Ardent Health, Inc.

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. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Once again, star one. And if you'd like to withdraw your question, simply press star 1 again. Thank you. I'd now like to turn the call over to Dave Stieblo, 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 President and Chief Executive Officer, Marty Vonick, 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 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.

Thank you, Dave, and good morning. We appreciate everyone joining the call on 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 Arden 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. Arden's leading positions in growing midsize 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 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 four 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 eight growing midsize 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 welcome Chris Schepline 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 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 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 enable continuous vital sign monitoring, reducing mortality by up to 15% and shortening length of stay by roughly one-third of a day in our pilot group. In parallel, we're rolling out AI-enabled scribe technology to assist with real-time clinical documentation. Following a successful pilot that reduced documentation time by 41% and had 100% of participating providers reporting improved satisfaction, the tool is being adopted company-wide across multiple specialties. These innovations are part of our broader commitment to quality, operational excellence, and a best-in-class workplace culture. This commitment is being recognized as nine Arden hospitals were named to modern healthcare's best places to work. The Tennessee honored Arden as a top workplace. 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 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. We also understand concerns around the potential expiration of enhanced exchange subsidies at year end. Arden has seen nearly 40% growth in exchange admissions in the first half of 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 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 Casper, 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 OBBA provides allows for us to plan and implement mitigation strategies before the full impact takes hold. All of this puts us on track to meet our full year 2025 financial guidance, which we are reaffirming today. With that, I will now turn the call over to Alfred.