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DATE

Wednesday, Aug. 6, 2025, at 10 a.m. ET

CALL PARTICIPANTS

  • President and Chief Executive Officer — Marty Bonick
  • Chief Financial Officer — Alfred Lumsdaine
  • Senior Vice President of Investor Relations — David Styblo

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RISKS

  • The passage of the OBBA will initiate substantial Medicaid funding cuts beginning in 2028, with most of the financial impact expected between 2028 and 2035. Management quantified this as a potential EBITDA (non-GAAP) impact of $150 million to $175 million by 2035 if the legislation remains unchanged.
  • Management stated, Reimbursement rates for this population are less favorable and more closely aligned with Medicare than with commercial rates, due to high denial activity and a disproportionate share of ER visits, which are typically margin dilutive.
  • Lumsdaine said payer denial activity "has even grown this year" (2025), with persistently elevated levels, prompting the company to terminate contracts with certain exchange plans due to inadequate net rates in 2025.

TAKEAWAYS

  • Revenue-- $1.65 billion, up 11.9% year-over-year in Q2 2025, driven by adjusted admissions growth of 1.6% and net patient service revenue per adjusted admission growth of 10.2%.
  • Adjusted EBITDA-- Adjusted EBITDA rose 39% year-over-year to $170 million in Q2 2025, with adjusted EBITDA margin expanding by 200 basis points to 10.3%.
  • Admissions-- Admissions grew 6.6% year-over-year in Q2 2025, with adjusted admissions up 1.6% year-over-year; exchange admissions up approximately 35% year-over-year, commercial (excluding exchange) and Medicaid admissions each up about 8% year-over-year.
  • Inpatient Surgeries-- Inpatient surgeries increased 9.2% year-over-year in Q2 2025, while outpatient surgeries declined 3.8%.
  • Operating Cash Flow-- $117 million in cash flow from operating activities in Q2 2025, compared to $120 million in the prior year period.
  • Liquidity-- $541 million in cash and $1.1 billion in debt outstanding as of the end of Q2 2025, with total available liquidity of $835 million as of the end of Q2 2025.
  • Net Leverage-- Lease-adjusted net leverage decreased to 2.7 times at the end of Q2 2025 from 3.0 times at the end of Q1 2025; Net leverage under credit agreements was 1.2 times at the end of Q2 2025.
  • CMS New Mexico DPP Program-- Renewal in late June ensures Medicaid support through the 2025 calendar year, with the financial benefit fully reflected in full-year 2025 guidance assumptions.
  • Outpatient Expansion-- Five new urgent care centers and two imaging centers are expected to open in 2025, adding to 18 urgent care centers acquired earlier in the year.
  • Impact Program Acceleration-- Margin improvement initiatives are being accelerated to deliver 100-200 basis points of margin expansion within 24 months as part of the company's impact program, targeting efficiency, supply chain, workflow, and payer contracting.
  • Virtual Care Initiatives-- Virtual nursing implemented in East Texas and Idaho reduced bedside nursing costs by $30 per patient per day in these units last year. Virtual nursing in East Texas and Idaho also reduced voluntary turnover by 600 basis points in these units last year.
  • Total Surgeries-- Total surgeries declined 0.2% year-over-year in Q2 2025 but improved sequentially after a 0.7% decline in Q1 2025.
  • S-3 Shelf Registration-- The company will file an S-3 shelf registration for optionality in capital raising, stating, "We have no active plans to raise capital."
  • Exchange Contracts-- Terminated at least one major contract in 2025 due to "net rates have been well below Medicare." Management emphasized that capacity will be redeployed to higher-quality demand.
  • CapEx-- $46 million in capital expenditures year-to-date 2025, expected to ramp in the back half of the year, with capital spending shifting more toward ambulatory build-out.

