Ardent Health, Inc.

At this time, I would like to welcome everyone to the Arden Health Partners fourth quarter 2024 earnings conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to Dave Cyblo, Senior Vice President of Investor Relations.

Thank you, Operator, and welcome to Ardent Health's fourth quarter 2024 results conference call. Joining me today is Ardent's President and Chief Executive Officer, Marty Bonick, and Chief Financial Officer, Alfred Lumsdain. 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 SEC. 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 ArdenHealth.com. With that, I'll turn the call over to Marty.

Thank you, Dave, and good morning. We appreciate everyone joining on the call and webcast. 2024 was a transformational year for Ardent as we demonstrated strong growth and agility in advancing our strategic objectives while executing upon a number of important milestones along the way. Our mission of caring for people resulted in Ardent serving over 1.2 million unique individuals across our eight markets, adding services and facilities to make healthcare easier for patients to access and receive care. Last July, we also completed our IPO, strengthening our financial position to drive continued growth and innovation. Today, I'm excited to share several positive updates about the company and its performance. I will provide a comprehensive summary of our fourth quarter and full year financial results, highlight key strategic updates, and discuss our outlook for 2025. As we embark on a new year, I want to emphasize that Arden remains steadfast in its commitment to delivering exceptional quality and service to our patients while ensuring sustainable long-term value for our shareholders. our strategic framework of market share growth in both inpatient and outpatient services, margin expansion, and disciplined capital deployment. Delivering against our financial goals and building a track record of performance is paramount to the Ardent management team. To that end, we had a very strong finish to 2024 and have several positive financial and operating items to discuss. To start at a high level, we reported robust fourth quarter results punctuated by year-over-year revenue growth of 19% and adjusted EBITDA growth of over 200%. For the full year 2024, we grew revenue 10%, increased adjusted EBITDA 58%, and expanded EBITDA margins 240 basis points to 12.5%. This marks a great year and is testament to the hard work the Arden team has put in to execute on our strategic priorities. During 2024, we made considerable progress on our service line optimization initiatives, which expanded capacity to engage in higher acuity procedures. We meaningfully enhanced supply chain efficiencies. We used AI to improve clinical performance with virtual nursing and advanced bedside monitoring technology, reducing mortality and improving length of stay, as well as operationally and optimizing operating room schedules to drive strategic surgical growth. And we advanced our ambulatory growth strategy, highlighted by the recent acquisition of NextCare Urgent Cares in Oklahoma and New Mexico. This brings a total of 27 new urgent care centers into the ARDENT network in the last year, which would lead to increased volumes over time. We are also pleased that CMS retroactively approved the New Mexico State Directed Payment Program in November for the period covering the second half of 2024. This approval was a key milestone for the state as it will greatly support the broader provider community's ability to serve Medicaid patients in New Mexico with access to high quality care. And I'm proud of the work our team did in collaborating with and supporting the state to help bring the DPP program to fruition. In connection with the New Mexico DPP approval, we reported revenues of $94 million and EBITDA of $65 million in the fourth quarter of 2024 to reflect the retroactive financial impact for both the third and fourth quarters. This retroactive benefit was not in our 2024 guidance, and accordingly, the company significantly exceeded revenue and EBITDA guidance for 2024. When we exclude these amounts from the reported results, the company delivered financial and operating performance that was either consistent with or favorable toward 2024 guidance, which we raised in November in conjunction with the third quarter results. More specifically, excluding the impact of the New Mexico DPP program, 2024 revenue finished near the top end of guidance, while net patient service revenue per adjusted admission growth was above the top end of the guidance range. Meanwhile, adjusted admission growth and adjusted EBITDA were both modestly above the 2024 guidance midpoints. These are all signs of the underlying strength of our business, and the results demonstrate our ability to deliver on our financial projections. Arden's balance sheet also continues to strengthen. During the last quarter's earnings call, we indicated that a lease-adjusted net leverage ratio would approach three times at the year end compared to the 3.5 times we reported in the third quarter. We delivered on that and finished the year at 2.9 times at December 31. We have over $550 million of cash on hand and available liquidity of $845 million. Collectively, this allows Arden to operate from a position of strength, particularly