talked last year about keeping some contract labor in, in order to be able to process the amount of transfers coming into our hospitals and making sure we can capture that demand. As we've continued to refine, one of the things that we did last year was renegotiated a key agency contract with a major vendor to improve both our rates. And then we've gone back and systemically looked across our footprint in terms of where the best utilization is, so we can still maximize the volume while making sure that we've got the right labor in place to drive the performance. We call that precision staffing. And so we're focusing on both the speed to hire, scheduling, premium pay, and overtime across our footprint so that we can reduce our limitations on outside contract labor.

Where we've gotten to, we've seen a continued seasonal progression -- I'm sorry, a sequential progression downward on contract labor. And we are now in line with where we were pre-pandemic. And so I think we're stabilizing out where we would probably expect to see that land. We are just about 2.2% of SWB in Q1, which is a demonstrable improvement from 3.8% in the first quarter of 2025 and the 2.6% in Q4 of 2025.

And then following up on some of the exchange discussion. I heard Alfred's comment about a 1% to 2% growth in exchanges. Can you just help us sort of level set in terms of the $35 million of EBITDA headwind from exchanges? How that was sort of factored into the accounting with the assumption that some of those exchange volumes you saw in the first quarter may actually end up being uninsured?

Sure. This is Alfred, Matt. Yes. No, good point of clarity. I think what we saw in Q1 was relatively consistent with our expectations from the $35 million. We certainly are working with our revenue cycle partner Ensemble to capture what exposure we have for claw-backs for disenrollments that might happen non-payment of premiums after the end of the quarter. So appropriately reserved for that exposure as we ended the quarter.

In addition, you saw within the exchange, while admissions were up just a little, you actually saw a big movement underneath in the metal levels, particularly out of the silver into bronze, something on the order of 12%. So -- and that carries -- those bronze levels carry significantly higher co-pays and deductibles. So the actual throughput from a revenue standpoint or an EBITDA standpoint because of the higher deductibles and co-pays is lower. So a long way to say, I think the financial throughput from our $35 million expectation was relatively consistent, perhaps just slightly better.

The next question comes from the line of Scott Fidel with Goldman Sachs.

Interested if you can give us an update just on how discussions may be percolating in the background around JVs and sort of what the activity level you would say, Marty, has been like there year-to-date relative to maybe the last year? I know it's been slow out of the gate here in the last couple of years on that. And maybe what you think the catalyst may be to getting a JV or 2 announced looking out the next 6 to 12 months?

Scott, this is Marty. From the onset, we've had a tri-part growth strategy, the first being to continue to improve our margins on our core book of business. Second, expand our outpatient footprint within our core markets. And then third, opportunistically look for M&A. On that last point, as we've talked about, we've had, under Chris Schoeplein, our Chief Development Officer's arrival, growing conversations in that space. We continue to remain optimistic about our opportunities for either JV or outright acquisition opportunities, but we are being very conservative and prudent in terms of where we're going into. Given the macro uncertainties in healthcare, we want to make sure that as we look for new target opportunities, they either complement our existing markets or our new markets that we feel that we can go in and make a difference in terms of having the right growth characteristics. Again, our markets are growing better than the average U.S. rates. We're looking for markets we can enter with similar characteristics, and we do believe they're out there. And we're making continued progress from our perspective on how we look at that, but these are going to be strategic and methodically placed as we continue. So the pipeline still looks strong. And we're making sure that any potential M&A that we do is going to be accretive to the organization.

And maybe a follow-up, maybe for Alfred around, I know you've already given us a few pieces of the volume story and with the exchanges and commercial. Maybe if you could expand that out to some of the other government lines in terms of thinking about Medicare with both fee-for-service and Medicare Advantage, what volume trends have looked like there? And then as well around Medicaid. I know some of your peers have talked about Medicaid volumes being a little lower than expected just around some of the conversions there. Just curious what you've been seeing on the Medicaid volume side as well.

I'll start on the Medicare side. We saw strength in the Medicare line in Q1, particularly in the MA line compared to the traditional fee-for-service. But overall, Medicare as a percent of our revenues was up on a year-over-year basis. Medicaid was essentially flat, down just a hair. I believe it's largely from redetermination activity, but very slight, again, essentially flat on a year-over-year basis.

This is Marty. From -- that was from a revenue perspective on. On admissions basis, a little bit down in both the Medicare and Medicaid line. We talked about the impact on flu and respiratory being a little bit lighter, which is typically seen in that Medicare category, a lower case mix index generally with that population. So nothing outside of the implied guidance that we gave around volumes mix.

The next question comes from the line of A.J. Rice with UBS.

Your adjusted admission growth of 2%, that's a little better than what we saw from peers. And I wonder if you look at it, you mentioned obviously some lower intensity stuff with flu getting impacted. But what -- across geographies, across service lines, anything to call out there that -- areas of particular strength that are worth noting?

A.J., this is Marty. Yes, we focused last year pretty heavily on expanding our access points, particularly on urgent cares. And we probably have a bigger disproportionate volume of clinics within our footprint. And so when you think about some of the weather impacts across the industry, and we were certainly part of that, it impacted admissions, but the strong outpatient services and access points continue to deliver for us, along with strong volumes on the ASC side. Nothing really to call out regionally, pretty evenly spread across the markets. The only caveat being where we had some weather impact, particularly in Texas, Oklahoma, and our New Jersey markets.

And then maybe for a follow-up. I know you mentioned that the payer denials have sort of trended in line with expectation. I wonder if I could get you to comment more broadly on what you're seeing with respect to managed care contracting generally. Any change in sort of rate update, trends, terms that they're asking for and sort of where you guys are at for contracting for this year and '27?

This is Marty again. We're substantially contract -- all contracted about 89% for 2026. Still seeing headline numbers similar to what we saw in the last -- last year. To your point, we are focused on the terms within those contracts and just strengthening some of the language around denials underpayments. As you referenced, we have seen that stabilize since that spike in the second half of last year for the second straight quarter. So we're encouraged by that and really working with our Ensemble partners and internally to make sure that we're collecting every dollar for the services that we're providing. So we're encouraged about the progress we're making and still more work to do. Denials remain too high across the industry. But with the way managed care is reporting out thus far in the year, we're hopeful that they've estimated their run rates appropriately and that we'll see that pull-through come back on the other side.

And this is Alfred, A.J. The only other thing I would add on the managed care contracting front is we've continued to make investments in that -- in our team and in our focus in the transparency tools and utilizing that to ensure that we're getting appropriately compensated in our client rate. So yes, as Marty noted, essentially 90% contracted for '26. We do have some open negotiations now and working very hard at those given the backdrop to be sure we get the appropriate rate increases for the markets that we're in.

The next question comes from Ann Hynes with Mizuho Securities.

Can you remind us from your -- what's embedded in your ACA guidance for just an increase in bad debt and deterioration of collectibles, and if that's coming in line with your expectations?

And then my second question is just on professional fees. I know that you said it was in line with your expectations. Can you remind us what's embedded in guidance because some of your peers have noted that has come in worse than expectations?

Sure. Hello, Ann, this is Alfred. I'll start on the first part of your question. Yes, with denials very much in line with our expectations and without any sort of material change in the trajectory, we're right on what we would have expected from a throughput from an accounts receivable and bad debt perspective. So I would say no change there. Now as you know, we embedded in our expectations not a material improvement from the step-up that we saw in the back half of 2025. And so again, we're pleased with the progress we're making on track, if not maybe just a little bit ahead of where we would have expected to be.

And this is Marty. On the pro fee side, very much consistent with our expectations. Last year in the first quarter, we note that we had about a 6% increase, which included a favorable settlement. And so it's a little bit of a tough comp when you look at that first half -- that first quarter comparison. But that pro fee step-up that we experienced really started in the third quarter of 2025. So the comparison is going to be a little bit harder until we get to the back half of this year. But if we look at that sequential growth to get a better sense of the trend from Q4 to Q1, it's about 2.4% increase, which was definitely in line with our projections. So I can't speak about the other peers, but it seems like it's stabilizing where we had expected to, still growing north of basic inflation, but in line with our expectations.

And this is Alfred, Ann, and to add to Marty's point. So as a consequence of seeing that step-up in the back half of 2025, we would expect the year-over-year increase to moderate once we get to the back half of this year. But as Marty said, we're right in line with our expectations entering the year.

And the next question comes from the line of Kevin Fischbeck with Bank of America.

I think I know the answer to this, but I just want to make sure, obviously, it sounds like you guys feel very good about the quarter. You talked a lot about increased confidence. You got kind of a onetime gain in the quarter, but you reaffirmed guidance. So I just want to make sure that I understand. Is this just kind of normal course, you wouldn't expect to increase guidance with Q1, and that's all this is and you'll update normally with Q2? Or is there something more in Q1 that you're really kind of waiting to see and get more clarity on before you feel comfortable updating the outlook?

I would just say as a matter of practice, we think it's appropriately prudent not to touch our guidance after just 1 quarter.

So this is kind of the way you would normally provide guidance in a given year. And then on the professional fee number, like the -- what do you think the year-over-year growth rate should look like in the back half of the year? Because I guess 2.5% increase sequentially is -- still kind of implies a pretty high year-over-year annualized growth rate in the back half. I just want to make sure I'm thinking about that right.

Sure. This is Alfred, Kevin. I think we would expect it to moderate into single digits, high single-digit type range below the double-digit trajectory that we've been seeing.

Okay. Perfect. And then just maybe last question. Any color on volumes and how they progressed through the quarter? I guess it sounds like Q1 obviously impacted by storms. Was it relatively consistent through the quarter? Or was there kind of a ramp as you exited March relative to January?

This is Marty. Yes, definitely you saw January impacted by volumes, some rebound in February and then sort of the normal spring break activity you would see in March and into early April. So definitely a lumpy start, but exited consistent within the range of expectations around our volume and as exhibited with our 2% AA growth, I feel like we're squarely in place to continue that trend.

The next question comes from the line of Benjamin Rossi with JPMorgan.

Just following up on the denials commentary. Across collections, how are denials underpayments and bad debt interacting in the start of the year? And then are you seeing more situations or changes in patient behavior where maybe initially insured patient accounts are ultimately behaving more like self-pay due to denials or coverage changes?

This is Alfred, Ben. I would say we haven't seen any pronounced changes in that activity and working real closely with Ensemble. And candidly, our collections have been quite strong, both through the end of last year and through Q1. So yes, I would not say we've seen any difference in how those dynamics are interacting.

And then just on the expense side regarding supply management, looked to be a bright spot following your previous supply chain initiatives and procurement and some of the increased cadence of the IMPACT program. Are there any areas of particular outperformance to call out? And how do you consider the sustainability of this performance as you pursue your broader margin improvement goals?

This is Marty. Yes, our IMPACT program had a number of focuses. We talked about some of the SWB. Supply chain was definitely another target that we've been focusing on. We expect that those things will continue to ramp, as Alfred said, in the second half of the year, but we're pleased with the progress we've seen thus far. We've got a number of different initiatives that are included in there. It's a lot of different tentacles types of supply chain. But first quarter results included improvements on rebates, physician preference items, moving to either state or dual-sourced vendor models, and we'll be continuing that throughout the year. So we're pleased with the progress that we saw in the first quarter and expect that will continue to produce inside of our savings on the IMPACT program, as you mentioned. There's a number of things that were happening in focusing on cardiovascular, med-surg distribution contracts, and all of those things are starting to produce as we expected.

The next question comes from the line of Craig Hettenbach with Morgan Stanley.

Marty, so as you continue to kind of deploy and adopt AI tools, how are you thinking about kind of the tangible impact on the business just from a margin perspective and kind of reasonable timeline of that kind of flowing through to margins over time?

Thanks, Greg. It's Marty. I think we're very much still in the early innings. From a platform perspective, we're fortunate to have strong partners like Ensemble from -- they're deploying over $100 million of capital into their AI and tech stack that we're benefiting by and starting to see the impacts of -- from a yield perspective, as Alfred talked about with some of the denials and recruitment and payments and cash flow. With Epic, there's a lot of embedded technology in there that's going to aid our clinicians in terms of making better decisions, but also providing better efficiency and pull-through through the organization, whether that comes from surgical scheduling, optimization, physician interactions.

And then other things that we've invested in with ambient listening, some of the AI tools that we're using at the bedside are helping with both productivity, length of stay. And as we mentioned, the virtual cost -- the virtual sitting and the virtual nursing program that we're doing is improving both patient care and will lead to cost improvements. But we're in the early innings of this. Each of these are going to have small but incremental improvements to the SWB and to our efficiency across the organization. And we're very excited about the future improvements to come as we look at productivity across our physician practices, our business practices, and just clinical throughput. So I would say we're early, but we do expect this to be part of our margin progression, and this is the care transformation component of our impact initiative.

And the only thing I would say is we're equally excited about the incremental access that these tools will provide in terms of improving throughput and improving patient outcome.

And then just a follow-up on the M&A backdrop and understanding kind of the disciplined approach you're taking. Are you seeing much -- any change in terms of asset values across the space as you evaluate the pipeline?

This is Marty. I think that we're seeing for the types of assets we're looking -- I mean these are not changing from sort of industry multiples. I know that there's been some headline numbers on single assets that are getting bought up by strategics, but we're going to be very disciplined in our M&A prospects to make sure that whatever we engage with on that is going to be something that we can see near-term accretion, call it, in the first year to 2 and a delevering from whatever purchase price we get into. But there's different methods that we're looking at in terms of how we might partner with different people and through that JV process, but too early to tell, but we're going to be very disciplined in terms of what we chase, and not go after things that have a high price activity.

The next question comes from the line of Whit Mayo with Leerink Partners.

I just wanted to get an update on the ambulatory strategy. Just any views in the pipeline this year, maybe how much capital you think you're going to earmark for any of that development activity?

This is Alfred, Whit. I think Marty talked about what we have in the pipeline from a development perspective, and that is certainly in our expectations that we put out in the guide from a capital deployment standpoint. It's -- we believe in a very, I'd say, sustained moderate pace of development. I think you've seen the impact, though, of our ambulatory strategy flow through as you've seen the type of growth we had in our adjusted admission numbers, which, again, perhaps were a little better than some in the industry from a growth perspective. And we think that's just a reflection of the increased investment and throughput in that investment on a year-over-year basis.

Hello, Whit, this is Marty. The only thing I'd add to that is we did have a small incremental step-up in our capital spend, and the majority of that is going to that growth inside of those core markets, but contemplated in the guidance that we gave out from a capital perspective. To Alfred's point, we're making sure that the investments we're making in this ambulatory space that may have some start-up cost or a small drag while they're ramping up are not dragging down the company as we're building towards those higher-margin activities in the out years.

And maybe just a follow-up here on malpractice. I know we had a headwind last year that's nonrecurring, but just how did that mal develop within the quarter? And just any expectations, thoughts, observations would be great.

Sure. No, I appreciate that question, Whit. Yes, on -- clearly, we had the nonrecurring item that we booked last year in Q3 related to -- largely related to a single physician. Now it is a tough environment from a med mal perspective, and we certainly have seen a step-up in premium primarily in the state of New Mexico. We were encouraged by the legislature taking action with putting in legislative caps this year, which they've done in the past, and those had eroded over time. And we're encouraged by the new law. It's become very difficult to recruit physicians in the state of New Mexico. So we think that will provide some relief over time from a premium perspective, but because the new law was untested on a year-over-year basis, we saw a fairly pronounced increase in our medical malpractice insurance premium. But again, we are encouraged and would expect relief going forward as the law takes hold going forward because, again, most of the pressure is in the single market in New Mexico.

The next question comes from the line of Ben Hendrix with RBC Capital Markets.

I appreciate all the commentary about the IMPACT program, the contract labor improvement and supply chain efforts there. I just wanted to see if there's any kind of longer-term opportunity to fold the work you're doing around denials and professional fees into the IMPACT program and work towards some longer-term targets. And to that point, is there any takeaways from the work you've done on Ensemble on kind of where DSO could go on through continuous improvement programs or where you could get margin pickup on the longer-term professional fee mitigation?