SUMMARY

Ardent Health (ARDT -1.42%) management reaffirmed full-year 2025 financial guidance despite persistent payer denial headwinds and the termination of select exchange contracts, emphasizing a disciplined focus on higher-yield volume replacement. Leadership quantified the OBBA's impact as a possible $150 million to $175 million EBITDA reduction by 2035 (non-GAAP), but anticipates offsetting actions through the Impact program, state-level programs, and efficiency initiatives. The ambulatory and urgent care network continues to expand, with five new urgent care centers and two imaging centers expected to open in 2025, complementing earlier acquisitions. Virtual care transformation, including AI-enabled scribe and medical wearables, is generating clinical improvements such as stemmed nurse turnover, decreased cost of care, and reduced unnecessary transfers in pilot markets. Commercial and Medicaid admissions each grew approximately 8% year-over-year in Q2 2025, while inpatient volume and surgery mix increasingly favor higher-acuity, higher-margin service lines, supporting ongoing capacity optimization and technology-driven workflow improvements.

  • AI-enabled documentation and virtual consults are being scaled enterprise-wide following successful pilots that improved provider satisfaction and operational efficiency.
  • Service line rationalization in outpatient surgery, notably ophthalmology and ENT, enabled redeployment of resources to orthopedics and cardiology, aligning volume mix with higher-margin opportunities.
  • Renewal and anticipated durability of state programs like the New Mexico DPP underpin near-term Medicaid revenue visibility and integration into earnings outlook.
  • Leadership reported being S-3 eligible and disclosed intent to file an S-3 shelf registration statement soon to preserve capital flexibility, with no plans for immediate fundraising.
  • Management cited increasing interest in joint venture partnerships, especially from nonprofit and academic partners, asserting the external regulatory environment may accelerate M&A pipeline development.

INDUSTRY GLOSSARY

  • OBBA (Big Beautiful Bill): Federal healthcare law referenced as a driver of Medicaid funding reductions and provider tax caps beginning in 2028.
  • DPP (Delivery System Reform Incentive Payment Program): State-level Medicaid supplemental funding initiative, critical for hospital reimbursement in key Ardent markets.
  • Adjusted Admission: Metric that accounts for both inpatient and outpatient volume, normalized to reflect case mix and revenue intensity across service lines.
  • Impact Program: Ardent's internal cost and margin improvement initiative focused on accelerating operational efficiencies, automation, and workflow optimization over the next 24 months.
  • S-3 Shelf Registration: SEC filing that allows a public company to issue new equity or debt securities on a flexible, as-needed basis.

Full Conference Call Transcript

Operator: 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 Partners, LLC Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Once again, star one. And if you'd like to withdraw your question, simply press star one again. Thank you. I'd now like to turn the call over to David Styblo, Senior Vice President of Investor Relations.

David Styblo: Thank you, operator, and welcome to Ardent Health Partners, LLC Second 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 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.

Marty Bonick: Thank you, David, and good morning. We appreciate everyone joining the call and webcast. We have a lot to cover today, so let's get started. This past July marked our one-year anniversary as a public company. 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 Health Partners, LLC is well-positioned to drive long-term shareholder value despite broader market conditions and pending regulatory changes. While the policy environment may introduce future disruption, healthcare remains essential, and we believe that creates opportunity for strong, well-positioned companies like ours.

Ardent's leading positions in growing mid-sized urban markets combined with an aging and increasingly complex patient population continue to drive demand. Our expansion beyond the hospital, particularly around outpatient services, is generating new revenue streams and positioning us well for value-based care. Our strong balance sheet and differentiated joint venture model support both core growth and expansion into new markets. We are building a track record of disciplined execution, delivering results that have met or exceeded expectations in each of the four quarters since our IPO. In 2024, we grew revenue by 10% and adjusted EBITDA by nearly 60%. In 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. That highlights 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 eight growing mid-sized 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 2.7 times, down from 3.0 times 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 in caring for this vulnerable population across New Mexico, which is vital as Medicaid covers nearly 40% of the state's total population, 55% of births, and about 60% of children. 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 Sheplein 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 on multiple new projects and expect to open five urgent care centers and two imaging centers in 2025.