as we assess both inorganic and organic growth opportunities. On that front, we're pleased to announce that in early January, the acquisition of 18 urgent care clinics across New Mexico and Oklahoma from NextCare Urgent Care. This acquisition significantly expands Arden's ambulatory operations in both markets and complements our existing health service access points beyond the main urban area. Prior to the transaction, we had only one urgent care facility across Tulsa and Albuquerque. Post-acquisition, we will have meaningful share of the urgent care market in each of those geographies. These are attractive assets with adjusted EBITDA margins in the mid-teens. This acquisition fits squarely within our strategic growth initiatives, which include the build-out of our ambulatory footprint, either via M&A or de novo development around our existing hospitals. Patients are increasingly using urgent care as an access point when there is a backlog at their local primary care office or when they do not have primary care providers. It is becoming our first interaction with many patients, thereby bringing new patients into our system. Importantly, we see strategic value in owning urgent care facilities in two ways. First, we reap the economic benefit of owning these higher margin assets on a standalone basis. And second, it creates a downstream benefit and incrementally increases volumes at our existing hospitals and clinics. As a proof point to the downstream volume benefit, we saw that 45% of the 2024 patient visits and the six urgent care centers we acquired in East Texas were new to the Arden system. Furthermore, of those new visits, approximately 15% resulted in additional care within 30 days. Going forward, we are looking to replicate this type of success as we integrate the NextCare assets. The broader M&A pipeline remains active and we will continue to evaluate outpatient as well as inpatient opportunities. We will remain financially disciplined both in terms of purchase price and our overall leverage. And we will seek assets where we can deliver synergies and demonstrate accretion over a two to three year horizon. We will also explore joint venture opportunities as part of our inpatient M&A growth strategy as that model has provided ardent differentiated value. As we turn to 2025, we are optimistic and expect to deliver another strong year of financial performance. As you saw in yesterday's press release, we issued 2025 financial guidance, including revenues of $6.2 billion to $6.45 billion and adjusted EBITDA of $575 million to $615 million. At the guidance midpoints, that represents 2025 revenue growth of 6% and adjusted EBITDA growth of 19%. Embedded in our 2025 outlook is an adjusted EBITDA midpoint of 13.6%, which implies 110 basis points of margin expansion, driven largely by the expected annualization of new state DPP programs that begin in 2024. We are targeting an additional 100 to 200 basis points of margin improvement over the next three to four years. That would put us solidly in our target mid-teens adjusted EBITDA margin range. As we begin 2025, we are encouraged by early volume trends. All signs continue to point to demand remaining durable, although we continue to face some industry headwinds, including ongoing subsidy pressure for hospital-based physician services and elevated payer denials. However, more than offsetting these headwinds are the tailwinds of underlying volume growth, above historical average commercial rate increases, incremental DPP contributions, and core operating initiatives that will drive margin expansion and set ARDN up for strong EBITDA growth of 19% at our guidance midpoint. We certainly recognize there continues to be a level of legislative uncertainty for the broader healthcare industry, including providers. As everyone knows, a number of potential changes are being discussed in the headlines, but we continue to believe that changes will ultimately be incremental in nature, and we believe we are relatively insulated against many of these risks on several fronts. First, our 2024 exchange payer base contributed only 3.6% of total revenues in 2024, and we believe only a fraction of this volume would be at risk if the enhanced subsidies were not extended in 2026. Second, broadly speaking, we would likely have more limited exposure to site neutrality proposals given our relatively smaller ambulatory footprint. And third, we naturally don't have exposure to 340B drug pricing if there were changes on that front. We, of course, continue to monitor potential regulatory changes and advocate with our elected officials to continue to support policies that protect access to coverage and care. In the meantime, our team remains dedicated to executing day in and day out on our strategic plans and financial objectives. To augment that mission, we are currently recruiting for and plan to hire a chief operating officer later in this year. This addition to our executive management team will further complement our existing executive team and help drive our operational excellence initiatives and deliver on our commitments, including our M&A initiatives. We believe that augmenting the executive team with another key hire will support our efforts to help Arden maximize its potential. With that, I will now hand the call over to Alfred.