Thanks for the question, Ben. This is Alfred. Yes, we're -- obviously, it's a very dynamic environment when you're talking about payer denials. But what I would say is that we do have work streams embedded in the IMPACT program associated with revenue integrity, which includes denials and collections. Those can play out over longer periods of time because of the dynamic. But we have made investments internally in -- as I mentioned, in our managed care team. And that's not so much just to isolate the negotiation of contracts. But as Marty indicated, how are we actually embedding in contractual language to improve the outcomes as it relates to denials and collections activity, so -- but again, those play out, I would say, over longer periods of time than the cost management initiatives, which have a much more near-term visibility to yield. But we absolutely do have a number of initiatives towards improving both denials, collections and recovery on the back end of denied claims. So that clearly is an important component of our IMPACT programs, but you have a longer tenure to throughput.

On your question on where could DSO go, we were very -- we finished 2025 in a very strong position, saw a significant step down in DSO. We've been able to largely maintain that. I think we're pleased with where we are. You always want to do better. But in that mid-40-day range is where we think we should be, and it's right similar to where we are right now, so just focusing on maintaining and improving where we can. But from an overall DSO perspective, we're quite pleased where we are.

And our last question comes from the line of Raj Kumar with Stephens.

I appreciate all the puts and takes with the kind of fix volumes and the underlying dynamics between metal tiers. I guess maybe I'm just trying to figure out, since you guys have called out previously that, that population may have not been as profitable for you as your peers, but then you did some re-contracting last year in the back half. So I guess just curious on any kind of commentary around per member profitability on those claims that have been paid so far.

This is Marty. Yes, there definitely has been a focus on strengthening the yield on those contracts as we go through. There's a lot of them, and we've got 6 different states to operate in. And so for right now, I'd say we're still in the early innings of seeing that improvement. And that's exacerbated by the metal changes that Alfred talked about, so where we're getting better rates. Now we're seeing some shift in that population to lower-tiered metals. And so there will be some rebalancing. This is something that we're very carefully watching and adjusting to in real time as the -- this population settles out and we get to see where things ultimately land with the effectuation of disenrollments and other things that are still projected to be coming. The good news is our states have been relatively stable in terms of reenrollment into these plans, but we have to see where they settle out and then which plans they settle into to see how the re-contracting efforts ultimately play through from a revenue growth perspective.

And then as a follow-up, I know other OpEx was higher, but then the DPP comp, maybe some reserving dynamics for the exchange population and then the increased malpractice. Any way to kind of bucket that as you kind of bridge year-over-year, just kind of as we kind of better think about that cost rolling forward?

Yes. I think you've hit the nail on the head in terms of the underlying drivers, which would be embedded provider taxes from supplemental programs associated with supplemental revenues and the step-up in med mal, medical malpractice premium and overall expense.

So in terms of bucketing, I would say the majority is still simply provider taxes associated with supplemental revenues with the step-up in medical malpractice expense on a year-over-year basis, I think it was roughly in the $10 million, $11 million range.

And we have no further questions at this time. I would like to turn it back to Martin Bonick for closing remarks.

Thank you all for your participation and questions in our first quarter earnings. We've entered 2026 with operational momentum, financial strength, and strategic clarity around our -- strategic objectives. We are confident in our ability to execute, and we appreciate everybody's support. Thank you for today's time.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Good morning, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ardent Health Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Dave Styblo, Senior Vice President of Investor Relations. Please go ahead.

Thank you, operator, and welcome to Ardent Health's Fourth Quarter 2025 Earnings Conference Call. Joining me today is Ardent President and Chief Executive Officer, Marty Bonick; and Chief Financial Officer, Alfred Lumsdaine. 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 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 law, 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, adjusted EBITDAR and free cash flow. Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release and supplemental earnings presentation, which were both issued yesterday evening after the market closed and are available at ardenthealth.com.

With that, I'll turn the call over to Marty.

Thank you, Dave, and good morning. We appreciate everyone joining the call and webcast. During our third quarter call, we committed to taking swift and decisive action to address certain industry challenges that has intensified. The initiatives were designed to strengthen our operating model and better position the company for long-term earnings growth. I'm pleased to share that our fourth quarter results reflected a number of positive developments and encouraging signs of progress as a result of the actions we took since our last update.

Key industry headwinds that we flagged as accelerating on the third quarter call, including professional fees and other rate pressures driven by payer denials showed stability in 4Q. Additionally, our team focus on disciplined execution and expense optimization is already starting to pay dividends and drove solid fourth quarter earnings performance.

Furthermore, we generated robust cash flow that was above our expectations resulting in nearly a 50% increase in full year 2025 operating cash flow. In short, I'm pleased with our finish to 2025 and the momentum that we've built exiting the year. Importantly, we expect operating performance traction to further ramp throughout 2026.

During today's conversation, I'm going to focus my comments on 3 key areas: First, I'll walk you through fourth quarter performance, which resulted in 2025, recording our highest ever revenue, EBITDA and operating cash flow. Second, I will provide color on our IMPACT program, our work to improve margins, performance, agility and care transformation and how those actions are strengthening our business, along with an update on industry challenges we highlighted last quarter. And third, I will share context around our 2026 financial guidance.

Let's start with fourth quarter performance in 2025 results. We reported solid fourth quarter revenue supported by durable industry demand. This capped off a strong 2025, where we grew full year revenue by 6% at $6.3 billion, squarely in the middle of our 2025 guidance range. Underpinning this performance was strong 2025 admissions and adjusted admissions growth of 5.3% and 2.3%, respectively. Fourth quarter adjusted EBITDA benefited from the impact program initiatives to optimize revenue and streamline the business.

For full year 2025, we grew adjusted EBITDA 9% and expanded margin 20 basis points. We also generated significant operating cash flow of $223 million in 4Q and $471 million during 2025, up 49% from 2024. Our improving earnings profile, along with diligent work to maximize collections contributed to the large increase.

Finally, we strengthened our balance sheet during the year. We increased cash by approximately $150 million to over $700 million at the end of 2025, and we reduced our lease adjusted net leverage nearly 0.5 turn to 2.5x.

That's a good segue into the second topic of today's discussion, our IMPACT program progress and an update on industry challenges. We are pleased with the traction of IMPACT-driven initiatives to further optimize costs and strengthen margins. During the third quarter call, we sized $40 million of annualized IMPACT program savings that we expected would ramp during the fourth quarter of 2025 and reached run rate entering 2026. We are on track to deliver on that target and are raising the expected contribution to approximately $55 million, which Alfred will discuss shortly.

Importantly, IMPACT is a multiyear operating model transformation, improving not only margins, but our performance agility and care transformation. These efforts are reflected in the P&L. For example, we activated precision staffing initiatives that resulted in fourth quarter a salaried wages and benefit expenses declining 0.4% year-over-year. Similarly, we reduced SWB per adjusted admission by 2%, which is a significant inflection from the 4% growth during the first 3 quarters of 2025.

Within SWB, we reduced contract labor expenses by 26% to $17 million in the fourth quarter. To put that into context, contract labor accounted for only 2.6% of SWB in 4Q, which is the lowest it's been since 2019 when we were running in the mid-2% range. These improvements are being driven by focused efforts to optimize precision staffing, drive operating room excellence and expand virtual care.

In contract labor, we renegotiated a key contract to improve our rates and we reduced overall utilization by accelerating our speed to hire and leveraging real-time management tools. This enabled us to reduce agency labor FTEs by approximately 175 in the last 4 months of 2025. In the operating room, which is 1 of our highest impact areas for improving performance, we increased first case on time starts by over 10 percentage points in 4Q versus 3Q and expect to continue on that progress this year.

Additionally, we continue to see significant value and care transformation through our virtual care activities, including virtual nursing, patient monitoring and provider coverage. As we have shared previously, these programs have improved workflows, ease staffing pressures and strength in clinical support across our hospitals. Building on this success, we announced a partnership with last week to launch an enterprise-wide AI-assisted virtual care expansion that will span more than 2,000 patient rooms by year-end. This will establish a connected, scalable virtual care network across all markets, improving safety, operational efficiency and enabling better utilization of clinical talent.

Stepping back, I'm encouraged by the traction of our IMPACT program built throughout 4Q and the momentum it provides heading into 2026 as we manage well-known industry pressures. On that front, I wanted to provide a brief update on the 2 pressure points we experienced in the third quarter.

Payer denials in 4Q held generally consistent with 3Q, and we are starting to see some improvements on the margin aided by our partnership with Ensemble. Specifically, we've been focused on denial integrity and more consistent application of our contractual tools yielding better predictability in the revenue cycle. Likewise, professional fees also moderated in Q4 with growth decelerating to 8% from 11% in Q3. Our strategic recontracting and vendor transitions are having a positive impact.

While it's still early, the 4Q data points are directionally favorable on both industry challenges. Pivoting to our third discussion point, I want to address our 2026 outlook. We entered this year encouraged by tangible progress from our IMPACT program and expect to continue building momentum throughout the year. We remain highly focused on optimizing revenue, disciplined expense management and productivity, the levers most within our control, all while delivering excellent quality care to patients.

In terms of industry demand, our positioning remains a strong cornerstone as our markets continue to grow 2x to 3x faster than the national average and are further bolstered by rising care complexity. These structural trends reinforce our long-term growth thesis, while we continue to overcome the impact of well-known industry headwinds. With that backdrop, we are issuing 2026 adjusted EBITDA guidance of $485 million to $535 million. As Alfred will detail, this reflects tailwinds of mid-single-digit core earnings growth and IMPACT program savings, we now estimate will contribute about $55 million in 2026 at the midpoint, up from our $40 million estimate.

Those benefits will largely help offset headwinds that include a prudent estimate for potential exchange disruption. We believe this is an appropriate posture to start the year given the broader market uncertainties Importantly, we expect adjusted EBITDA to return to growth in 2027 after lapping this year's annualization of payer denial and professional fee headwinds and as IMPACT program savings build through 2026.

Before turning the call over to Alfred, I want to underscore that the deployment of AI and other technology continues to be an important part of Ardent's transformation strategy. We've taken a progressive disciplined approach to building the infrastructure required to deploy these tools at scale and that foundation is enabling us to advance additional initiatives this year.

The takeaway is simple. Our single instance of Epic and enterprise-wide technology foundation gives us a structural efficiency advantage that continues to widen over time. We are seeing tangible benefits in coding accuracy, labor efficiency clinical throughput and quality.

As for Ardent, you heard earlier that we are expanding AI-assisted virtual care across the full enterprise in 2026, supporting a virtual first approach that improves access, streamlined care delivery and extends the operating efficiencies already demonstrated in several markets. Our AI-enhanced scribe technology reduces clinical documentation time by 35% for physicians, enhances documentation quality and supports appropriate revenue capture.

Adoption continues to grow, with Ardent providers now using the AI scribe in approximately 85% of patient visits without double the industry average. Additionally, we continue to deploy medical wearables that enable continuous vital sign monitoring. In markets where we implemented, this technology has reduced mortality by up to 15% and shortened length of stay by approximately 1/3 of a day.

Finally, we are leveraging technology to support both clinical staff and operating room scheduling. This provides frontline leaders with real-time insights into staffing patterns and surgeons access to pull forward cases to maximize our operating room utilization. And importantly, our single instance of Epic remains a core differentiator standardizing and optimizing workflows, enhancing provider scheduling and consistently delivering strong clinical outcomes, including top quartile performance. Collectively, these tools have and will continue to make Ardent more efficient and enable us to deliver best-in-class patient care and quality.

With that, I'll turn it over to Alfred to provide more detail on our fourth quarter financial performance and outlook.

Thanks, Marty, and good morning, everyone. Building on Marty's comments, we're pleased with our fourth quarter results and our momentum exiting the year. Fourth quarter revenue of $1.61 billion was essentially flat compared to the prior year and in line with our expectations. As a reminder, we recorded 2 quarters of financial benefit related to the New Mexico DPP program in the prior year period. Adjusting for this, year-over-year revenue growth would have been approximately 3%.

In terms of volumes, fourth quarter admissions increased 1.5%, adjusted admissions grew 2% and surgeries were essentially flat. Fourth quarter adjusted EBITDA of $134 million was 2% above our implied guidance midpoint, driven by expense discipline, operating efficiencies and our IMPACT program initiatives. As Marty noted, these actions contributed to SW&B cost savings after increasing 6.7% for the first 9 months of 2025 compared with the prior year period, salaries, wages and benefits declined 0.4% in the fourth quarter year-over-year, reflecting our focus on precision staffing and reducing reliance on contract labor.

For the full year 2025, revenue increased 6% to $6.3 billion and adjusted EBITDA grew 9% to $545 million with margins expanding 20 basis points to 8.6%. Similarly, pre-NCI adjusted EBITDA margin also expanded 20 basis points to 12.7%. We generated robust operating cash flow of $471 million in 2025, up nearly 50% over the prior year. And free cash flow, net of noncontrolling interest distributions was $170 million.

This is an outstanding result and reflects the work we've done to improve collections and correspondingly reduce AR days. Of note, the timing of our last payroll cycle in 2026 will create about a $50 million cash flow headwind year-over-year. We also strengthened our balance sheet during 2025. At the end of the fourth quarter, our lease adjusted net leverage was 2.5x, which was an improvement from 2.9x at the end of 2024, and our total net leverage was 0.8x.

Additionally, we increased total cash by over $150 million, finishing the year with $710 million. At December 31, 2025, our total debt outstanding was $1.1 billion and total available liquidity was $1 billion. We also repurchased $3 million of stock during the fourth quarter and had $47 million remaining under our repurchase authorization at December 31.

Now turning to 2026 financial guidance. We expect revenue of $6.4 billion to $6.7 billion or 3.6% growth at the midpoint. We expect adjusted admissions growth of 1.5% to 2.5% which contemplates expected exchange disruption from the expiration of the enhanced subsidies. Our adjusted EBITDA guidance is $485 million to $535 million. And I'd like to add some context and key assumptions behind that.

Adjusted EBITDA for the full year of 2025 was $545 million. From there, we estimate our jumping off base to be approximately $475 million. This reflects approximately $50 million from the annualization of headwinds we discussed on our 3Q earnings call. Those primarily related to elevated professional fees and rate pressures, including elevated payer denials. The remaining approximately $20 million impact reflects restoration of short-term incentive compensation, which was below the typical baseline target in 2025.

From the $475 million 2025 jump-off base, our midpoint of guidance assumes 2026 core earnings growth of approximately 4%. Additionally, we expect our IMPACT program to generate approximately $55 million in adjusted EBITDA in 2026, up from the $40 million estimate that we shared at the end of Q3. This creates a year-over-year tailwind of approximately $50 million, given that we recognized about $5 million of IMPACT program savings in 2025. This higher target incorporates additional opportunities we've identified across revenue and expense optimization, primarily in controllable salaries, wages and benefits.

Finally, we estimate the exchange headwind will be approximately $35 million. Collectively, this results in a 2026 adjusted EBITDA guidance midpoint of $510 million. Our outlook excludes any potential benefit from the Rural Health Fund. Additionally, while we're already executing on IMPACT program savings pull-through, our work is far from finished, and we plan to continue to identify and execute on additional opportunities.

With regard to payer denials and professional fees, we're not factoring in any improvement in our outlook from the back half of 2025 despite some indication that pressures are at least beginning to moderate.

Finally, we believe the exchange headwind we have assumed in our guidance contemplates an appropriately sober view of the associated disruption risk. In short, our goal is to establish prudent adjusted EBITDA guidance in light of the current industry headwinds and tailwinds.

I'll conclude by noting that we feel confident in our ability to return to adjusted EBITDA growth in 2027. As we transition into the second half of 2026, we expect to begin lapping the annualization of the industry headwinds that accelerated in the back half of 2025. Additionally, we anticipate the IMPACT program savings will build through 2026 and thereby augment 2027 core earnings growth and position us to grow adjusted EBITDA even with the BBBs Medicaid redeterminations beginning next year.

With that, I'd like to turn the call back over to Marty for concluding remarks.

Thank you, Alfred. I want to leave you with 3 key takeaways from today's call. First, our fourth quarter results reflected solid earnings performance as we quickly addressed the industry headwinds outlined last quarter. These actions helped drive our strongest revenue, EBITDA and operating cash flow in our history.