These will complement the 18 urgent care centers we acquired earlier this year. Over the past twelve months, we've significantly expanded our urgent care 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 burnout and turnover, enhancing patient outcomes, and ultimately driving incremental earnings. Our virtual care strategy is delivering strong operational and financial results with virtual nursing now scaled in East Texas 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 in 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 enabled continuous vital sign monitoring, reducing mortality by up to 15% and shortening length of stay by roughly one-third of a day in our pilot group.

In parallel, we're rolling out AI-enabled scribe technology to assist with real-time clinical documentation. Following a successful pilot to reduce it, participating providers reported improved satisfaction, and the tool is being adopted company-wide across multiple specialties. These innovations are part of our broader commitment to quality. This commitment is being recognized as nine Ardent hospitals were named to Modern Healthcare's Best Places to Work. Tennessee honored Ardent as a top workplace, and 81% of our eligible facilities earned an A or B in the latest LeapFrog hospital safety grade report, well above the 56% national average.

Finally, turning to the regulatory environment, we recognize investors are closely monitoring two key developments: the big beautiful bill or OBBA 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 OBBA 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 OBBA'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, at minimum, the rural hospital fund and other state-level supplemental programs, though these are not yet finalized and cannot be quantified at this time. Also, we understand concerns around the potential expiration of enhanced exchange subsidies at year-end.

Ardent has seen nearly 40% growth in exchange admissions in 2025. 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 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 Kaspers, 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 of the OBBA provides allows for us to plan and implement mitigation strategies before the full impact takes hold. All of this puts us on track to meet our full-year '25 financial guidance, which we are reaffirming today. With that, I will now turn the call over to Alfred.

Alfred Lumsdaine: 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 results 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 2025 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 helps set the stage for attractive long-term growth. Despite facing an environment of increasing payer denial activity from already historically elevated levels, we executed on our key financial targets, including revenue and adjusted EBITDA. 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, Q2 admissions growth was strong at 6.6%, and adjusted admissions increased 1.6% year-over-year. Admissions growth was strongest in the exchanges, up approximately 35% year-over-year, while commercial excluding exchange plans and Medicaid admissions both increased approximately 8%. 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 the 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 2024, which benefited from favorable changes in work capital related to supplemental programs. Capital expenditures during 2025 totaled $46 million, and we expect that to ramp during the second half of the year. Our total net leverage as calculated under our credit agreements was 1.2 times, and our lease-adjusted net leverage was 2.7 times at the end of the second quarter, which is an improvement from three times at the end of the first quarter.

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 stock 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 to focus on the next twenty-four-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, 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 S-3 eligible following the one-year anniversary of our IPO. Accordingly, we intend to file an S-3 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.

Marty Bonick: 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've 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 Health Partners, LLC 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 2.7 times and ample cash, we will continue to assess opportunities to execute on this strategy. Finally, we remain focused on operational excellence initiatives to drive margin expansion over the next several years. 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 healthcare better and advancing our purpose of caring for our patients, our communities, and one another. With that, I'll turn the call back to the operator for questions.

Operator: Thanks, Marty. And at this time, I would like to remind everyone, in order to ask a question, press star, the number one on your telephone keypad. Once again, star one. And in the interest of time, we ask that you please limit yourself to one primary question and one follow-up. Thank you in advance. And we'll pause just a moment to compile the Q&A roster. And it looks like our first question today comes from the line of Ben Hendrix with RBC Capital Markets. Ben, please go ahead. Actually, Ben, make sure to jump back in queue. We lost you there for a second. But the next question will actually come from Jason Casolo with Guggenheim.

Jason, please go ahead.

Jason Casolo: Great. Thank you. Can you hear me?

Operator: Yes. We can.

Jason Casolo: Okay. Thanks. 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 what of your exchange admissions that those terminated contracts represent? And then just broadly, you can just update us on what you're seeing on the managed care front, kind of, you know, on the go-forward basis. Thanks.

Marty Bonick: Hey, Jason. This is Marty Bonick. I'll start and then turn it over to Alfred. You know, 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, you know, 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.

Alfred Lumsdaine: You know, I would just add, Jason, from a denial perspective, and I think we've been pretty transparent. You know, 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 they have consistently grown. You know, we think that year-over-year comps ease up because of the timing at which they increased last year.

In terms of the terminated contract, we're not going to quantify the exact percentage but, you know, what we're trying to demonstrate is a very rigid view of if we cannot make the contract work 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 terminate those contracts and replace that volume with better-paying volume. I mean, as we I think, been clear, our volumes are strong. Our hospitals by and large, are full, and we're going to focus on those payers where we can be compensated appropriately.

In terms of what we're seeing from a rate perspective, you know, so far this year, we're about 65% contracted for 2026. We still have some open negotiations going on. We continue to see, you know, it's a 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 saying, you know, we'll just call it what it is. The denial activity is being exploited. And closing those. You know, we'll stay holds where we can from a contractual perspective. To, again, to be sure that we're getting paid appropriately. Timely.

Jason Casolo: Got it. Thanks. Appreciate it. And maybe just as a follow-up question, I wanted to touch on your ambulatory strategy and the expansion opportunity there. You've executed on an urgent care deal early this year. You 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 points for every inpatient asset you have? And like, where would you expect that to get over time?

And then just broadly, like, you know, on your ambulatory strategy, like, what would be the added additive, like, kind of volume benefit from this strategy relative to kind of, like, you know, volumes inside of your markets relative to like population growth and like? Just trying to get a feel of you know, how additive the volume picture could be on this on your ambulatory strategy acts or going forward? Thanks.

Marty Bonick: Yeah. Great question. This is Marty again. We don't have a specific target of ambulatory assets per hospital today with that number. Close to, you know, double digits. But we're looking at each one of our markets in terms of what is the capacity and what is our opportunity. What we're trying to do is ultimately grow the number of unique patients served in each of our markets because we believe there's a trickle-down effect 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 touchpoints with those patients over the course of their life.

So that is our primary focus in making sure that we've got the right access points in the right locations to capture that new patient volume. In terms of the downstream effect, and we've talked about this before, you know, 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 to have follow-up care within that first 30 days and even a larger number after that.

So not all of it will translate into inpatient admissions, but it may translate into other outpatient procedures, specialty visits, surgeries, etcetera. So we do think that this is part of that strong growth that we've seen, is just continuing to open up the access points in our markets. And I think the top-line admissions numbers and surgery numbers are speaking for themselves.

Jason Casolo: Great. Thank you.

Operator: Thanks, Jason. And we have Ben Hendrix back from RBC Capital Markets. Ben, your line is open.

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

Marty Bonick: Yeah. A great question, Ben. This is Marty again. Our inpatient surgeries have been really strong, particularly in orthopedics, cardiology, and 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 ENT, it has opened up the doors, so to speak, for those higher-margin and higher-acuity procedures. So the program's 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, those are going to be the exact types of service lines that we're looking to prefer.

Ben Hendrix: Thank you. And just as a quick follow-up to some of your prior exchange commentary. In markets where you would, or have opted or would opt to exit certain exchange networks, what kind of and you talk about there being opportunities to back that with some higher acuity, higher paying volume. Would you expect that mostly to be commercial or Medicare? And kinda what how do you think case mix would evolve in those markets? Thanks.

Marty Bonick: Yeah. I'll start. I mean, if you look at the national trends, Texas was one of the higher growth exchange states, 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, you know, as we look to optimize through our transfer centers, 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 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 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.

Alfred Lumsdaine: And this is Alfred, Ben. I would just add to what Marty said. Yeah. While we saw, obviously, the strongest mission grip in the exchange product at 35%. And we saw strong growth across the other payer categories as well. With Medicaid, you know, as we indicated, and core commercial out excluding exchange, you know, up 8%. Medicare was up as well. So, you know, we feel the demand is there, and it really is a question of ensuring that we're optimizing the patient flow based off, you know, and not accepting, you know, these types of Hicks exchange contracts that are, you know, again, where the yield is just unacceptable.