Second, our IMPACT program continues to accelerate under Chief Operating Officer, Dave Casper's leadership. The operational improvements underway are strengthening the business. We have raised our 2026 savings target and pressure points of payer denials and professional fees and stabilize with early indications of improvement.

Third, we have established prudent 2026 guidance and expect to return to EBITDA growth in 2027. We remain financially strong and strategically positioned to create long-term shareholder value. In 2025, we generated $471 million in operating cash flow and strengthened our balance sheet, giving us the flexibility to invest through cycles and deploy capital to support long-term growth.

Looking ahead, these fundamentals position us to expand margins and grow adjusted EBITDA over the next several years. Before I turn the call over for questions, I want to recognize our 25,000 team members and 2,000 affiliated providers across Ardent. This is a time of significant change in health care and their resilience, agility and unwavering commitment to our purpose have been critical to our progress. Every day, they continue to adapt, improve how we operate and deliver high-quality care to the people and communities we serve. Their dedication is the foundation that allows us to navigate change and positions Ardent for long-term success.

With that, I will turn the call over to the operator for a question-and-answer session.

[Operator Instructions] Our first question comes from the line of Ann Hynes, Mizuho Securities.

Just on some guidance assumptions on maybe a little bit more details. So you said professional fees, can you remind us what the actual increase in professional fees was in 2025 and what you expect the year-over-year increase to be in 2026? And then also with the enhanced subsidies. I know bad debt can be an issue, especially in Q1 you have greater -- should we assume greater maybe lower net revenue growth in Q1, just given that we're not 100% sure how many people will be kicked off and we might not have visibility into that until later this spring. Like how should we assume bad debt through the year-on-year assumptions?

Thanks, Ann. Appreciate the questions. Professional fee growth year-over-year 2025 was in the roughly high single-digit range. We are making similar assumptions into 2026, consistent with our comments with denials and pro fee growth, not expecting significant reduction from these elevated rates and it would be upside if we did see some improvement in those.

On the second half of your question on the enhanced subsidies, and we see lower growth from a revenue standpoint in Q1? I mean I think some of it is just going to depend on the timing. I'm sure you're familiar with the 90-day grace period. We'll have to see how that plays through. It's too early for us to really speak to that dynamic. As you saw from our guide, we think we're being prudent in our overall assumptions as it relates to the HIX enrollment expectations.

Our next question comes from the line of Matthew Gillmor with KeyBanc Capital Markets.

This is [ Zack ] on for Matt. Could you guys provide some detail on your underlying HIX assumptions as it pertains to expected volumes declines in 2026? And then what percent are you assuming shift to other coverage versus uninsured?

Yes. This is Marty. The good news is, given the expectations in the market for enrollment declines. Our markets were actually up. New Mexico was up. Texas was up, and so we're seeing some good pull-through on the initial side. I think the uncertainty comes in terms of what happens after the grace period and how many of those people defect. We're planning for enrollment to decline about 20% as we play through the fluctuation of that impact. And we're assuming about 10% to 15% move to employer-sponsored coverage and the rest go to self-pay. So we assume that the utilization we got 30% lower in that cohort.

Great. And then just for the $15 million increase in the IMPACT program, can you provide some detail on how those were identified, maybe bucket those savings, whether it be revenue integrity, cost takeouts or other met that you guys are producing those savings?

Yes. This is Alfred. I would say of that $15 million increment that we've identified, the vast majority currently is in the SW&B line.

Our next question comes from the line of Raj Kumar with Stephens.

Maybe just kind of it would be helpful to get a perspective on the kind of IMPACT initiatives that have a longer lead time until the benefits materialize. And just kind of when we think about the commentary in 2027 return to EBITDA growth and then kind of thinking about the sustainability of that earnings growth heading into '28 as you kind of incur some of the OBBVA-related headwinds. Just kind of curious on how much more tank there is or how much more fuel there is left on the kind of IMPACT initiatives front on those kind of longer lead time initiatives?

Yes. This is Marty. As I stated before, the IMPACT initiatives are meant to be multiyear and durable and sustainable, as we look at the OBBB impacts coming down the line. We're very confident that with the technology improvements that I mentioned in the AI. These are going to be multiple tailwinds that we're going to be able to continue to capitalize on. As Alfred said, SWB is an early target because it's the most direct control, but we know that we still have opportunities in the supply chain that we're harvesting and continued opportunities in the revenue cycle as we continue to enhance our coding, our collections and management, returning those denials.

And so there's multiple factors. And so the early wins, as Alfred talked about, we are harvesting, but we expect these to continue. an magnify over the continuing years to come out to offset those headwinds that we have. So we feel very confident in our ability to continue to harvest these and direct them for the future.

Got it. And then maybe as my follow-up, just kind of thinking about some of the kind of moving pieces in 2026 guidance. I guess is there any kind of 1Q volume impact from the winter storms that's embedded and maybe any call out on that would be helpful?

Yes. Obviously, for us, the primary impacts were in the Texas, East Texas and Oklahoma markets from Winter Storm Burn. Of course, we did -- went into bull mode to ensure that we're rescheduling cancer surgeries. Did see some of that lost volume at the tail end of January come back in February. We're not pointing to that for any sustainable impact. You could have maybe just a very, very immaterial impact to Q1 overall, but not looking for that from any kind of an enduring dynamic.

Our next question comes from the line of Ben Hendrix with RBC Capital Markets.

This is [ Michael Murray ] on for Ben. Your guidance called for 3.6% revenue growth at the midpoint, and you project core earnings growth of 4%. So slight core margin expansion, but that obviously excludes the headwinds that you called out. So I wanted to see if there's anything to call out on your core operations cost structure. Whereas some of the margin expansion you would normally see rolled up in that IMPACT program?

No, I don't think there's anything in particular that I would call out that core margin expansion is similar to what we saw in 2025 once you exclude the headwinds that we've talked about at length, and so very consistent. Again, obviously, we talked about the HICS dynamics as well. But no, there's really nothing to call out. We've seen, we believe, sustainable efforts to improve both the labor line and the supplies line.

Okay. And then my follow-up. On professional fees, I appreciate the commentary on high single-digit growth expectations for the year. Should we expect a bigger headwind in the first half versus the second half? And if so, what growth rate do you believe you'll end the year at?

Yes, I would continue to stick with that high single digits growth. Again, as we mentioned in our commentary, we're not modeling in any substantial improvement. So I think a similar rate throughout the year would not be inappropriate.

Our next question comes from the line of Kevin Fischbeck with Bank of America.

This is [ Joanna Gajuk ] filling in for Kevin. So first one, just a follow-up on the IMPACT program cost saves. And it sounds like you expect more in the future, but as we just think about that number for '26. Is there some sort of time line? And should we think about a run rate number you expect to be when you exit '26 in this cost savings?

Yes, thanks, [ Joanna ]. Yes, from a ramping perspective, the 40 plus the 15 is, I would say, fully identified and being executed on and there will be a modest amount of ramp into '27 on that, but the larger opportunity would be anything else that we identified during the year and are able to actuate and that would create additional impact, no pun intended, into 2027.

Okay. So a modest ramp, but I guess the point you were making before is that there's additional progress, right? So like '26, you have on whatever you identified, there's a little bit of a ramp, but it's more about like incrementally any additional savings after you achieve that target for this year?

Yes.

Okay. And a different topic. So I appreciate the comments about the core growth being 4%. And when we look at things, we exclude the benefit because we're assuming like there's not much of a growth, I guess, in that sort of bucket. So if we do that, we get to implied growth excluding the DTP, so everything else besides the DPTs will have to grow 12%. So that seems like a high growth. So can you walk us through like what's driving the fast growth?

Well, I guess I would start with saying that the PPP are volume-based. States are growing. And we certainly, in addition, have strategies to capture share as well. So I would not say that PPPs would be flat. But then second, going back to the previous question as well, we generated a similar core growth to that 4% number in 2025, we need to adjust for those incremental headwinds of and payer denials. We've laid out what our volume growth expectations are of 1.5% to 2.5%.

And then I would also add our rate of increase on our commercial contracts. We're roughly 90% contracted for the year and we're seeing rate increases of between 4% to 5%, all leads us to be very comfortable with that $20 million expectation from core growth.

All right. And then you said the DPP sorry, just a follow-up on that. So all your programs, the DPP programs are volume-based. But I guess if the enrollment in Medicaid enrollment is declining in these states, like what happens with that funding?

That would be an exposure at Medicaid. And then again, depending on where those lives go.

And this is Marty. As we saw in previous years, some of that Medicaid disenrollment actually attributed to positive commercial conversion. And so again, we feel very confident, as Alfred said, in terms of the core growth algorithm we've outlined it, consistent with prior performance.

Our next question comes from the line of it Benjamin Whitman Mayo with Leerink Partners.

Was hoping to get an update on the ambulatory or outpatient strategy. You guys acquired some urgent care assets, I think, in the last year-or-so, but maybe give us a look at the pipeline, what does it look like? And do you feel like you're in line or behind on your targets?

Whit, this is Marty. Yes, we feel like our ASC and ambulatory strategy has been continuing to develop. We started with the urgent cares and had good success with those opening up access points. And I think that contributed to a lot of the positive growth that we saw when you look at across the peer group.

This year, we're continuing to focus on growing that, opening up a new ED department in our market, opening up 5 new urgent cares hospital-based ASC and other HOPD ASC and a freestanding ED in Texas. And so we feel like, again, we're continuing to deploy capital in a disciplined way to continue to grow that outpatient market share and capture the shift of where a lot of these volumes are going. And so we feel we're very much on pace and continuing to deploy capital in very rational manner.

Okay. And then maybe for Alfred. Cash flow this year, any reason that it wouldn't grow in line with your EBITDA? I think you mentioned there were some timing factors that influence the shape of cash flow this past year.

Sure. Thanks, Whit. Yes, obviously, we were really pleased with the robust cash flow that we generated for the full year from a -- as I called out in my opening comments that we did have a dynamic of a -- our last payroll cycle being fully accrued at the end of the year and next year that effectively will be paid right before the end of the year. And that's about a $50 million headwind from a year-over-year perspective and then it starts to build every year again and that's simply from a timing perspective. Otherwise, we would expect cash flows to follow consistent with our 2026 guidance.

Can I squeeze in 1 more just on the rural health fund. Do you believe that any of your hospitals qualify for that? And that's it.

Yes, this is Marty. Yes, we do believe that given our footprint sort of midsized urban markets with regional spokes with primary and secondary level hospitals that we should qualify, we think that maybe upwards of 1/3 of our hospitals could qualify now. We're closely working with our state governments to understand how they're utilizing these funds and going to be deploying those. It does seem that they're going to be deploying these funds greater than just hospitals to support the entire rural care network.

But with our clinic presence, we think that we've got a good story to tell and good rationale based upon some of the technologies that we've deployed and continue to deploy out the markets our virtual attending program being an example of how we're keeping patients close to home and supporting those local hospitals in local markets.

And so we're working very closely with our vendors and with the states to make sure that we can capture as much of that as possible. At this point, it's too early to tell what's going to happen in terms of how those are going to be distributed or win. So we did not include any of that in our guide. So that would be potential upside. And there's a couple of good points. Our 2 largest states in terms of Texas and Oklahoma have also been to the Texas received at the largest allocation from the government in Oklahoma, I think, was the fifth highest in the country. So those are some good proof points and antidotes that will hopefully help and pay out based upon how we've been supporting the rural networks and supporting those rural hospitals.

Our next question comes from the line of Scott Fidel with Goldman Sachs.

You've got [ Sarah ] on for Scott. Can you please describe how the 4Q volume trends compared to your expectations? And then with the exchange open enrollment and Medicare AEP complete, what further perspectives do you have on sustaining volume growth this year?

This is Marty. I'll take the first part of that. I think the volume was very consistent with what we thought. In Q4 of '24, we're overlapping or lapping some of the midnight rule, and so that contributed to a little bit of a deceleration. But otherwise, volumes were very strong and adjusted admissions continue to grow. And if we look across all of our statistics, volume statistics for full year 2025, we are sort of best-in-class in the peer group, and so the demand for our services continues to remain strong in our markets, #1 or #2 in majority of the markets that we serve and our markets are growing 2 to 3x faster. So the slowdown in Q4 is consistent with lapping that 2 midnight rule and focusing on high acuity growth versus just growth for growth sake.

On the second part of your question, this is Alfred, under the assumptions we laid out pertaining to the exchange dynamics, the headwind that we would expect associated with admissions from the HIX enrollment would be upwards of 50 basis points.

And then just with the progress in payer denial activity, can you provide any color here on the impact of 4Q performance and how we should think about that benefit on a go-forward basis?

This is Marty. Yes. The fourth quarter, we did see some moderation or stabilization from the elevated Q3, and we're expecting that to continue. We've got the second half of the year from '24 -- '25, I should say, that we're expecting to continue into '25, but then moderating. So that's the view.

Yes. This is Alfred. I would just say add that overall, we did see some slight improvements very modest and late in the year or take any month or weeks and project that out as a trend. However, we're both optimistic that the work we're doing with to curtail and combat the denial trends will yield some benefit. However, we want to be very sober and realistic and to Marty's point, in not projecting that to be sustained and just deal with the reality of what we experienced in the last half of 2025.

Our next question comes from the line of Craig Hettenbach from Morgan Stanley.

I appreciate all the color on the exchange implications this year. Outside of that, can you give us a sense in terms of other payer mix of Medicaid, Medicare, commercial exchange is kind of what you're expecting from a volume perspective this year?

This is Alfred, Craig. Yes, I think we get the color as it pertains to the exchange dynamics. And just as a reminder, we we ended last year with 6% of our 7% of our revenues from an exchange perspective. So just a little bit lower than, I'd say, the industry average from an overall exposure standpoint. Otherwise, I wouldn't say we expect any significant material shifts in our planning other than what we lined out from an exchange perspective.

And then, of course, where do those lives end up, one dynamic, I think it's a little too early to tell, but we've seen just a little bit as we've seen this inexorable march of traditional Medicare moving to MA, that seems to be slowing or maybe even reversing a bit in early data, but I would say that's not -- we didn't necessarily forecast that as a trend, but we would view that as a positive development if it continues.

Got it. And then, Marty, just following up on all the technology initiatives, how do you think about that in terms of just time line of beginning to the needle from a margin perspective and things we should be watching for around that?

Yes, Craig. We've got a number of things that I outlined that we're deploying. care virtual care is building off of a successful pilot that we already started in East Texas. We'll be rolling that out across the the entire system, an entire company by the end of this year. So we expect that benefit to continue to ramp. We're starting in a very focused way with our virtual nursing and sitting programs, which should have a direct financial benefit as well as a quality benefit to our patients.

And as we continue on that, as I mentioned before, we saw a positive success with our virtual attending where we're actually bringing specialists from the metro areas into some of those rural areas and helping to keep those patients close to home, which allows us to keep some of those acuity transfers in our primary and secondary markets while making room for the higher acuity cases to come into tertiary centers. And so that's an example.

But this will continue to ramp throughout the year as well as other initiatives that we have in flight across the board from both the back-end business side as well as on the frontline clinical side and staffing and scheduling in between, so these will continue to ramp, and this is part of our care transformation impact that we expect to continue to ramp over the next several years as AI becomes more and more prominent.

We've had a very labor-dependent business across this industry. And I think AI is going to be a liberator. We're looking into new ways of helping to extend our primary care reach with AI and then helping patients to do that so we can expand panels. And so there's a lot of focus in this area to actually transform the way in which we deliver care to make it more accessible, make it more affordable and transform the cost structure for the business. So we're excited about the future possibilities.

Our next question comes from the line of Benjamin Rossi with JPMorgan.

Just an assessment the uptick in average length of data close the year. I appreciate that you've been making some efforts to try and bring this down through improved rounding and some of your new investments in the virtual care. What do you think have been some of the winning factors in bringing this figure down this year? And are you seeing any variation in length of stay across your payer classes between Medicaid, Medicare and commercial, particularly among your exchange volumes?

This is Marty. Thanks. Length of stay is a factor of acuity and a factor of efficiency inside the hospital. As our acuity continues to grow, that raw length of stay will also likely have the corresponding impact. But as we look at sort of a geometric mean length of stay, we've actually seen very good performance and the technology investments that we're making are helping with that efficiency.