Ben Hendrix: Thank you very much.

Operator: Thank you, Ben. And our next question comes from the line of Craig Hettenbach with Morgan Stanley. Craig, please go ahead.

Craig Hettenbach: Thanks, and appreciate all the color on the regulatory front. Just following up on some of the things you said that you can potentially mitigate those pressures. Are there any in particular when I think 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?

Marty Bonick: Hey, Greg. Thanks for the question. This is Marty again. Yes. That the impact program that we mentioned is exactly that. You know, we've talked historically about improving margins 100 to 200 points over the next three to four years. Our impact program would encompass that and accelerate, but you mentioned exactly the types of areas that we're on inside the company. Obviously, 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 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 and create new volume opportunities for those transfers to pull into the tertiary facility.

So all of those are fair game inside of our program and what we see continue to move forward.

Craig Hettenbach: 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 in how some of the trends are on that front in your markets.

Marty Bonick: I don't have a specific on that, but, you know, I'll say that, you know, our recruitment and retention efforts have been continuing to bear fruit. We're continuing to see better than average retention or turnover rates, however you want to look at that. You know, again, that goes to our culture, but I think it also goes to the strong leading positions we have in our market. So, you know, I would say that our demographics in general are still growing faster than the US average. They're attractive markets, by and large, favorable job markets for us to be in.

Alfred Lumsdaine: And this is Alfred Craig just echoing Marty's comments. So while we don't have, you know, specifics in terms of the underlying growth demographics, you know, I think it is certainly as indicative the strength of our volumes we think first and foremost starts with the quality of the markets we're in. And the underlying demographics of those markets. And, again, we think it's evidenced by the volume growth that we saw is the primary evidence of that strength.

Craig Hettenbach: Got it. Thank you.

Operator: Thanks, Craig. And our next question comes from the line of Kevin Fischbeck with Bank of America. Kevin, please go ahead.

Kevin Fischbeck: Great. Thanks. I guess, I wanted to go back to some of the comments that you made about, you know, exiting some exchange contracts and then backfilling that to free up capacity. I guess, often are you at capacity or near 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?

Marty Bonick: Yes. Kevin, welcome back. This is Marty. As we look at our facilities, you know, we've got primary, secondary, and tertiary level. Our tertiary level hospitals are by and large pretty full on a day-to-day basis. And so, you know, it's a continuous effort by our teams to manage the throughput and volume capacity. So we're very focused on length of stay initiatives, efficiency, and the transfer pull through, but we have seen that improve. And, again, as I mentioned before, we are still leaving some volume on the table of, you know, incoming requests that we're just not able to service at a given time. 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, you know, as we balance out these exchange bubbles and we start to move this towards others, that service line initiative, our physician outreach strategy will yield high-quality admissions continuing to come into the facility. So that is, you know, where our focus is on that.

At the same time, you know, our technology improvements, we've 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 hospital. 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.

Kevin Fischbeck: Okay. That's helpful. And I guess, you know, going to the acquisitions, the outlook there, you're talking about the JV model. I guess, has the discussions changed at all either from, you know, 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, you know, these cuts were being proposed?

Marty Bonick: Great question. If anything, I would say that the amount of outreach and discussions have increased since the bill, and it was ramping before the bill in anticipation. But, you know, again, bringing on Chris Sheplin, our new Chief Development Officer, with his background and experience in working with nonprofit and academic systems. But 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 then there's the state dynamics and what's happening specifically with their DPP programs or their provider tax cap rates. And so it will strategically hone where we go looking for those opportunities, but it doesn't dissuade us from our long-term growth outlook.

Kevin Fischbeck: Great. Thanks.

Operator: Thank you, Kevin. And our next question comes from the line of Matthew Gillmor with KeyBanc. Matthew, please go ahead.

Matthew Gillmor: Hey. Thanks for the question. Maybe asking about the big beautiful bill discussion. I appreciate the estimate. Are you able to break down that $150 to $175 million between work requirements, supplemental payments, you know, or other provisions? And is it fair to assume that the impact would be much more weighted to 2030 to 2035 versus the, you know, the periods that are within this decade?

Marty Bonick: Hi. Hey, Matt. This is Marty. This start off. Yeah. We haven't really put something specific on work requirements. We think that at a high level, you know, one, we're a little bit insulated in 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, you know, the work requirements may play out ultimately like the redeterminations did last year. There was a lot of, you know, consternation about what's going to happen against redeterminations. And as we saw, it turned out to be a slight modest tailwind for us and for the industry.

So we do think that given the relatively small percentage of the population in Medicaid that would be subject to that work requirements in 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 BBB, you know, we do think that will ramp up to slightly heavier in the early years and then moderate out.

Matthew Gillmor: Okay. Thanks for that. 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, you know, eleven eight perspective or commentary on that trend?

Marty Bonick: Yeah. Good call out. Yeah. Definitely still some service line rationalization, you know, ophthalmology and ENT being the largest drivers of where we're seeing those declines. And again, those tend to be relatively short but high volume cases, that's 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 modeling exactly as we would have hoped and expected with higher quality and higher acuity inpatients backfilling that, albeit at smaller total numbers, but with higher percentages.

Alfred Lumsdaine: And this is Alfred. Matt, the one thing I would add as well is that there's still some impact from two midnight rule as stays have moved from ops. To inpatient as well. So, you know, that has a small impact too.

Matthew Gillmor: Got it. Thank you.

Operator: Thank you. And our next question comes from the line of Benjamin Rossi with JPMorgan. Ben, please go ahead.

Benjamin Rossi: Great. Good morning. Thanks for the question here. So one of the features we've been trying to figure out is your visibility into some of the longer-term prospects for these 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 HO BBVA. That's as the May 1 grandfather deadline or related good faith application effort for renewal this year?

Marty Bonick: Can you repeat that last part, Ben? It sort of trailed off.

Benjamin Rossi: Oh, no. Just curious if it if either of these programs will qualify under the OBBBA's grandfather clause for exemption. The rate cap. Through 2028.

Marty Bonick: So you're and I'm sorry. It's just your line is very faint. So you're asking if the if the qualify for a grandfathering position for prison?

Benjamin Rossi: Yeah. The exemption provision within the OBBBA.

Alfred Lumsdaine: Yeah. Our expectation is that, you know, these programs have been approved. They've been in you know, now have been approved twice. And so there is no reason to think they wouldn't fully qualify.

Marty Bonick: Okay. No. I think I got you. Yeah. So this is Marty, Ben. Yeah. No. 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 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. You know, 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 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 healthcare in this country. And so, you know, we see no differentiation New Mexico, Oklahoma and any of the other approved programs. They are approved programs, we expect them to be durable.

Alfred Lumsdaine: And just to be clear, New Mexico and Oklahoma, there were no changes that were pushed through concurrent with the passage of the BBB. So, again, these both had been approved well before it you know, there was this administration. Right. You know? They had been submitted. So yeah, there, we would have zero expectation that they wouldn't fully qualify. For this grandfathering because it provisions.

Benjamin Rossi: 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, it's trending well below your now reaffirmed CapEx guide. I can appreciate that you've framed CapEx being more back half weighted and probably should pick up as you 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? The wake of this bill?

Alfred Lumsdaine: Yeah. I would say our expectations are very consistent with our all our prior commentary and our expectations going forward. Again, historically, the company has round about 3% of revenues, you know, 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. Yeah. No change, I think. We've historically had a weighting towards the back half of the year just as our internal processes and, yeah, our expectations would be very consistent, and our view towards CapEx this year is unchanged.

Benjamin Rossi: Got it. Thanks for the comment.

Operator: Thank you, Ben. And our next question comes from the line of Raj Kumar with Stephens. Raj, please go ahead.