So I think that the length of stay is a continued focus across all of our hospitals. It's a quality measure. It's a safety measure and it's an efficiency measure. But we think that we're managing that and still have some opportunity to improve.

Understood. And I guess this is a follow-up from the policy side. With the CMS model and Medicare fee-for-service some of this program overlapping in a few of your states and your footprint, are you thinking about any potential impact in 2026 as CMS starts rolling out these AI-based tools for prior auths?

And then do you factor this into your embedded assumptions for now raising in 2026, it sounds like you aren't assuming a meaningful shift in denial trends during the year. So just curious any color there?

Yes. As Alfred outlined, we're taking a very prudent look at denials and not making any dramatic assumptions from it changing. That being said, to the question, it does overlap in a couple of our smaller markets. Our work with Epic and that is an advantage we have. Epic has been working collaboratively with both payers and providers. and we're part of that work group to advance ways in which we can streamline that.

We just had a new electronic prior authorization module go live with one of the large payers in the country just recently. And so while CMS is focusing on this, I think it's an opportunity for us to work with our partners with both Ensemble and Epic to drive better performance in this area. So we think that these technological advances will help address the governmental intentions behind these laws that are coming out and they're experimenting with a lot of these different programs, but we feel like we're well positioned given the technology partner vendors we have to stay on top of that.

[Operator Instructions]. Our next question comes from the line of Timothy Greaves with Loop Capital.

I guess, I want to ask around the existing market and the growth there. I believe you listed a bunch of initiatives that you guys are working on in answering with question. But I guess around that, I guess, I want to know from a broader sense, how -- what you're seeing in the current environment impacted your plan around these initiatives? Like are you guys like maybe leaning into more affecting physical versus digital opportunities or anything around that in the near term? Anything that you can point out that's notable?

Apologize, it came across a little bit distorted the question, can you reframe this core question

Yes, I'll reframe it a bit. I guess what I'm trying to see is how you guys are interacting with the market in a broader sense of like growing in existing markets? So as far as versus physical expansion versus digital opportunities, you listed like the -- Hello Care, virtual care opportunities. But just in the current environment, how you guys are prioritizing this expansion of your footprint?

That came across a little bit more clear. Yes, we are focused on growth in a number of different ways. We always said from the onset, we're going to prioritize growth in our core markets, both high acuity service lines in our inpatient environment as well as growing the outpatient, our focus the last couple of years of growing urgent cares as access points has paid off for us. We are expanding that funnel, so to speak.

But our consumer team is really helping to drive that continued engagement. So last year, we saw about a 5.5% improvement in our total encounters and we grew our total unique number of individuals that we serve consumers in our markets and so our digital outreach strategies are very much focused on not only attracting those initial patients but retaining them in our system.

And again, our technology vendors with Epic really help play into that because we can have a longitudinal relationship with our patients and make sure that we can be their one-stop shop for care when they need it, and they're not going out and searching in the market for point solutions. We've got a strong virtual care offering in all of our markets and all of our clinics. And so patients can get the care where and when they need it the most. It doesn't have to be inside of a hospital or a clinic setting, it can be virtual and in the home. So we're very much focused on using those lower cost of capital digital solutions to attract, retain and grow our patient base.

Okay. I think the one question is good for me.

At this time, we have no further questions. I would like to turn the call back over to Marty Bonick for closing remarks.

Thank you all for your participation in our Q4 call. We're entering 2026 with operational momentum, financial strength and strategic clarity, and we are confident in our ability to execute. We appreciate everybody's support, and thank you.

This concludes today's conference call. You may now disconnect your lines. Have a pleasant day.

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ardent Health Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Dave Styblo, Senior Vice President of Investor Relations. You may begin.

Thank you, operator, and welcome to Ardent Health's Third Quarter 2025 Earnings Conference Call. Joining me today is Ardent President and Chief Executive Officer, Marty Bonick; and Chief Financial Officer, Alfred Lumsdaine. 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 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 law, we undertake no obligation to update our forward-looking statements.

Further, this call will include a 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.

With that, I'll turn the call over to Marty.

Thank you, Dave, and good morning. We appreciate everyone joining the call and webcast. Ardent finished the quarter with 2 contrasting realities. On one hand, our performance reflects a continuation of growth momentum we've experienced across our business, driven by robust demand, improving surgical trends and disciplined execution. Year-to-date, adjusted EBITDA is up 30%, and we've made meaningful progress on margin expansion, cash flow and our balance sheet with lease adjusted net leverage improving 1.5x since our IPO last summer.

On the other hand, our earnings performance this quarter did not meet our expectations. As noted in our release, we've revised our full year adjusted EBITDA guidance to $530 million to $555 million, reflecting persistent industry-wide cost pressures, particularly those around professional fees and payer denials that have proven more durable than anticipated. We view this revision as a prudent recalibration grounded in a pragmatic assessment of current conditions and establishing a reset baseline from which we can build. These pressures are not demand driven and our revenue guidance remains unchanged, but our earnings pull-through has been impacted and we are taking decisive actions to address it.

Through our IMPACT program, we've already launched targeted initiatives to further optimize cost and strengthen margins. These actions have been building momentum and are expected to begin contributing in the fourth quarter and will continue to ramp through 2026. With strong demand across our markets and a solid balance sheet, we remain confident in our ability to deliver sustainable growth and long-term shareholder value.

To frame today's conversation, I'm going to focus my comments on 3 key areas. First, I'll walk you through our 3Q results and the strong demand environment. Second, I will provide color on the industry headwinds that are impacting 2025 earnings more than previously anticipated. And third, I will provide details of how we are already working to address and mitigate these challenges.

Let's start with our third quarter performance. At a high level, we generated strong volumes and revenue growth driven by improving surgical trends and sustained strength in industry demand. Our markets are growing 2x to 3x faster than the national average and are further bolstered by rising care complexity, structural trends that reinforce our long-term growth thesis. Ardent's leading positions in these growing midsized urban markets give us a durable advantage, and these demand dynamics provide a strong foundation for continued strategic inpatient and outpatient growth.

Our strong platform combined with initiatives to improve capacity and efficiency drove admissions growth of 5.8% in the quarter. This is a continuation of the favorable trends we've observed in the first half of 2025 with year-to-date admissions growing 6.7%, well above the 2% to 3% population growth we see across our markets.

Additionally, adjusted admissions increased 2.9%, landing near the top end of our 2025 guidance range of 2% to 3%. Surgical volumes also improved with total surgeries up 1.4% in the third quarter, reversing a small decline of 0.4% in the first half of the year.

Turning to financial performance. Revenue grew 8.8% in the quarter or 11.7%, excluding a onetime revenue adjustment that Alfred will detail later. Adjusted EBITDA increased 46% in the third quarter to $143 million, with margins expanding 240 basis points to 9.1% and further lowering our lease-adjusted net leverage from 2.7x to 2.5x. Of note, third quarter adjusted EBITDA included approximately $15 million to $20 million of earnings we previously expected to realize in the fourth quarter. Excluding this timing benefit, underlying third quarter adjusted EBITDA was below our expectations, which we factored into our updated guidance.

That's a good segue to the second topic of today's discussion: industry headwinds. While our revenue growth has been strong, earnings did not reflect the level of pull-through we anticipated. First, professional fee expense growth. This has been a persistent challenge across the industry for several years now. For Ardent, growth peaked at over 30% in 2023, moderated to 12% in 2024 and was expected to moderate further this year. Instead, professional fees increased 6% in the first quarter, 9% in the second quarter and accelerated to 11% in the third quarter. We now expect second half growth in the low double digits versus the high single digits previously assumed. This accounts for roughly half of the 2025 adjusted EBITDA guidance reduction.

Payer denials were the second factor impacting our adjusted EBITDA guidance outlook. After a sharp increase in denials beginning in the second quarter of 2024, trends largely stabilized through the first half of 2025 consistent with our outlook. However, these payer pressures moved higher again in the third quarter and our updated adjusted EBITDA guidance reflects the development of this trend throughout the second half of 2025.

In summary, our updated outlook prudently assumes these industry headwinds observed in the third quarter will persist at elevated levels in the fourth quarter. While these dynamics are industry-wide, we are taking decisive action to mitigate their impact and strengthen our performance, which brings us to my third and most important takeaway, what we are doing to close the earnings gap.

We are taking swift and decisive action to improve our near-term earnings profile while maintaining a disciplined approach to strategic investments that support long-term growth. Immediate priorities, including contract renegotiations and targeted staffing adjustments are already underway with additional initiatives ramping in early 2026 that are expected to drive measurable impact across revenue cycle, labor and supply chain performance. Under our IMPACT program, we have launched an expanded set of margin enhancement and efficiency initiatives. As an example, we've renegotiated terms of an exchange plan to secure meaningful rate improvement with an additional step-up in 2027. We've recently completed a targeted reduction in workforce, and we revised the key agency labor contracts to lower base rates and reduce premium pay. These 3 actions will phase in during the fourth quarter and reach full run rate benefit in early 2026, generating an expected annual benefit of more than $40 million.

Beyond these near-term actions, we are executing on initiatives to build momentum in 2026 and beyond under the leadership of our Chief Operating Officer, Dave Caspers. These include precision staffing to better align patient care resources with real-time volumes, optimizing contract labor and accelerating speed to hire. We are also driving supply chain discipline and savings through vendor consolidation, commodity standardization and tighter inventory management. In our operating rooms, our OR excellence program is focusing on improving case mix and evaluating additional service line rationalization opportunities to ensure the right surgeries happen at the right time in the right setting.

While payer headwinds remain an industry-wide challenge, we are taking proactive steps within our control to drive sustainable improvement. We've mobilized a multidisciplinary team that combines expertise in clinical operations, contracting and revenue cycle management to respond with an integrated strategy. This team is leveraging innovative processes and advanced analytics to reduce denials and aligned payer contracting to maximize net yield. Early results are promising, and we anticipate broader impact as these initiatives scale in the near term.

We are also taking steps to rightsize professional fees. We are renegotiating certain vendor contracts, particularly in anesthesia to introduce more flexible cost structures that better align with patient volumes, helping to eliminate excess fixed costs in our business. Additionally, given our increased scale, we are strategically replacing [ locums ] with more cost-efficient full-time hires. Collectively, these initiatives are strengthening the organization and will better position us for future earnings growth. While industry headwinds remain, we are confident in our ability to execute with discipline and deliver long-term shareholder value.

With that, I'll turn it over to Alfred to provide more detail on our third quarter financial performance and outlook.

Thanks, Marty, and good morning, everyone. I'll focus my comments on third quarter performance, detail the 2 nonrecurring items we noted in our release and elaborate on our outlook for the business. Building on Marty's comments, we again delivered strong volumes during the quarter. Third quarter admissions growth was 5.8%, driven by double-digit increases in exchange and managed Medicaid, and 8% growth in non-exchange commercial.

Inpatient surgery growth was 9.7% in the third quarter while outpatient surgeries declined 1.8%. Total surgeries grew 1.4% in the third quarter, which is continued improvement from a 0.7% decline in the first quarter and a 0.2% decline in the second quarter. Adjusted admissions increased 2.9% in the third quarter and are up 2.4% year-to-date, consistent with our 2025 outlook of 2% to 3% growth.

Now turning to financial performance. Third quarter revenue increased 8.8% to $1.58 billion compared to the prior year, driven by adjusted admissions growth of 2.9% and net patient service revenue per adjusted admission growth of 5.8%. Excluding a nonrecurring adjustment that I'll discuss in a moment, revenue growth was 11.7%. Adjusted EBITDA increased 46% in the third quarter to $143 million compared to the prior year, and adjusted EBITDA margin increased by 240 basis points to 9.1%. Year-to-date through the third quarter, adjusted EBITDA grew 30% and margins expanded 150 basis points to 8.7% compared to the prior year.

The largest driver of the third quarter margin improvement was in salaries and benefits. As a percentage of total revenue, salaries and benefits improved by 90 basis points to 42.9%, or by 200 basis points when excluding the onetime revenue adjustment. Inside of this dynamic, we're pleased with our contract labor improving to 3.5% of salaries and wages in the third quarter down from 3.8% in both the first and second quarters of this year and down from 3.9% in the same prior year period.

Moving on to cash flow and liquidity. We ended the third quarter with total cash of $609 million and total debt outstanding of $1.1 billion. Our total available liquidity at the end of the third quarter was $904 million. Cash flow from operating activities during the third quarter was strong at $154 million compared to $90 million for the third quarter of 2024. Capital expenditures during the third quarter totaled $59 million, and we'd expect a modest increase in capital spending the remainder of this year.

At the end of the third quarter, our total net leverage was 1.0x, and our lease adjusted net leverage was 2.5x, which is an improvement from 2.7x at the end of the second quarter. As Marty outlined, our third quarter adjusted EBITDA did not grow as fast as we previously projected due to the elevated level of professional fees and worsening payer dynamics. As a result, we're revising 2025 adjusted EBITDA guidance to $530 million to $555 million, which at the midpoint implies growth of 9% and 20 basis points of margin expansion. However, we're maintaining our previous revenue guidance of $6.2 billion to $6.45 billion or 6% growth at the midpoint.

Before concluding, I'd like to elaborate on the 2 nonrecurring items we recorded in the third quarter. First, we recorded a $43 million revenue reduction as a result of a change in accounting estimate during the quarter. This change in estimate reflected our transition to the Kodiak RCA net revenue platform. As many of you may know, Kodiak is an industry-leading revenue cycle platform with more than 2,100 hospital customers, including public, private and not-for-profit health care systems. At the simplest level, this is a change in methodology to one that recognizes reserves earlier in an account's life cycle, all other things being equal. This transition reflects a strategic move from an internally developed model to an efficient and scaled system with enhanced real-time reporting capabilities, all of which are important as we grow in scale. As we indicated in our earnings release, the $43 million adjustment reduced total revenue for the third quarter, but is excluded from adjusted EBITDA.

Second, we recorded an increase to our professional and general liability reserves of $54 million, fully attributable to our New Mexico market. This reserve change primarily relates to adverse claims development for a single provider who Ardent has not employed for several years as well as overall social inflationary pressures in the New Mexico market. The $54 million adjustment was recorded within third quarter other operating expenses but is excluded from adjusted EBITDA. I want to be clear, we consider both of these items isolated matters, and they were not a factor in revising our 2025 adjusted EBITDA guidance.

So as we think about the business on a go-forward basis, we remain encouraged about our ability to drive durable top line growth. Our volumes have been quite strong, and we continue to execute on initiatives to optimize demand to our system.

From an earnings perspective, we have a number of opportunities that we can control to drive improvement of our adjusted EBITDA base. As Marty already mentioned, many of the revenue and earnings enhancement initiatives under our IMPACT program are well underway with others expected to begin in the near term. Execution with discipline and urgency is paramount and a top priority for our entire organization.

Our strong balance sheet and liquidity position give us the flexibility to invest through cycles, pursue strategic growth and support operational transformation without compromising financial discipline. We're continuing to support future growth with our outpatient build-out. In the second half of 2025, we will have opened several urgent care and imaging centers. And in 2026, we expect to open 2 ambulatory surgery centers, 4 more urgent cares and 1 freestanding emergency department.

Further, our strong cash flow generation and balance sheet give us the flexibility to support strategic growth into new markets. Collectively, this positions us well to deliver long-term shareholder value, grow adjusted EBITDA and expand margins over the next several years.

With that, I'll turn the call back to Marty for concluding remarks.

Thank you, Alfred. I want to leave you by reinforcing 3 key takeaways. First, we operate in a strong and durable demand environment. Our markets continue to grow 2x to 3x faster than the national average, supported by demographic tailwinds and rising care complexity, structural trends that reinforce our long-term growth thesis.

Second, we've prudently adjusted 2025 guidance to reflect industry pressures. And importantly, we've already begun implementing decisive actions to mitigate these challenges. Under our IMPACT program, we are harvesting operating efficiencies through initiatives in labor, supply chain and revenue cycle that will strengthen margins and position us for sustainable growth.

Third, we remain financially strong and strategically positioned to create long-term shareholder value. Our balance sheet and cash generation gives us flexibility to invest through cycles and deploy capital to support long-term growth. Looking ahead, these fundamentals position us to expand margins and grow adjusted EBITDA over the next several years.

Before I turn the call over for questions, I want to take a moment to thank our 24,000 team members and 1,800 affiliated providers across Ardent. As the health care industry continues to evolve, we are deeply grateful for their continued commitment to our purpose, caring for people, our patients, our communities and one another. Their resilience and focus enable us to adapt and improve how we work while continuing to deliver exceptional care to our patients.

With that, I will turn the call over to the operator for our question-and-answer session.

[Operator Instructions] And our first question comes from the line of Jason Cassorla with Guggenheim.

Great. It sounds like the payer denial and professional fee pressures are going to spill over into next year. There doesn't seem to be much incremental DPP development in your markets at this juncture, but there's the rural transformation fund to consider. You've discussed $40 million of annual run rate benefits from the IMPACT program next year, and demand in your market seems durable at this point. I mean your volume growth speaks to that.

So maybe just stepping back, I know it's early, but for 2026, could you just help frame the headwinds and tailwinds that we should be considering a bit more? And then ultimately, if you would expect to grow EBITDA next year?

Jason, this is Marty. I appreciate that. Yes, as we -- you've covered a lot in that question. As we think about where we're at, we're going to wait until our fourth quarter call in February to provide that '26 guidance, so we'll have a more complete view of pro fees and payer dynamics and progress on our income -- or our IMPACT program and the economy. And so there's a lot of things in there. But yes, you framed it right. We see strong durable demand as we go into next year. Our markets are growing. We're well positioned in those markets, and we're still executing on our outpatient development program. So a lot of positive tailwinds as we look at the growth side.

Our IMPACT program, we do expect to -- it is ramping, and we expect that to continue to provide benefit, but it's a little bit too early to give definitive guidance in terms of what that growth is, where we do expect to see our long-term growth thesis continue and both EBITDA growth and margin over the next several years.

Okay. Got it. And maybe just as a follow-up. Even with the EBITDA headwinds this year, you're still producing solid free cash flow. You talked about the M&A environment, the pipeline you have, the puts and takes on how that's materializing in this volatile backdrop. Your leverage is in a solid spot. You've got $900 million of available liquidity. You've got growth opportunities ahead of you. There might be some IPO or other ownership nuances to consider. But are there discussions around the consideration of implementing a share repurchase program at this juncture? Or any thoughts around that?

Jason, it's Alfred. It would be premature. We wouldn't want to speak to the Board. But I think management and the Board are committed to optimizing shareholder value. And so over time, I'm confident the Board will look at every option to optimize shareholder value.

Next question comes from the line of Whit Mayo with Leerink Partners.

I just wanted to go back to the malpractice development and why you think that this won't lift your recurring accruals given that the frequency is higher and the size of the claims is higher, and why we shouldn't also expect that your revenue yield is impacted on a go-forward basis with this payer denial issue? Or I'm sorry, not payer denial, but the revenue cycle change.

Sure. Thanks, Whit. This is Alfred. There's obviously 2 questions incorporated there. I'll speak first to the New Mexico medical malpractice charge. As we indicated, 100% of that charge relates to the New Mexico market where we have seen significant social inflationary pressure in medical malpractice cases the past several years. So this is not new. There has been an increasing dynamic year-over-year of increasing premiums, increasing costs in the New Mexico market. The amount recorded in our charge represents our best estimate for Ardent's liability for this market, for the adjustment for those pressures. And for an individual provider who was with Ardent between 2019 and 2022, and who is no longer employed by Ardent and for whom the statute of limitations has expired.

So I guess the short answer to your question is, yes. We do believe the environment we're in. This is a headwind to the business and has been for a number of years. This adjustment was specific to the specific set of facts around a single provider and a single market.

Moving to the AR charge. I would say at the simplest level, we -- this is a change in accounting estimate. Our current net revenue model, the one that we've moved to under the Kodiak platform reserves for an account earlier in its life cycle as compared to our internally developed model, which had utilized a 180-day cliff at which time an account became fully reserved.

So I would say the difference is reserve timing between the 2 models, and it results in a reduction in net revenue just upon implementation. And that reduction is essentially attributable to the fact that Ardent is a growing company. And so it's adding reserves to that, call it, that growth layer, and it's a onetime adjustment. Going forward, the models would essentially produce the same results. So we would not expect going forward, any difference between the existing or the model that we've moved to under the Kodiak platform and our previous internally developed model.

Okay. And I think I heard -- maybe it was Marty that referenced maybe $15 million of a benefit in the third quarter that was favorable versus expectations? Maybe I got that number wrong. If you could just maybe provide a little bit more detail on that?

Yes. This is Alfred again. Marty noted that we, in third quarter, we had roughly $15 million -- somewhere between $15 million and $20 million of benefit that we previously had expected in Q4. So when you think about the reduction in guidance, it's relatively evenly split between Q3 and Q4, maybe a little bit more weighted towards Q4 simply because we still are not -- until we see tangible evidence of the turn in pro fees and payer behavior, we're still expecting a little bit of an acceleration of those dynamics.

But what exactly was the $15 million? Was it DPP or something?

There was a DPP component in that.

Next question comes from the line of Scott Fidel with Goldman Sachs.

Just to just put a bow on Whit's last question. So just on the $15 million to $20 million, just so we make sure that we're modeling 4Q correctly. So it sounds like -- is that just all in revenue per adjusted admission and pricing in terms of how we should be thinking about that $15 million to $20 million? Or are there other line items on the expense lines that are affected as well?

No, I think that's fair. This is Alfred. I think it's fair to say it's all in the [ rev per. ]

Okay. And then I guess my real question would be around the payer denials and I guess sort of how you maybe think about the exit rate in terms of where that sits. I know that you gave us sort of the details in terms of how much of the guide down it reflects.

Just thinking about, I guess, as you try to address this, how widespread first would you say that those -- the ramp in denial activities are across your key payers? Is it 1 or 2 of maybe who we would think to be the most likely suspects or is it more broad-based?

And then I guess you're thinking about '26, and I know you're not ready or comfortable yet to provide guidance. But how will you, I guess, contemplate that level of payer denial sort of pressure, I guess? What would you sort of think about sort of just taking the 4Q and annualizing that and then sort of try to work off of that and see what you could improve and that could be upside? Or do you think that you'll be able to implement initiatives that could start to bring that down in '26 relative to the 4Q run rate?

Scott, this is Marty. I'll start, and I'll let turn it over to Alfred for the second half of your question. But yes, as we look at the payer denials, we saw that initial step up in the second half of last year largely stabilized and then started to drift up and accelerated as we went into this third quarter. It's largely across the managed payers, and we've got some good data statistics to show that, which is informing how we are changing our response. Clearly, we're delivering the care. We know that the services we're providing are necessary and warranted and the payers, through policy changes and impacts are either just downgrading claims, denying claims or slow claims, all of which have had an impact, which we're describing here. The managed care -- the managed products, Medicare, Medicaid health exchanges are the culprits, and it's fairly uniform across all of those different categories.

We've ramped up our contracting. We've integrated how we are approaching this from an internal perspective in terms of our teams coming together, working with our revenue cycle partner, working with our legal team, ramping up our litigation efforts and demand letters as a result because we know that these services were warranted and provided and taking steps to get more aggressive in our response and action for their behavior and push back on us.

Yes. And just taking off on Marty's point, again, obviously, we're not prepared to speak to 2026 but -- in terms of financial details. But in terms of the things we're doing, Scott, as we mentioned, putting a finer bow, final denials in Q3 were up 8% over the first half of the year. So we are expecting this. We think it's prudent to continue to expect this level of denials for the immediate future.

But in terms of the actions that we're taking, and we've significantly stepped up the number of appeals we're filing, I think we're up in terms of -- over the prior year, like 60% in terms of appeals. Appeal turnaround time by the same token is down 25%. And then just taking off on Marty's point on recent organization -- recent organizational changes, that has resulted in us filing 60 demand letters with payers with delinquent adjudication just in the last 90 days with an expectation of somewhere of a $15 million benefit.

These are just some of the actions that we're taking. So to your point, I mean, I think it's prudent to not expect that payer behavior is going to change in the foreseeable future. And we're focused on what are the things we can do to improve the throughput and to get paid for the work that we're doing fairly.

Next question comes from the line of Kevin Fischbeck with Bank of America.

I appreciate that you're not interested to talk about next year. I don't think almost any hospital company has talked about next year. But you have said a few times that the second half is creating a base up of which you think you can grow. Can you just help us think a little bit more about how you view this change of guidance and how if you were to pro forma the 2025 base, how we should think about that? And then we can make our own decisions about how that grows next year. Is that like the current guidance but annualized the [ 50, 55 ] And then maybe add back [ 40. ] Is that like a good way to start about 2025 on a normalized basis? Or is there something else that we should be thinking about the timing of the $15 million to $20 million? How to think about that as I try to think about what a core base '25 looks like?

This is Alfred, Kevin. Thanks for the question. Yes, obviously, like you said, given the policy uncertainty and exchange uncertainty, it would be imprudent to speak to 2026 at all. But as we think about the exit run rate for 2025, again, we think it is prudent to think about the current headwinds. We think an appropriately prudent reset, which is what we've done to incorporate that is the right thing to do. And again, it would be too optimistic to think that pro fees are going to take a turn in the other direction and payer behavior.

At the same time, we've already articulated some of the things that we're doing. Marty talked about the impact initiatives and the $40 million, which is actually simply incremental efforts that we've made recently that should fully manifest in the run rate next year. And there's a lot of other things we're doing from an IMPACT perspective. It's focused, I would say, in 7 buckets around revenue integrity, productivity, payer disputes, supply chain, management, purchase services, revenue cycle management and professional fees.

And so we have strategies across all of those buckets. The things we can do that are in our control to combat these headwinds. Again, we think as we forecast out, it's appropriate not to believe that things are going to change fundamentally, but then what are the actions that we can take to tangibly offset that. So we would expect that $40 million to grow next year in terms of the potential offsets in IMPACT program. Again, would be preliminary to actually quantify all those dynamics for 2026.

Yes. Okay. That makes sense. And I guess just my second question would be, yes, you guys are growing very well. I guess though we've seen another company kind of grow by shrinking, if you will, and focusing on high-margin businesses. I just wonder, is there any scenario where some of the margin pressure that you're seeing is because of some of the volume growth that you're pursuing? Or do you believe that the cost issues are really kind of separate from that? Just trying to think through if there was another option or opportunity to improve margins in a different way.

Thanks, Kevin. This is Marty. Yes, as we think about our IMPACT program, this is part of that. That IMPACT stands for improving margins, performance, agility and care transformation. And so we've talked a lot about our service line rationalization efforts and we're seeing the pull-through of growth, 9%, 9.2% growth in surgeries, strong adjusted admissions growth. We're growing that outpatient platform. And through our transfer centers, we've seen robust inpatient growth better than most of our peers. And so yes, as we look forward, we are looking at those conversations to make sure that we're maximizing the opportunities to bring the right acuity cases in there into the hospital, into our platform and making sure we can service those patients well.

So yes, that's definitely part of our thinking as we continue to rationalize our services, rationalize the programs and focus on that high acuity growth. So that is part of the IMPACT program that we'll be expecting to see continued progress on as we go into next year.

And this is Alfred. I would just add to what Marty said. We are committed to expanding our margins. We're not -- again, we're not speaking to 2026 as we sit here, but we continue to believe that we have a platform that can deliver mid-teens EBITDA margins, and we are focused on creating shareholder value, not just through growth but by also growing margins.

Next question comes from the line of Matthew Gillmor with KeyBanc.

This is [indiscernible] on for Matt. I just wanted to ask on the professional fees. It seems like they stepped up pretty quickly. I just was asking kind of what drove this? Was this tied to any one specific contract? Any additional color that you could provide just kind of what transpired during the quarter would be helpful.

Thanks, Matt. This is Marty. As we look at the last several years, we sort of detailed out how these fees have grown, and they are moderating, just not quite to the extent that we anticipated. But what gives us a little bit more confidence is this has gone in cycles, and we've seen the rise in ER, anesthesia. This year, we've seen a little bit more pressure on radiology. And so as we lap through these contract renewals, we've got better visibility with the terms in which we're negotiating. We've got preferred partners in most of these specialties now that are giving us the ability to pool our resources across markets and make sure that we can demonstrate strength and visibility in terms of these trends.

And as we've lapped through now, most of these specialties that gives us better visibility that we will continue to see moderation as we go forward, hopefully at a slower pace than what we've experienced thus far. But yes, this year, the radiology step-up accounts for a lot of the increases that we've seen.

Helpful. And then just as a follow-up, I wanted to touch on the partnership with Ensemble. I guess are they seeing similar payer denials across their network? Or is this more isolated to your partnership?

Yes. So as we look at the national statistics, we're still outperforming sort of the national benchmarks with Ensemble. So they've been a strong partner to us, and we've seen a step up and that step-up is seen across the industry. We're not -- I'd say we're growing the trend of denials inside of that and still better than average across the industry, but more than we had expected.

So they've been a strong partner for us. We know they're investing a lot in their capabilities just to continue to make sure that we've got clean claims going out the front door and taking away those opportunities for denials to happen. And we can see that in that and the payers have just gotten more aggressive at unilaterally either down quoting claims or flat out denying claims to [indiscernible] is an example that stands out as continued pressure across the industry. So those are -- Ensemble is performing very well, better than the average. It's just that the entire environment has gotten more difficult.

Next question comes from the line of Raj Kumar with Stephens.

Maybe just kind of touching on the EBITDA margin expansion still targeting mid-teens. Kind of given the rebasing of 2025, that would kind of imply instead of $100 million to $200 million of core margin expansion, that's like 200, 300 now. Does that change the time line of achieving that mid-teens EBITDA target? Or do you think that over '26, '27 and '28, that time line still stays intact?

Thanks, Raj. This is Alfred. No, good question. And I think it's -- it would, again, be early to give specificity. I mean, it is fair to say, right, that with these headwinds that there is near-term pressure that wasn't expected and that all things being equal, that it would extend the time line out. And as we've said, we are focused intensely on accelerating and increasing the volume of the impact programs to offset these headwinds.

So I think when we come to 2026 guidance, we'll be in a better position to frame those time lines out a little bit better and put additional quantification around the IMPACT programs. But again, the message I would want you to take away is that the we are intensely focused on increasing the aperture of offsets given these headwinds and are accelerating those -- that intensity in order to, as much as possible, stay on the time line.

Got it. And then kind of as my follow-up, just looking at the exchange markets, it seems like kind of one of your core states, New Mexico is looking to kind of fully fund the enhanced subsidies up to 400% of FPL, kind of do internal means next year. So it seems like a kind of cushion to the potential headwind on the enhanced subsidy side. And then you talked about your contracting dynamics in Texas. So maybe just kind of any updated framing you can provide on that front in terms of -- I know maybe not a -- probably not a number given that uncomfortability on 2026 framing, but just any kind of gives and takes on that front would be helpful.

No. Good question. And again, I think, I mean, great to call out that there will be the individual states are not going to sit by and a lot will obviously still depend on what is the ultimate outcome of the exchanges, still very much in the air and anybody's guess into where it ultimately land is. But I your example of what New Mexico has come out is a good one that -- and again, it's one of the reasons why it would be very imprudent to forecast.

What we have obviously said and our exposure to exchange lives is lower than many in the industry. And although it has been the single largest driver of growth among our payer mix this year. So important to us. But as we continue to say, not an extremely highly profitable segment of our business. And yes, we're keeping a close eye on all those dynamics within the states. But again, good call out on the New Mexico land.

Next question comes from the line of Craig Hettenbach with Morgan Stanley.

Just going back to the IMPACT program. Is this really kind of an acceleration of pull forward in terms of time line? Or do you think over time, you could expand that program further? How do you think about that?

Craig, this is Marty. It's both. These efforts don't just produce immediate value. There's a number of things in line, and we sort of bucket them into the revenue cycle, supply chain and SWB. And so all of those things have various initiatives underway, that's what give us confidence that we'll see these things continue to provide benefit, and it starts to provide more benefit in Q4 and then continue to ramp as we go through the year. And we're adding to that. This is really a focused effort across the organization, led by our COO, Dave Caspers, and his focus in getting all of our teams marching in the same direction around these IMPACT initiatives.