Raj Kumar: Hi. Good morning. Just one on the regulatory front, you know, with the recent Medicare OPPS and ASC rule. They kind of proposed the elimination or the phase-out of the inpatient-only list, and kind of seeing that you know, where your outpatient and ambulatory footprint is today, kind of what do you think that kind of happens in terms of you know, balancing out with, you know, recent you know, payer denial activities and then trying to push it down to you know, less cost for your care setting.

So maybe just trying to you know, gauge your kind of out your view on kind of inpatient growth and if that's sustained at, like, the current levels just given the changing dynamics in policy.

Marty Bonick: Hey, Raj. This is Marty. That's a great question. Obviously, the inpatient-only list is not new, and whether it's phased out or something changes in the near future. You know, this is a question of clinical acuity. You know, 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, you know, 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 you know, we continue to look with our team, and this is part of our Chief Development Officer's 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 on having the right complement of ASCs to catch the patient as they do shift from the inpatient to outpatient is part of our core strategy and where we expect to see more investments to come.

Raj Kumar: Great. And then as my follow-up kind of thinking about how you frame, like, the impact program and the possible acceleration of the, you know, realizing the 100, 200 bps of core margin expansion. And maybe just, like, is that you know, is this still a three to four-year time frame where you'll start realizing that sooner in, like, 26-27, or is it you know, maybe it's two to three years? Just some clarity around that.

Alfred Lumsdaine: No. Sure. Thanks for the question. This is Alfred. Yeah. It's obviously something we're intensely focused on internally just given, you know, both the payer denial headwinds, the regulatory headwinds, and being sure that we thrive in, you know, 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, you know, as the highest impacts from the regulatory changes are felt. Know, 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 twenty-four months ahead of, you know, the bulk of the regulatory impacts as well. So and in addition to an acceleration focused intensely on that twenty-four-month period, what are the other things that we can go do that, you know, we're certainly not limiting ourselves to 100 to 200 basis points. Marty did a great job framing, you know, 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 saying. As well as optimize supplemental revenue opportunities that, you know, 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 twenty-four-month period under the leadership of our new COO, Dave Caspers.

Raj Kumar: Thank you. Appreciate the color.

Operator: Thank you, Raj. And our next question comes from the line of Tim Greaves with Loop Capital. Tim, please go ahead.

Tim Greaves: Hi. Thanks for taking my question. Apologies if you gave some clarity on this already, but as far as the NexCare visibility and the pull-through you're seeing there currently, how is that performing versus, like, what you expected?

Marty Bonick: Thanks, Tim. This is Marty. We have not officially on terms of where that's at. But internally, you know, the NexCare transaction was a very important acquisition to us and expanding access points and doing it in a very accretive manner. We are seeing, you know, volumes consistent with our internal form 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.

Operator: Alright. Thank you, Tim. And our final question today comes from the line of Whit Mayo with Leerink. Whit, please go ahead.

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

Alfred Lumsdaine: Yeah. I'll have to obviously, with it did have a, you know, when we look at over a 10% growth, it was a big component of that. Probably, you know, between, you know, call it six and a half percent of that 10% net per AA is contributing to that. You know, I would say core rate increases is, you know, around 4%, you know, if you want to call it that. You know, very consistent with the type of increases that we've talked about historically.

Whit Mayo: Okay. Were there any kind of residual headwinds in the second quarter of last year from the cybersecurity, or were you back at normalized levels? And is this a proper comparable year-over-year increase in admissions?

Alfred Lumsdaine: Yeah. This is Alfred again, Whit. I would say, you know, very tough to tease out 100%, but we feel pretty confident that it yeah. Very small impact from cyber. What offset by a little bit of tailwinds too from some demand that so, yeah, we think 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, you know, we had a one-time item in the Q2 a year ago of sale of aged AR that was $78 million.

So, yet again, from a year-over-year perspective, little bit of that noise from a comp perspective, but we think by and large, good comparison.

Whit Mayo: Cool. Thanks.

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