And so we've got good conviction that as these things continue to ramp that it's spurring more opportunities and presenting more levers for us to continue to pull, but it does take some time for this to get going, and we can start to see that momentum building, and we'll continue to build. So that's the way in which we're looking at that going forward.

Got it. And then just a follow-up, Marty, just given some of the challenges near term on profitability. How does that, if at all, kind of influence some of the growth initiatives that you have? Like can you kind of handle some of this and still kind of march forward? Or do you pause a little bit? How are you kind of planning around that?

Yes. No. I mean it doesn't impact our focus on growth. This -- we went public last summer with a thesis around growth starting in our core markets, and we've continued to execute on that. As Alfred referenced, we've opened more urgent cares. Next year, we'll be opening 2 ambulatory surgery centers at least that those are already well underway and continuing to build out that outpatient platform. Our Chief Development Officer has been very active since he began several months ago, building interest in our partnership model, both to continue the expansion of growth within our core markets as well as looking for new market opportunities.

We've got the balance sheet to support that growth. And we don't -- we are not deterred by this short-term headwind. When we look at it, we're still showing with this guidance, 9% EBITDA growth. That's nothing to be ashamed about not as robust as we anticipated, but certainly strong growth helping us to delever the balance sheet and putting us in a position to continue to capitalize on these trends across the industry. So no, not deterred at all.

Next question comes from the line of Ben Hendrix with RBC.

Great. I believe you mentioned in your prepared remarks the one exchange contract renegotiation, and I know you've called out elevated denial activity in exchanges on the second quarter call and potential to renegotiate or even maybe exit some contracts. I'm wondering just how much of this denial activity headwind you believe you could address in the near term from kind of shrinking your already small footprint in exchanges and exiting certain contracts or renegotiating.

Yes, that's a great call out, Ben. Yes. And the one contract that we cited in prepared remarks is just one example of the tangible things we're doing, and we put that into the revenue integrity bucket under our impact initiatives. And it is an example that -- to the earlier question, we're not just going to grow to grow from a top line perspective. We have to see profitable pull-through. And the changes we've made from an organization structure to create alignment between our revenue cycle and our payer operations should continue to yield more opportunities in this area. It does take time. It does take time to say, put out an early termination. And then hopefully, that can yield a renegotiation of appropriate terms.

The example that we cited here was one where we were seeing a significant margin erosion in this contract from payer denial activity. We turned it, payer came back to the table, we negotiated a better rate and better terms to prevent the denial activity that we were seeing. And so again, just a tangible example, but a good call out of things that we are doing and accelerating from an offset perspective. And again, we'll be incorporating the strategies into our 2026 view.

[Operator Instructions] And we'll take our last question from Benjamin Rossi with JPMorgan.

Just following up on the negotiations and just where your commercial negotiations stand for 2026, 2027, and maybe now even 2028. I believe last quarter, you said you were about 55% for 2026. How are those conversations coming along? How much of those contracts have been negotiated at this point? And how do those contracts compare to the last couple of negotiation cycles?

Sure. This is Alfred. Good question. Compared to when we last spoke, we're about -- we're close to 3 quarters contracted for 2026. I would say the headline rates are -- have hedged down from historical levels. It is a tougher environment. You've heard it in all the payers. We're getting closer to what I would call the traditional type of increases. And we're very focused, not just on that top line rate, but also creating the things that lead to better yield under our contracts to stem some of the denial activity.

So it's not just a -- it's important not just to think about a top line number, but more important to think about the ultimate yield under our contracts. And I would say that is a much greater focus than in past renewal cycles.

Got it. Appreciate the color. I guess just as a follow-up maybe on why you're seeing higher denials here. I guess just on your rates, were your rates here higher than the industry average in your markets? You've noted that your [ NJ ] pricing is the highest in the state? Or is there any particular states where your denial activity was higher or maybe where you're overindexed?

Ben, this is Marty. No, I wouldn't characterize it exactly that way. For the most part, we arethe value-based provider in our markets. While we have leading shares #1 or #2 in the majority of our markets, from a payer perspective, we're still a little bit behind a lot of those trends. And so our managed care team has been working to bridge that gap, but I wouldn't say that our rates are particularly higher in our markets, the activity across the payers, and I think that the pain that they're seeing is trickling down into the provider segment.

So we know that we've still got opportunity to continue to bridge that gap and to strengthen our performance. But again, it's not just headline right, as Alfred was talking about. It's getting to the terms because more and more increasingly, we're seeing the sort of technical denials or payment slowdowns because of policy changes that are outside of the contract. And so we're trying to button down the hatches to make sure that, again, whatever that top line increase that we are able to negotiate with payers is translating into bottom line yield.

That will close the question-and-answer session. I would like to turn the call back over to Marty Bonick for closing remarks.

Thank you. As we conclude, I just want to thank the investor community for their interest in Ardent, and thank our teams across the company for their continued commitment and resilience in fulfilling our purpose. As we've talked about, we operate in a very strong and durable demand environment. And while these industry pressures have impacted near-term earnings, we've taken decisive actions to mitigate those challenges and continue to strengthen our performance. Our IMPACT programs are ramping and delivering meaningful efficiencies and our financial strength is going to give us that flexibility to continue to invest in our -- and pursue strategic growth. Looking ahead, we're very confident that these fundamentals position us to expand margin and grow adjusted EBITDA over the next several years.

So thank you all for your continued support, and this concludes our call.

Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.

All right. Great. Good morning, everyone. I'm Craig Hettenbach, I cover the provider and health tech space for Morgan Stanley. Very pleased to have with us Ardent Health, CEO, Marty Bonick; and CFO, Alfred Lumsdaine. So I thought we'd just kick it off with start with a brief overview of the company, if that's okay.

Yes. Great to be here this morning, Craig. Ardent Health is a leading provider of health care services. We operate in 8 midsized markets across the United States, in 6 different states. And we've got 30 hospitals and over 280 facilities, coupled with our joint venture model in which we partner with academics and nonprofits.

So that's been the footprint of the company, and we're very focused on continuing to grow not only in our hospitals and in our core markets, but outside the 4 walls of the hospital into the outpatient environment and continue to expand in the territories that we're in as well as look for new opportunities for M&A.

Great. How do you think about just maybe comparing and contrasting kind of how Ardent fits relative to some of the public for-profit comps as well as nonprofit.

Yes. So the 8 markets that we operate in are midsized urban markets. And so still sizable cities but not necessarily the major metros. And so we go really deep inside of those markets. We're staying core in hospitals, clinics, ambulatory settings, and maybe unlike some of our peers, we have not differentiated outside of the core markets. And so all of the facilities that we own are inside of those markets. and we are staying in the pure-play acute care side and the ancillary outpatient services.

Great. And how do you think about just some of the demographic and employer trends in your markets like how it's shaping the growth profile for the company?

Our markets are very strong, again, growing about 3x faster than the U.S. average. And so that's really been a built and tailwind. And I know that there's a little bit of a discussion in terms of what the durability of volumes look like. Pre-COVID, our markets were growing, and we've got strong positions in those markets. We're #1 or 2 in the majority of the markets we operate in. And we were seeing positive organic growth trends pre-COVID.

For the last couple of years, we've returned back to normal seasonal patterns and shifts -- patterns and trends and we've seen really robust growth. Right now, 5 years later, the population is a little bit older, a little bit sicker, but we've also really deployed our strategies over the last 5 years. and continue to do that as we go outside the 4 walls of the hospital. So we expect that demand to be very stable, very durable. And in the first half of the year, our admissions were up 6.6%, and we're continuing to expect to see similar momentum as we go in the back half of the year.

It does feel like we're kind of settling back into kind of a normal post-COVID. In terms of that comment just now in terms of the back half of the year, anything you're watching from a utilization perspective?

I think it just goes back again to the strength of our markets. The trends that we saw in the first half of the year, we've put a lot of work into our transfer centers and our operational efficiencies that allowed us to take in more patients and capitalize on the key growth in our markets, coupled with the pull-through from some of the outpatient areas that we've grown into our urgent cares. For example, as we bring them on to Epic, we get a lot more visibility in terms of what happens, not only how many patients are coming in and what happens when they leave our facilities.

Last year, we purchased 6 urgent cares in East Texas, and about 45% of those patients that came into our facilities were new to us, never been seen in our system before. And what we've learned is those patients after they come into an urgent care, about 20% of them need follow-up services within 30 days after it. So we're able to schedule them into our specialty clinics or diagnostics or in some cases, there's admissions that come out of those. And so we've got a lot better visibility in terms of what's happening after we make those purchases and we bring them on to our core operating system with Epic.

That's great. Could we touch maybe even just high level, just how you think about the long-term kind of growth algorithm of the company and potential for margin expansion.

Sure. I'll start off or you can chime in here as well. Our top line algorithm for revenue growth has been predicated 2.5%, 3% volume growth, which is very consistent with what we've seen historically and doing slightly better this year, obviously, post COVID, on the volume side and then about a similar growth profile on the rate side. The government payers is generally a little bit lighter and the commercial payers is a little bit heavier, but that sort of mid-single-digit top line growth algorithm is where we've been focused.

Yes. And from a bottom line conversion standpoint, we think we can grow our EBITDA faster than the top line growth, primarily focused on what we have labeled our impact programs, which are average for margin expansion, Ardent has gone through a period really since Marty's arrival where we focused on creating scale, moving from a really a holding company to an operating company, consolidating essentially 5 disparate systems and back offices into one. We still have opportunities to create additional efficiencies and optimization of that platform that we're focused on.

We've said -- we have historically said over the next 3 to 4 years, seeing a margin expansion of 100 to 200 basis points of these initiatives, we've actually -- this year, we brought in a new Chief Operating Officer, somebody who's worked in the retail health care space at scale and are focused on really accelerating the effect or the impact of these programs in order to see that realization really by the end of 2026 or 2027, I should say.

Great. Maybe just staying on a minute for the impact program. Are there any particular initiatives that you're seeing really take hold today? And then how do you think of that kind of as it evolves through 2027, what are some key either milestones or initiatives?

We've seen good uptake on our supply chain initiatives this year. If you look at supplies as a percent of net, obviously seeing improvement there, but we know that there's more opportunities to go after as we continue to standardize operational and clinical protocols across our 8 different markets. On top of that, as we look to technology and AI we really expect to see improvement off of the initiatives that we've started. We've got a virtual nursing, a virtual attending program, our patient wearables, our focus on ambient listening that's helping provide a dictation or a transcription of their record sort of autonomously.

All of those things, we expect to provide longer-term clinical benefit as we look at those impact initiatives. The early results have been promising by the $13 reduction in patient day on our virtual nursing program, which is not only good from a financial perspective, but good from a quality and satisfaction perspective, it's helping us to reduce our dependence on contract labor as we focused on recruitment and retention efforts with our bedside nursing initiatives, and it's reducing that contract labor component.

Great. I want to come back to just David Caspers in terms of really just bringing someone from outside the organization. Any new perspectives or things that kind of he's been helping for in terms of driving some of these programs?

Yes. Dave has been a great addition to our team. He's got traditional health care system experience, but he's also got that retail health experience with Target, Walmart, as Alfred said, and he's operated at a level of scale that's far bigger than really any health system in the country. And so his perspective in terms of the art of the possible has been really invigorating our teams in terms of thinking about how we can operate the business leaner and with greater standardization across the company.

He's brought a sense of energy, a sense of direction and focus that's been very helpful just to guiding our operational teams take us to the next level. So we're excited about what he's brought and how he's going to help us to convert that impact program into margin.

That's great. I did want to touch on just thoughts around kind of your largest shareholder in kind of -- on a kind of a near-term basis as you think about kind of stock liquidity on a longer-term basis kind of their thought process?

Yes. So equity group investments is the largest shareholder, controlling shareholder today. They've been very constructive. They've been with us since 2015 when Ardent was purchased from Welsh, Carson and have been just a great partner in terms of helping these companies grow and scale. The company, from a revenue perspective has tripled over the last decade, and we expect them to continue to be long-term constructive shareholders, we're obviously past the lockup period, and they've not sold any shares in the open market.

We expect when they do that, that will be something that they'll do in structured secondaries or block trades, whichever is appropriate, but doing things that are going to be constructive for all shareholders because we expect they'll be long term. And at the same time, we realize that the lack of liquidity or float is something that's been a concern for some investors. And so as they do sell down in a structured way, that will help the liquidity issue on the other side.

Makes sense. All right. Maybe we can segue to some of the policy things happening at the moment. And I thought it was helpful on the earnings call, you guys gave some context on the kind of One Big Beautiful Bill in terms of potential impacts and kind of frame the worst case. How do you go about that in terms of looking at what's going on with potential funding cuts and provider taxes.

We really did look at what we articulated on the call as kind of the worst-case scenario. There are no offsets. We didn't factor in any of the rural fund potential proceeds when we quantified it. We wanted to put out what is just if we quantify the impact today from the Big Beautiful Bill, what would be the impact, which was over the next decade, reaching the $150 million to $175 million impact.

Now we do -- we would expect that there would be offsets. There are programs that are available today that we would expect states to apply for to offset some of the impact of the loss of funding. And we also would expect obviously, that a number of our hospitals would qualify for the rural fund.

I can't quantify what that looks like today. There's still -- the rules haven't been set by the -- at the state level or through CMS. So -- but we would expect that those offsets would be not insignificant.

And as we look at the rural funds as an example, that will go into place next year. And so while each state is going to have to deal with, how do divvy those funds up, just looking at our footprint, we've got a mix of primary, secondary and tertiary level hospitals. We think that perhaps 1/3 of our hospitals could be hospitals that would likely qualify for those funds as they're -- as they finish the rulings on that. And then CMS is going to divvy up about 50% of that. And what we've heard from CMS in talking with their ranking officials is that they're going to be focusing on helping hospitals to provide innovation technology that's going to drive improved outcomes for Medicare and Medicaid beneficiaries and things like patient wearables has been publicly talked about by CMS.

Our BioButton program that we have would qualify today for the criteria that's been outlined for CMS in that regard. And so we think that we're well positioned for those funds as an example. And we do know that our states are having conversations in talking with ranking members of CMS. They said that the Medicaid program was always meant to be a federal and state partnership. And I think that the One Big Beautiful Bill has talked about trying to move more of that responsibilities back towards the states.

And so as Alfred said, the $150 to $175 million, we consider kind of a worst case and that's without any other programs that he talked about in. We expect that the states are going to have, to have some contribution of dollars going back into their Medicaid programs at a state level. So we expect that number to come down.

Last thing I would say is 2 years is a long time before the big cuts really start in earnest. And it's difficult to expect that there wouldn't be some change between now and then. Obviously, I'd be loath to predict what that might be. But as we have seen many times over, when you have forward starting reductions, often those actually don't happen or continue to get deferred indefinitely.

For sure. And how do you think about just the state of rural health systems in particular? Like I feel like the public for-profit hospitals can weather this, if you will, and manage through the a lot of health systems operating with negative margins, any thoughts in terms of -- in understanding those things that can change here over time, too, but what it could mean for just consolidation, M&A across health systems longer term.

Yes, it's a great point. I mean, I've been saying this that the public companies are not a great comp for health care. If you look at the Kaufman Hall data, for example, they track on a monthly basis, hospital operating margins across the country. And still a great majority of the hospitals are in nonprofit systems and you've got about 1/3 of hospitals losing money. So you think about adding on to that impact, and it really becomes hard to sustain for a lot of systems. And so we do expect that, that's going to drive the M&A process. whether that's rural systems or midsize or large major metros, I think that it's not unique to rural health care.

I think that this is going to broadly impact the health system across the country. particularly as the nonprofits have some other issues that are currently under debate as well with 340B programs and some pilots that are rolling out. So health care is going to be a challenge for those organizations if they've already been struggling. So we brought in a new Chief Development Officer this summer, Chris Schoeplein, and Chris came from the sell-side advisory services. He spent 17 years working with nonprofits. And so he's been a great addition to our team as well, since we went public last summer, our visibility in terms of that joint venture model that we provide has gotten more visibility and which is a good thing.

Our phones were ringing from different systems wanting to talk and understand that model better. And now that Chris is here, we're really harvesting those conversations and taking advantage of looking for other midsized markets that we could potentially partner into with an academic or a nonprofit that could help us accelerate that joint venture model that we've historically grown and had great success with.

That's great. And maybe just more broadly, just a pulse on Washington. The sentiment around enhanced subsidies has improved in recent weeks. What are you may be hearing on the ground in terms of D.C. on the policy front?

Yes. We've obviously advanced the -- both the listening and the advocacy side of our government relations efforts this year, and consistent with what you've heard. We're hearing the same things. It turns out that Americans like coverage, and that's not a partisan issue. America is the most covered as it's been today as it's been in modern history between Medicare, Medicaid and the managed programs and then the health exchanges, we have sort of government health care for all who need it. I don't know that we'll see government health care universal anytime in my lifetime, but we certainly have the avenues to cover Americans. And so that's a good thing.

The enhanced premium tax credits particularly as you see some of these Medicaid cuts coming, if we don't have an answer to that, that, that just leaves a bigger hole in that middle lower income bucket for patients to struggle to access insurance. As we talk to legislators, I think that there's a growing recognition and appreciation that these programs are popular, that they're necessary, and what we're hearing is growing sentiment that something will be done there now, whether that's just an extension of the programs for a year or 2 or whether there's some type of change to that.

I've always thought that the Republicans will come out with a way in which they can accomplish a similar goal to the enhanced premium tax credits, but do it in a Republican friendly way that they can claim some type of credit of how they have made it better. But I don't think that you can say you've made it better if you're taking access from care away from people. And I think that that's what they're hearing as they go back in their districts and town halls. And so there's been a growing rise from at least the folks that we're talking to in our GR channels that are suggesting that there's a growing appetite and appreciation and the need for doing something around tax credits.

What I would add about the exchanges, however, is that for us, we're a little bit under-indexed relative to our peers from a volume standpoint. For us, the exchanges represent about 7% of revenue or about 6% of admissions and the economics, the underlying economics of exchange volume while it gets categorized into the commercial bucket, are actually very different from traditional commercial. The economics are much closer to Medicare than they are to traditional commercial. So we've tried to make it clear.

The underlying profitability of these volumes are actually not nearly as strong as traditional commercial.

Yes. I think you mentioned on the call recently around that, too, in terms of how you're approaching.

Right. Yes. And in fact, we're even on some of the very -- where we're getting plans that are having a significant amount of denials. We're actually looking at terminating some of those plans.

Got it. Maybe just shifting gears to supplemental payments. I think Texas was recently approved. And how are you feeling about kind of those programs? And I know for some time, the big question has just been durability of these programs, anything changing in your view?

On the durability side, no. I mean, we were saying that even going into the legislative season, these programs started under the first administration of Trump and obviously have grown as you've got 44-plus states now that are covered by these programs, but you don't typically see these things go backwards. And so we've always had strong conviction around the durability.

Our New Mexico program was approved as anticipated earlier this year. And we don't see any major changes happening particularly now that the OBBB has been passed and sort of set the future for these programs in terms of what they're going to look like in terms of harmonizing the output. So we see them very, very durable on Texas. Alfred, do you want to talk about it?

Yes. Texas, the plan actually had a couple of different provisions that were new. However, for us, we expect our economics to be very consistent with historical, some of the distribution of funds moved increased funding for some of the children's hospitals and a little bit on the urban side, but we think our economics will largely be the same.

I want to shift back to just technology. You mentioned kind of AI before a big focus for the market. Maybe we start -- I guess, on 2 fronts, you have kind of Epic in terms of how you're utilizing that across the health system. And then also, you have partners like Ensemble. So there might be some direct things you're doing in AI, but there might also be some indirect in terms of some of your partners and really what that means for the business?

Yes, it's a great call out. We're fortunate to have chosen some really great partners that are leading in this area, Epic is -- the KLAS, K-L-A-S leading electronic health record, but it's really much more than that. It's our clinical operating system for the company. So everything from the bedside care that we deliver at the hospitals or the clinics to our transfer centers to the revenue cycle to consumer outreach platforms that they have CRM modules that they have built in, Epic is really leading in terms of spreading out their services, but their most recent annual user group meeting, they showcase some of the things that they're already doing in flight and some of the things on the build and AI is central to all of that.

And so I've said this before publicly, and I think it only becomes more true that historically, our EHRs have been something that our clinicians are working for the technology. Now the technology is going to start working for our clinicians, and we can really see that already and we're benefiting by that as a system. Similarly Ensemble, our partner with revenue cycle. They work inside of Epic, and so they derisk their revenue cycle operations because they're not lifting and shipping that data and then pumping it back into the -- they're working in native system, but they also are spending tens of millions of dollars on capital infusion into AI.

They recently made an acquisition of a company that's going to help accelerate that, and we're seeing the benefits of that, everything from the pre-auth process to the denial adjudication process and just making sure we've got clean claims going out the door, more accurate and better coding, all of those things are helpful and continuing to deal in this challenged payer landscape that we work in. And so we're fortunate to have both of those partners as drivers of technology and then helping us to improve the business.

And then as you said, we talked about some of the things we're doing clinically at the bed side and on the business side that we're going to be continuing to advance as we work our impact programs over the coming years. We just really see a big opportunity for making our labor pool stronger, more effective and reducing dependence upon contract labor.

Got it. Maybe we can just touch on that since you mentioned it, I think labor has been pretty stable. Any thoughts there in terms of just the labor backdrop more broadly than just on a longer-term basis, whether it's efficiencies with AI and how that can help?

Again, we're fortunate to be in growing markets, desirable markets where people want to work and the nursing shortage has always been something that's been persistent throughout my career, just how acute is it at any given moment. That being said, we've seen our turnover rates come down, our attrition rates come down back to pre-pandemic levels. And where we deploy technology, it's really being seen as a benefit to our nurses as well as our patients, we really focus on our culture and having organizations where people want to work.

And we've been proud to be recognized by like Modern Healthcare list us 75 Best Places to Work across the country, 75 best hospitals. 9 of our hospitals this year won that award. So we've got over 10% of the award winners, almost 1/3 of our hospitals winning that award. It says a lot about the culture in our people aspects, but providing technology that's going to allow our caregivers again to work at the top of their license, and just make it easier to deliver care and safer, more effective for patients to receive care.

We're seeing that with our virtual nursing program. And so the bedside task of being a nurse are very challenging. It's a very demanding job, and you've got multiple patients that want your attention at the same time. And so things like admitting orders and discharge notes and medication reconciliation, all of those things take time.

Patient comes in with a bag of prescriptions and you've got to transcribe that, make sure it's entered in the system correctly, so that you're not -- you can give the appropriate medications for that care. All those things take time. Now with virtual nursing, we're able to bring in additional nurses into the room to help with those additional orders or discharge instructions, answer patient questions. And give the dedicated time that a patient needs and deserves while also letting that bedside nurse care for the other 5 patients that they might have at any given moment to take care of.

So we're seeing the benefits of that. The patient wearables that we have are helping us with providing better care. These -- the BioButton is something about the size of your smartwatch that sits on your chest. And instead of having a blood pressure cuffs and a pulse ox machine and EKG reads and all these different things that we normally put patients up to, that little button will do that and monitor all of the key core vitals. So we're getting minute-by-minute vital sign capture in a med surg environment versus 4 to 6 data points a day.

So the result of that is less unplanned admissions to the ICU and patients deteriorate because we can intervene quicker. And the other result is we're freeing up about $8 a day of care with that patient going home sooner. So it's opening up that bed for us to take that next patient coming from the transfer center to help boost our admissions, and we're seeing the benefits of those. Our virtual attending program where we're bringing specialists to the patient versus transferring the patient to the hospital.

And so in our East Texas region where we've done our outlying hospitals have seen about 11% increase in their admissions because we're no longer dependent upon taking that patient and transferring them to a higher level of care. We're just bringing that nephrologist, that neurologist, that specialist to the patient where they need. So we're really encouraged by the early rollouts that we're seeing, and we'll be continuing to scale this as we go into next year across the company.

That's great. Can we touch on just the outpatient strategy, you gave interesting nugget before in terms of people coming into the system now, but just how it's been going in terms of some of the urgent care acquisitions today?

The urgent cares have been a good addition what we -- if you've been around the hospital industry, you've always heard that the emergency room is the front door to the hospital. Well, our clinics and our urgent cares are the front door to our health system.

And as we look at the unique patients that we cared for last year, over 1.2 million unique individuals, only about 157,000 of them ended up being admitted into our hospitals. And so the other 1 million-plus people we're seeing in our outpatient environment, as I mentioned before, 45% of those patients that came into those East Texas centers were brand new to our system. That's an opportunity for us to then say, do you have a primary care that you can follow up with, you can schedule them? Do you have other comorbid conditions, can we get you into that specialist? Do you need a diagnostic test or exam and follow-up from that urgent care that couldn't be done on site.

We're going to make sure we're scheduling into those procedures as those things are happening. So that's been a great way of just increasing the top of the funnel. And then once we have you in the system, there's actuarial data will suggest there's x hundred admissions per -- or x hundred admissions per 1,000 population on Medicare or commercial patients that are going to need hospital-based care or ASCs or other things. And so we started, as we said, with the urgent cares because that was the front door to get more patients into the system. Right now, we're continuing to build out that outpatient strategy, adding more urgent carriers, but also imaging centers.

We've got 2 ambulatory surgery centers in construction, working on a joint venture on a micro hospital. And so we've got a number of different projects and plan just to continue to build out that base across our 8 markets that we operate in to make sure that we can provide a full continuum of services. Again, most people don't need inpatient care in the given course of a year, but everybody needs health care services. And so the more we can integrate you into that system, the more likely it is when you do need that facility-based care that you're going to choose us.

Got it. And if you look out the next kind of 3 or 4 years, how do you think about just the cadence of some of these investments, mix between kind of urgent care versus ASCs, imaging centers? How does it look like potentially?

So we've really increased our market share at the urgent cares with the acquisitions that we did last year and earlier this year. And so we've gotten significant market share penetration now with those acquisitions, and they're still ramping up, but the early indication is all very positive and consistent with our expectations. As we continue on, I expect that those urgent cares, micro hospitals, imaging centers are going to be the next wave, and those will be phased in over the next several years.

All of this has been part of our capital budget planning. We increased our capital about a percentage point with the majority of that additional capital contribution going to fund these ambulatory surgery -- ambulatory investments across the footprint. The urgent cares, we were fortunate to be able to find attractive purchase prices to enter into those markets and get speed to value through an acquisition for a lot of these others will be focusing principally on de novos.

Again, the trading multiples for some of those business lines are far north of where the hospital industry is trading. And so it's a little bit of a build strategy on that end, but we think that we can do that more effectively. And we're going to be partnering with physicians on our ASCs. And so we want to make sure that we've got good partnerships. And that when we open those that we know that there's going to be demand and surgical volume growth as soon as we open those doors. And so -- it's a little bit of a build strategy over the next several years but contemplating our capital plan.

Great. A good segue. Just M&A more broadly, just how you think about the pipeline, how you think about kind of the JV model, which is kind of unique to you guys?

Yes. The joint venture model, again, has taken a lot of attraction. You've got academics that are struggling, not only with some of the contemplated cuts of the OBBB, but also NIH-cuts and things that have already started to happen. And so we see great opportunity for M&A. And we've said we've also -- we're also going to be very disciplined in pursuing that. So we are continuing to look for tuck-in opportunities as sort of that next phase of growth inside of our core regions, and we think that there's going to be some opportunities in our larger markets for that. And we know that there's opportunities for our next true market entry way.

We had one that we had looked at last year shortly after the IPO. And it was a great story in terms of midsized markets. We have an academic partner who's interested, it could bring some of the needed services that were going to be needed to make that work. But upon diligence, found some things that were concerning and as a new public company, the last thing we want to do is something that's not going to be accretive to shareholders and something that we can make good for the company.

So we ended up backing away from that. But it's only opened up other doors for us, and we're excited. That's why we brought Chris on to help fuel that. But we're very confident that the opportunities around M&A are going to be there, particularly with some of the legislative changes.

Got it. Now it's good to hear the discipline. Like you said, you want to make sure you do the right deal. I'm sure it has to be frustrating too, right, in terms of you feel like you're close to something.

I mean it's always, we want to make sure we can make an impact on the communities that we go into a positive impact. And it's something that M&A is not inexpensive. And we've told investors that whatever we do, we want to make sure we can see a path to delevering that transaction over the near term, of course, of the next, call it, next couple of years. And so that's something that we're going to be very focused on as we look through that. And now with the changes of the legislation, that will be part of our calculus in terms of which states might we go into based upon what some of the projected changes to the legislation might incur.

And I would just add, when we think about M&A, I mean, to Marty's point, we're going to continue to be very disciplined. We clearly plan to do M&A. It is key to our growth, one of the key pillars However, given our opportunities on the ambulatory side and given the opportunities to expand margins that we already talked about, we've got other levers for growth so we don't have to be super aggressive and we can be very disciplined on the M&A front.

Good point. Not like you're sitting still, you're still doing some things that are driving the business. Just going back to the JV model, particularly around NIH funding has been a very noisy backdrop. Any considerations there in terms of impact, positive or negatives there?

Not to us. We partner with academics, but most of our centers are still sort of tertiary level community hospitals. So we're not seeing impacts because we're not doing that primary research ourselves and more so through our partners. But I think as you look across the country, that certainly is having an impact. And the academic systems still have a desire to grow, but that's going to become more challenging for them from a balance sheet perspective on the one hand.

And then many of them have not had that integrating or operating experience to go into new markets in their state outside of the core areas. So -- we think that our model is going to be attractive to them as an opportunity for them to still show positive growth, derisk that growth and be less capital dependent upon for their own personal balance sheet.

Great. All right. I think we're coming down on time here. So Marty, and Alfred, thank you so much for your time this morning.

Great to be here.

Our pleasure.

I appreciate it.

Thank you for standing by. My name is Greg, and I 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. [Operator Instructions] Thank you. I'd now like to turn the call over to Dave Styblo, Senior Vice President of Investor Relations. Dave?

Thank you, operator, and welcome to Ardent Health's Second Quarter 2025 Earnings Conference Call. Joining me today is Ardent's President and Chief Executive Officer, Martin Bonick; and Chief Financial Officer, Alfred Lumsdaine. 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 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 law, we undertake no obligation to update our forward-looking statements. Further, this call will include a discussion of certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA and 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. With that, I'll turn the call over to Marty.

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 1-year anniversary as a public company. 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 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, health care remains essential, and we believe that creates opportunity for strong well-positioned companies like ours. Ardent's leading positions in growing midsized 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 models 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 in each of the 4 quarters since our IPO. In 2024, we grew revenue by 10% and 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. 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 4 key areas that highlight our progress and future direction. 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. 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 8 growing midsized 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. 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. 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 2.7x down from 3.0x at the end of Q1.

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 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 birth 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. In May, we welcomed Chris Schoeplein as our Chief Development Officer, whose deep industry experience will be instrumental in scaling our business. On the ambulatory front, we have shovels in the ground and multiple new projects and expect to open 5 urgent care centers and 2 imaging centers in the second half of 2025. 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. Continuing on to our clinical care transformation. We advanced multiple initiatives focused on improving physician and nursing workflows, reducing burn out 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 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. 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.

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 1/3 of a day in our pilot group. In parallel, we're rolling out AI-enabled scribe technology to assist with real-time clinical documentation. Following a successful pilot to reduced documentation time by 41% and had 100% of participating providers reporting improved satisfaction, the tool is being adopted company-wide across multiple specialties. 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 9 Ardent hospitals were named to Modern Healthcare's Best Places to Work. The Tennessee honored Ardent is a top workplace and 81% of our eligible facilities earned an A or B in the latest Leapfrog Hospital Safety grade report, well above the 56% national average.

Finally, turning to the regulatory environment. We recognize investors are closely monitoring 2 key developments: the big beautiful bill for OBBBA and the possible expiration of enhanced exchange subsidies. We aim to provide as much transparency as possible on how these may affect our long-term growth outlook. Like our peers, we are disappointed by the passage of the OBBBA 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 OBBBA's impact on the DPP programs, including Medicaid rate reductions and a provider tax cap at 3.5%. 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 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.

However, we do anticipate the net impact will likely be lower, supported by a minimum the rural hospital fund and other state-level supplemental programs, though these are not yet finalized and cannot be quantified at this time. 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 the first half of 2025. We However, reimbursement rates for this population are less favorable and are 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 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. This will free up capacity to absorb high-quality demand that we have had to previously turn away. All that to say, the key takeaway here is that our current exchange population currently contributes less to EBITDA than its volume might suggest.

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. Obviously, there are a 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 bill's more harmful effects. 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. 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. 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.

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. 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 OBBBA 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. With that, I will now turn the call over to Alfred.

Thanks, Marty, and good morning to everyone. 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. As Marty indicated, CMS' 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 result in improved access and high-quality care for the Medicaid population. As expected, the financial benefit from the New Mexico DPP program in Q2 includes the impact for the entire first half of 2025 and and is fully consistent with the EBITDA contribution assumptions embedded in our full year 2025 guidance that we've previously outlined. 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. Despite facing an environment of increasing paired and no 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 $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%. 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. From a volume standpoint, 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%. The 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 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 of 2024, which benefited from favorable changes in working capital related to supplemental programs. 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 1.2x and our lease-adjusted net leverage was 2.7x at the end of the second quarter, which is an improvement from 3x at the end of the first quarter. 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 differentiated 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 a stockholder value-enhancing opportunity presents itself. 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. 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.

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 and as well as payer contracting enhancements and supplemental revenue opportunities. In closing, we remain on track to achieve our 2025 financial outlook, which we are reaffirming today. and are planning for 2026 and beyond to successfully navigate through the regulatory and payer headwinds. Before opening the line to questions, I wanted to mention that we are now eligible following the 1-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 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. With that, I'll turn the call back over to Marty for some closing comments.

Thank you, 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 have built to create long-term stockholder value. 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. 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 both the ambulatory space as well as acute care hospitals. With leverage of 2.7x 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. 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. Together, we are focused on making health care better and advancing our purpose of caring for our patients, our communities and 1 another. With that, I'll turn the call back to the operator for questions.

Thanks, Marty. [Operator Instructions] And it looks like our first question today comes from the line of Ben Hendrix with RBC Capital Markets. Sure to jump back in queue. We lost you there for a second. But the next question will actually come from Jason Cassorla with Guggenheim.

Great. Can you hear me?

Yes, we can.

Okay. Maybe just on the managed care front, I believe you comped that denial headwind that you've been calling out next quarter. Is that correct? And you've discussed terminating exchange contracts. Can you give us a percentage of your exchange admissions that those terminated contracts represent? And then just broadly, if you can just update us on what you're seeing on the managed care kind of on a go-forward basis?

Jason, this is Marty Bonick. I'll start and then turn it over to Alfred. We've seen significant growth in our exchange volume this year in particular compared to years past. 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 have been generating the volume increases for this year so far.

Yes. And I would just add, Jason, from a denial perspective, and I think we've been 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, has even grown this year, even though as a company, we're well below the national average in terms of initial denials, but it is -- they have consistently grown. We think the year-over-year comps eases up because of how the timing at which they increased last year. In terms of the terminated contract, we're not going to quantify the exact percentages, but what we're trying to demonstrate is a very rigid view if we cannot make the contract works because of the denial behavior, yes, the frontline rates may be great. But 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, been clear, our volumes are strong. 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, our -- so far this year, we're about 65% contracted for we still have some open negotiations going on. We continue to see, I'd say, consistent pattern in terms of the type of rates that we would want and expect. And a big focus is on closing some of those gaps where we're seeing -- we'll just call it what it is, the denial activity is being exploited and closing those, we'll say holes where we can from a contractual perspective. Again, to be sure that we're getting paid appropriately timely to.

Got it. I 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 early this year. You've 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? And like where would you expect that to get over time? And then just broadly, like on your ambulatory strategy, like would be the additive like kind of volume benefit from this strategy relative to kind of like volumes inside of your markets relative to the population growth and like? Just trying to get a feel of how additive the volume picture could be on this on your ambulatory strategy going forward?

Yes. Great question. This is Marty again. We don't have a specific target of ambulatory assets per hospital today with that number is close to double digits. But 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 served in each of 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 and multiple touch points with those patients over the force of their 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, 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 patients that came into the urgent cares we acquired in the first half of last year, were brand new to Ardent, and about 30% of those go on and have a follow-up here 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, et cetera. So we do think that this is part of that strong growth that we've seen. It's just continuing to open up the access points in our markets and I think the top line admissions numbers and surgery numbers are speaking for themselves.

And we have Ben Hendrix back from RBC Capital Markets.

Apologies for the technical difficulty. I was wondering if you could kind of discuss your strong inpatient surgical growth that you saw the categories you're seeing come in there and then just how this volume is informing your decision to channel capital perhaps towards higher acuity inpatient capabilities.

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 a little bit of a decline in some of those lower areas of outpatient surgery like ophthalmology or E&T, it has opened up the doors, so to speak, for those higher margin and higher acuity procedures. So the program is working exactly like we thought. Obviously, orthopedics and cardiology being very strong procedures for us. 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 reference.

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. What kind of -- and you talk about there being opportunities to backfill that with some acuity, higher paying volume. Would you expect that mostly to be commercial or Medicare? And kind of what -- how do you think case mix would evolve in those markets?

Yes. I'll start. I mean if you look at the national trends, Texas was 1 of the higher growth exchange dates, and that's true for us as well. So as we look at some of the contracts where we've seen that growth but not great quality rates, we still believe that there's backfill 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 secondary and primary level hospitals that's freeing up capacity and demand for those other transfers that are coming in. We've seen strong transfer growth and pull-through through our efficiency initiatives. And yet, we know that there's still patients that we're 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 physician services strategy service line strategies that are generating that strong pull-through. We talked about in orthopedics and cardiology.

And this is Alfred. Ben, I would just add to what Marty said. While we saw obviously the strongest admission grid in the exchange product at 35%. And we saw a strong growth across the other payer categories as well. with Medicaid, as we indicated, and core commercial, excluding exchange, up 8%. And 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 patient flow based off and not accepting these types of exchange contracts that are, again, where the yield is just unacceptable.

Our next question comes from the line of Craig Hettenbach with Morgan Stanley.

I 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 about technology, AI, supply chain, like what are some of the ones that maybe stand out at the top in terms of levers to drive some offsets?

Craig, thanks for the question. This is Marty again. Yes, the impact program that we mentioned is exactly that. We've talked historically about improving margins 100 to 200 basis points over the next 3 to 4 years. Our impact program would encompass that and to accelerate. But you mentioned exactly the types of areas that we're focused on inside the company. say, 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. But at the same time, we know that there's going to be opportunities, continued opportunities in the supply chain and 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 or throughput through the hospitals, but also, again, 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 facility. So 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 the demographic and job growth trends in your core markets? I know you've been growing above the national average. So just looking for a pulse and kind of how some of the trends are on that front your markets?

I don't have a specific on that, but I'll say that our recruitment and retention efforts have been continuing to bear fruit. We're continuing to see better than average retention or turnover rates, however, you want to look at that. 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 that our demographics in general are still growing faster than the U.S. average. They're attractive markets and by and large, favorable job markets for us to be in.

And this is Alfred. Craig, just echoing Marty's comments and while we don't have specifics in terms of the underlying growth demographics, 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 and the underlying demographics in this market. And again, we think it's evidenced by the volume growth that we saw is the primary evidence of that strength.

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

I guess I wanted to go back to some of the comments that you made about exiting some exchange contracts and then backfilling that to free up capacity. I guess how often are you at capacity or new capacity within your facilities? And then I guess, how easy is it to backfill that with, say, commercial volumes, which will be more profitable than government or uninsured volumes?

Yes. Kevin, welcome back. This is Marty. Yes, as we look at our facilities, we've got primary, secondary and tertiary level hospitals. Our tertiary level hospitals are, by and large, pretty full on a day-to-day basis. And so 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 the 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 of incoming requests that we're just not able to service at a given time based upon that tertiary capacity. So things that we're doing within our service line initiatives and 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 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. So that is where our focus is on that. At the same time, our technology improvements, we mentioned 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 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.

Okay. That's helpful. And I guess going to the acquisitions the outlook there, you talked about the JV model. I guess, has the discussions changed at all either from the partners that you're 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 at anticipation but again, bringing on Chris Schoeplein, our new Chief Development Officer, with his background and experience in working with nonprofit and academic systems, we're encouraged by the number of conversations and the quality of those conversations that are coming in. In terms of our outlook, 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 and understanding the state dynamics and what's happening specifically with their DPP programs or their provider tax cap rates. And so it will strategically home where we go looking for those opportunities, but it doesn't dissuade us from our long-term growth outlook.

Our next question comes from the line of Matthew Gillmor with KeyBanc.

Maybe asking about the big beautiful build discussion. I appreciate the estimate that you all provided in the worst-case scenario. Are you able to break down that $150 million to $175 million between work requirements, supplemental payments or other provisions? And is it fair to assume that the impact would be much more weighted to 2030 to 2035 versus the periods that are within this decade.

Matt, this is Marty. Just to start off. Yes, 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 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 redeterminations did last year. There was a lot of consternation about what's going to happen against redeterminations. And as we saw, it turned out to be a slight modest tailwind for it for us and for the industry. So we do think that given the relatively small percentage of the population in Medicaid, that would be subject to that work requirements and largely lesser utilizers of care in that exchange. We don't see that as being the impact. Now as we think about the more structural impacts of the -- we do think that, that will ramp just slightly heavier in the early years and then moderate out.

Okay. And then as a follow-up, could you provide a little bit of detail or discussion around the trend with outpatient surgeries? I know you mentioned it was up sequentially but still down year-over-year. Is there a service line rationalization occurring there that's impacting results with just 11 perspective or commentary on that trend?

Yes, good call out. Yes, definitely still some service line rationalization, Ophthalmology and E&T being the largest drivers of where we're seeing those declines. And again, those to be relatively short, but high-volume cases, short duration, but high-volume cases. And so it magnifies the optics around the percentages but again, it has freed up that capacity for higher-quality inpatient service lines that's modeling exactly as we would have hoped and expected with higher card quality and higher acuity inpatients backfilling that, albeit at smaller total numbers, but higher percentages.

And this is Albert Matt. The one thing I would add as well is that there's still some impact from 2 midnight rule as states have moved from ops to inpatient as well. So that has a small impact, too.

And our next question comes from the line of Ben Rossi with JPMorgan.

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 your state and federal partners for more recently approved programs in New Mexico and Oklahoma. Do you believe that these programs will qualify for one of the rate cap exemptions through 2028 within the OBBBA such as the May 1 grandfather deadline or related good faith application effort for renewals this year?

Can you repeat that last part, then it sort of trailed off?

Just curious if either of these programs will qualify under the OBBBA's grandfather pause for extension to the rate gap through 2028?

So you're -- and I'm sorry, it's just your line very faint. So you're asking if the qualify for a brand fathering for prison?

Yes, the exemption provision within the OBBBA.

Yes. Our expectation is that these programs have been approved. They've been in -- now have been approved twice. And so yes, there is no reason to think they wouldn't fully qualify.

Okay. No, I think I got you.

Yes. So this is Marty, Ben. Yes, we don't see Oklahoma or New Mexico any different than we see Texas or any of the other 44 states that have been approved. They are approved programs. So there should be no additional risk or different risk than any other. And 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 million to $175 million potential impact. And again, we put that out there as 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 in serving this patient population. But so do every other hospital on the nonprofit front. And so this is a critical piece of how we fund health care in this country. And so we see no differentiation between New Mexico, Oklahoma and any of the other approved programs.

They are approved programs and we expect them to be durable. And just to be clear, in Mexico and Oklahoma, there were no changes that were pushed through concurrent with the passage of the BBB. So again, these both have been approved well before there was this administration, they had been submitted. So yes, there we would have 0 expectation that they wouldn't fully qualify for those grandfathering provisions.

Great. Appreciate the additional color there. I guess just as a follow-up, just thinking about capital expenditures. CapEx picked up during 2Q, but through the first half of the year is trending well below your now reaffirmed CapEx guide. I can appreciate that you framed CapEx being more back half weighted and probably should pick up as you roll out some of these de novo urgent care and imaging facilities. I guess could you just discuss forward CapEx priorities right now? And if there's 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 -- all our prior commentary and our expectations going forward. Historically, the company is around about 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-out of our markets.

Yes. No change. I think historically had a weighting towards the back half of the year just as our internal processes. And yes, our expectations would be very consistent and our view towards CapEx this year is unchanged.

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

Just one on the regulatory front. With the recent Medicare and ASC rule, they kind of proposed the elimination or the phaseout of the inpatient-only list and kind of seeing at where your outpatient and ambulatory footprint today, kind of what do you think that kind of happens in terms of balancing out with recent payer denial activities and then trying to push it down to less cost for your tariff setting. So maybe just trying to gauge your kind of your view on kind of inpatient growth and if that's sustained at like these current levels, just given the changing dynamics in policy?

Raj, it's Marty. Great question. Obviously, the inpatient-only list is not new and whether it it gets phased out or something changes in the near future. This is a clinical -- a 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, 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 environment. And so we continue to look with our team and as 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 program and so ASCs and having the right complement of ASCs to catch the patients as they do ship from the inpatient to outpatient is 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 impact program and the possible acceleration of the realizing the the 100, 200 bps of core margin expansion. But maybe just like is that -- is this still a 3- to 4-year time frame where you'll start realizing that sooner in like 26%, 27%? Or is it maybe 2 to 3 years? Just some clarification around that.

No, sure. Thanks for the question. This is Alfred. Yes, it's obviously something we we're intensely focused on internally just given both the par 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, we're putting it under the impact name, both internally and externally. But to your point, there is a very intentional effort to accelerate such that we have those impacts from those initiatives embedded in the core operating platform as the highest impacts from the regulatory changes that felt beginning in 2028. So it very much is an acceleration. We are trying to ensure that the bulk of that 100 to 200 bps is felt in the next 24 months ahead of the bulk of the regulatory impacts as well. So -- and in addition to an acceleration focused intensely on that 24-month period, what are the other things that we can go do that we're certainly not limiting ourselves to 100 to 200 basis points.

Marty did a great job framing the 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 help to limit the denial activity that we're seeing as well as optimize supplemental revenue opportunities. We touched on that at a very broad perspective. But as if the cuts go into effect the way they're slated what are the other programs at a state level that become available? Where are those offsets. So all of this is 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 Caspers.

Our next question comes from the line of Tim Greaves with Loop Capital.

Apologies if you gave some clarity on this already, but as far as the next care visibility and the pull-through you're seeing there currently, how is that performing versus like what you expected?

Yes. Thanks, Tim. This is Marty. We have not opined officially in terms of where that's at. But internally, the NextCare transaction was a very important acquisition to us and 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. And as we fully get that system embedded on our Epic platform, we'll have more visibility in terms of the downstream impact in terms of new patients as well as follow-up once they're there, but the initial volumes are very much in line with our expectations and contributing to the strong volumes that we've reported this year for the first half.

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

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

Yes, I'll have to -- obviously, it did have a -- when we look at over a 10% growth, it was a big component of that probably between, call it, 6.5% of that 10% net per AA is contributing to that I would say core rate increases is around 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 a proper comparable year-over-year increase in admissions.

Yes. This is Alfred again. I would say it's very tough to tease out 100%, but we feel pretty confident that it's a very small impact from cyber, what headwinds that we're still persisting were probably offset by a little bit of tailwinds, too, from some demand. So yes, we think it's a very comparable year-over-year. Again, as we do think that it was a little bit of a tough comp just from the standpoint of payer denial activity ramping up as well as we had we had a onetime item in the Q2 a year ago of a sale of AR that was $7 million, $8 million. So again, from a year-over-year perspective. A little bit of that noise from a comp perspective, but we think by and large, a good comparison.

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.